U.S. To Slam Restrictions On Chinese Investments As Trade Dispute Escalates

President Donald Trump this week is due to launch the next phase of his economic confrontation with Beijing, with new restrictions on Chinese investments to clamp down on access to sensitive American technologies.

US President Donald Trump speaks at the National Federation of Independent Businesses 75th Anniversary Celebration at the Hyatt Regency hotel in Washington, DC on June 19, 2018.
Mandel NGAN / AFP

That could open US firms like Apple and General Motors up to new forms of retaliation from China and experts worry it also marks another step in government intervention in the free market, a “radical departure” for the United States that could prove mutually destructive.

While Trump has threatened to strike back against China’s retaliation to the US tariffs due to take effect July 6 — potentially escalating the tariffs’ coverage to $450 billion in Chinese goods — the Treasury Department is also expected to unveil the new investment and export restrictions this week.

Citing national security concerns, which the White House says encompass economic as well as traditional defense matters, Trump in late May announced plans to impose steep tariffs on Chinese goods, and then by June 30 to unveil “specific investment restrictions and enhanced export controls” tied to “industrially significant technology” that will apply to Chinese companies and investors.

According to The Wall Street Journal, the measures likely would target investments in the United States by any firm that is 25 percent Chinese held, although that threshold could drop if the investment is considered sensitive.

US Treasury Secretary Steven Mnuchin vehemently denied the reports by Bloomberg and The Journal as “false, fake news.”

“The leaker either doesn’t exist or know the subject very well. A statement will be out not specific to China but to all countries that are trying to steal our technology,” Mnuchin said on Twitter, noting he was responding for Trump.

However, that contradicts the White House’s own May 29 statement which specified that new measures would target China.

China 2025
Trump has blamed past US administrations for being soft on China and allowing the country to become dominant in manufacturing, including in products like steel and aluminum, which are subject to US tariffs, and for failing to protect sensitive technologies.

The administration could expand the existing authority of the Committee on Foreign Investment in the United States, or CFIUS, which is led by the Treasury and which already has blocked Chinese investments, in ports and semiconductors.

Even the hint of a possible CFIUS review can kill a potential investment.

According to the Rhodium Group, a research firm, Chinese investment in the United States fell 35 percent in 2017 from the record $45.6 billion in 2016, and slowed to a trickle, just $1.4 billion in the first quarter of this year.

New export controls would make it more difficult for US firms to sell technology to China if Washington deems it to be “industrially significant.”

US officials have highlighted Beijing’s “Made in China 2025” industrial development plan as a source of concern since they say it is a map for dominating key high tech industries from space to telecommunications to robotics to electric cars.

US Trade Representative Robert Lighthizer recently called China’s treatment of US intellectual property “the most sinful” aspect of the US-China relationship.

The nearly $50 billion in Chinese goods threatened with 25 percent US tariffs were drawn largely from these high tech sectors.

Few ‘off ramps’

As tensions continue to escalate, trade experts warn there are fewer options to resolve the dispute.

“I think that there are very few remaining off ramps for rising tensions,” said China expert Martin Chorzempa of the Peterson Institute for International Economics.

“There are serious structural concerns about Chinese practices that cannot be resolved without trust between the negotiating partners” and that trust is eroding in the current confrontation, he told AFP.

He warned that Beijing had an “enormous array of tools to put pressure on American companies” like Apple and GM, companies that really depend on China. That could include holding goods in ports or hold up approvals.

The decision of the government to take a direct hand in corporate investment decisions is “a radical departure from the way we have engaged in economic governance,” Chorzempa said.

That means “massively expanding the role of government” in the economy using national security as the justification, he added.

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