Trump Warned Intellectual Property Probe Risks China Trade War

(Bloomberg) -- The Trump administration’s probe into China’s intellectual-property practices threatens to spark a trade war between the world’s two biggest economies, according to an official representing Chinese industry.

“We are quite confused and greatly concerned about the investigation,” said Chen Zhou of the China Chamber of International Commerce. Any decision by the administration to impose unilateral penalties on China “may trigger a trade war,” Chen said Tuesday at a hearing held by the U.S. Trade Representative’s office.

The hearing was part of USTR’s investigation into China’s policies and practices related to technology transfer, IP and innovation to determine if the behavior is discriminatory or restricts U.S. commerce. The probe is being conducted under seldom-used Section 301 of the 1974 Trade Act, which gives the president broad authority to impose tariffs on foreign goods.

The investigation has created tension with China just as the U.S. asks Beijing to play a bigger role in containing North Korea’s nuclear ambitions.

USTR has argued in the past that Beijing uses a range of practices to force companies to transfer IP, and engages in widespread theft of U.S. trade secrets. American officials are concerned China will piggyback off their nation’s technology as part of its strategy to become a leader in artificial intelligence and other advanced industries.

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In some cases, the Chinese government forces foreign companies to form joint ventures with local counterparts and transfer technology to Chinese firms, according to U.S. business groups at the hearing, including Stephen Ezell at the Information Technology and Innovation Foundation.

Daniel Patrick McGahn, chief executive officer of American Superconductor Corp., encouraged USTR to use its leverage to convince China to understand that American and Chinese companies “all should be subject to the same rules.”

Others cautioned that penalizing China could hurt the U.S. economy, noting that attempts to lecture the Chinese about IP matters haven’t worked.

“The United States needs a clear plan for what constitutes success,’’ said Erin Ennis, senior vice president of the U.S.-China Business Council. “Coordinated action will be stronger than unilateral action.’’

William Mansfield, director of intellectual property at ABRO Industries, said his company has successfully worked with Chinese authorities to protect its products.

“They are a sovereign nation with a right to develop and adopt their own rules and systems, just as we are and just as we do,” Mansfield said.

To contact the reporters on this story: Agnel Philip in Washington at aphilip19@bloomberg.net, Andrew Mayeda in Washington at amayeda@bloomberg.net.

To contact the editors responsible for this story: Brendan Murray at brmurray@bloomberg.net, Randall Woods, Sarah McGregor