Trump is considering a move that could set off ‘the next great crisis’ with China

  • President Donald Trump pushing members of his administration to come up with new tariffs and trade restrictions on China, Politico reported Tuesday.
  • The restrictions would be part of an investigation under Section 301 of the Trade Act of 1974 looking into intellectual property theft.
  • The move would be likely to spark a swift reaction from China and possibly prompt a trade war between China and the US.

President Donald Trump is pushing advisers to prepare a set of trade actions against China that would be likely to provoke a strong response, according to a new report.

Politico’s Adam Behsudi and Andrew Restuccia reported Tuesday that during a White House meeting last week, Trump asked Robert Lighthizer, the US trade representative, to prepare large-scale tariffs and trade restrictions against China as part of an investigation into intellectual property theft from US businesses.

Trump appeared to tease the action in a tweet last Wednesday.

“The U.S. is acting swiftly on Intellectual Property theft,” Trump said. “We cannot allow this to happen as it has for many years!”

The trade actions would stem from an investigation launched in August under Section 301 of the Trade Act of 1974, which gives the president far-reaching powers to counter unfair trade practices.

If the US determines that China is pressuring companies to domicile their patents or intellectual property in China or disregard the licenses of US companies, Trump could respond with new restrictions.

According to Politico, Lighthizer presented a set of tariffs that would affect $US30 billion in imports from China annually, while Trump requested an even bigger package of restrictions that would apply to everything from furniture to toys.

Reuters reported later Tuesday that the tariffs would apply to $US60 billion worth of goods, with a target on Chinese electronics and telecoms.

Trump is also said to be pressuring members of the Treasury to come up with ways to limit Chinese investment in the US and requesting options to limit Chinese visas, per Politico.

An announcement on Chinese tariffs could come as soon as next week, Politico said.

Economists and policy analysts say that using Section 301 to hit Chinese tariffs would be a monumental protectionist step by Trump.

“If true this would lead to dramatic retaliation by China,” Greg Valliere, the chief global strategist at Horizon Investment, told Business Insider. “This is the next great crisis, and I fear it’s imminent.”

“If 232 is the small sector-specific scalpel, 301 is the protectionist zero-sum sledgehammer,” Chris Krueger, a strategist at Cowen Washington Research Group, wrote Friday.

Krueger said broad tariffs or tariffs coupled with investment restrictions – options he respectively calls the “big” and the “ugly” scenarios – could set off a trade war between China and the US and fights at the World Trade Organisation.

That’s not to say Chinese intellectual property theft isn’t a major issue. A report last year from the National Bureau of Asian Research pegged the annual cost of such theft to the US economy at $US225 billion to $US600 billion.

But broad retaliation and a trade fight with China would be likely to lead to economic uncertainty in the short term, said Lewis Alexander, the chief US economist at Nomura.

“For the Section 301 investigation regarding China’s intellectual property violations, if President Trump’s remedies result in a trade conflict with China, there would be, as we expected, overall an adverse economic impact on the US outlook,” Alexander said.

Lighthizer technically has until August 18 to complete the review and offer recommendations to the president. After that, Trump would have 90 days to decide on action.

Trump’s patience on trade, however, has been waning. The president could have waited until April to decide whether to impose steel and aluminium tariffs but instead rolled them out early this month.