Trump's Latest Push Against China Is Driven by Congress

(Bloomberg Opinion) -- President Donald Trump appeared to revert to campaign form this week on China. Not even two weeks after his Treasury secretary, Steven Mnuchin, said the trade war with China was on hold, his White House announced plans Monday to move forward with new tariffs and other punitive measures.

Like Trump's promise to kill the Iran nuclear deal, it looks like Trump is also making good on his election-year pledge to address the trade deficit with China. But there is a bit more going on.

While Trump has pulled Republicans closer to his position on China, the White House announcement this week is actually a response to influence flowing the other way: Congress is preparing to overhaul the U.S. stance on technology exports to China, which pushes Trump toward two proposals.

The first component is a proposed 25 percent tariff on $50 billion worth of Chinese imports that "contain industrially significant technology." That's a reference to China's own 2025 plan to become self-reliant on technologies like super-conductors, telecom and biotech. The problem is China's method for self-reliance is pilfering and more legitimately acquiring Western intellectual property.

So the $50 billion tariff is not likely to make much of a difference. As the economist and China expert Derek Scissors told me, "We import over $500 billion in goods and services per year from China." He said the new tariffs "will not likely change Chinese behavior on intellectually property but it's more significant than the steel tariffs implemented earlier this year."

The second measure announced by the White House on Monday is potentially more serious. The White House fact sheet says, "The United States will implement specific investment restrictions and enhanced export controls for Chinese persons and entities related to the acquisition of industrially significant technology." That's pretty vague, but it's a direct nod to legislation moving through the House and the Senate to enhance the powers of the Committee on Foreign Investment in the United States (known as Cfius and pronounced SIF-ee-us) and to strengthen export controls for technology as it relates to China. Specifically this legislation would make it much harder for China to acquire U.S. tech companies and for U.S. tech companies to enter partnerships with Chinese concerns. 

"This is really driven by Congress," said Scissors, of the American Enterprise Institute. He's referring to the White House's export control pledge, and he has a point. The first bipartisan bill to propose new Cfius authorities and export controls originated in March 2016 from Republican Senator John Cornyn's office. In the last two years, this approach has gained support. A bipartisan amendment along these lines has already been included in the annual bill to authorize defense spending in the Senate, and Senate and House staffers tell me it's likely to end up in the final bill once it goes to conference.

This is one reason the announcement from Monday has already received qualified support from leading Democrats. The Senate minority leader, Chuck Schumer, said: "While obviously more details are needed, this outline represents the kind of actions we have needed to take for a long time, but the president must stick with it and not bargain it away."

A united front from Congress will strengthen the hand of Commerce Secretary Wilbur Ross, who is scheduled to arrive this weekend in Beijing for a new round of trade talks. As Trump proved this month with his instructions to lift some penalties on the Chinese telecom giant ZTE for selling its products to Iran and North Korea and lying about it, he is willing to make big concessions in pursuit of a broader trade deal with China. But Trump cannot bargain away Congress's new export controls and more stringent security reviews.

In 2016, Trump campaigned in part against Congress for its failure to get tough on China. Now it's Congress that is holding Trump to his campaign promise.

To contact the editor responsible for this story: Philip Gray at philipgray@bloomberg.net

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