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US Wants to Retaliate Against China's Restrictions on American Tech Firms


“Made in China 2025” is Beijing’s industrial plan to dominate high-tech industries including robotics, aerospace and computer chips. The Trump administration argues China is using the plan to give its tech companies unfair advantage over foreign rivals. But what is it exactly?

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WASHINGTON—The U.S. is examining ways to retaliate against Beijing’s restrictions on U.S. providers of cloud computing and other high-tech services, effectively opening a new front on its trade offensive against China.

According to individuals familiar with the administration’s thinking, the U.S. trade representative’s office is putting together a fresh trade complaint, probably under Section 301 of the Trade Act of 1974, arguing that Beijing unfairly restricts U.S. trade in these high-tech services.

The trade representative has yet to decide whether to go ahead with the complaint, the individuals said, which would be in addition to recent moves to ratchet up pressure on China, including the imposition of tariffs on a total of $150 billion in Chinese imports. But USTR, which has taken the lead in the China trade fight, views China’s restrictions on cloud computing as providing a clear-cut example that might garner public support.

Beijing requires U.S. cloud-computing firms, such as 

Amazon.com Inc.

and

Microsoft Corp.

to form joint operations with Chinese companies and license their technology to the Chinese partners. The USTR has said in reports on Chinese trade practices that Beijing withholds licenses that would allow U.S. firms to operate independently in China.

Chinese President Xi Jinping outlined a plan last week to further open the Chinese market, and President Donald Trump praised Mr. Xi’s “enlightenment on intellectual property and technology transfers” in a tweet..
Chinese President Xi Jinping outlined a plan last week to further open the Chinese market, and President Donald Trump praised Mr. Xi’s “enlightenment on intellectual property and technology transfers” in a tweet..
Photo:

naohiko hatta/Agence France-Presse/Getty Images

As a result, U.S. companies can’t market their cloud-computing services in China or sign up customers directly. Chinese firms, such as

Alibaba Group Holding,

by comparison, are allowed to operate in the U.S. without restriction.

“Some non-Chinese companies are reluctant to participate in China’s cloud market due to the number of restrictions,” said K.C. Swanson, director of global policy for the Telecommunications Industry Association. “Meanwhile the U.S. has no restrictions on foreign participation in our markets, it’s a clear-cut reciprocity issue.”

Cloud-computing firms deliver computer services, including storage, software and analytics, over the internet, a service that is considered one of the most promising, high growth parts of the tech industry.

A spokeswoman for USTR declined to comment.

Should USTR go ahead with the complaint, it would become the third major action the U.S. has taken to further open the Chinese market—and would increase the risk of retaliation from Beijing. The U.S. has levied tariffs on imports of Chinese steel and aluminum, which has resulted in China hitting about $3 billion in U.S. imports to China with tariffs.

The administration is also now pursuing another proceeding under Section 301, focused on alleged Chinese infringement on U.S. intellectual property. In that action, the U.S. has threatened $50 billion of Chinese imports with 25% tariffs and plans to release soon a second list of another $100 billion of Chinese imports that could be hit with levies.

In response, Beijing has said it would target $50 billion in U.S. imports to China for tariffs and take other unspecified actions. In what many see as further Chinese retaliation for the U.S. actions, Beijing is slowing reviews of multibillion-dollar takeover deals being pursued by Qualcomm Inc. and Bain Capital, The Wall Street Journal has reported.

Chinese officials have argued that China’s trade and investment practices aren’t discriminatory and have quietly tried to get the U.S. to start negotiations to head off a trade war. So far, there have been exchanges of letters between the two sides, but no full-scale talks. The Trump administration argues that past rounds of negotiations, under prior administrations, haven’t produced much and has tried to maximize pressure before agreeing to any full-scale negotiations.

Last week, Chinese President

Xi Jinping

outlined a four-step plan for further opening the Chinese market, which Beijing viewed as offering an olive branch to the White House. The plan included easing restrictions on U.S. investment. “Investment environment is like air, and only fresh air attracts more investment from the outside,” Mr. Xi said.

President

Donald Trump

responded with a positive tweet, praising Mr. Xi’s “enlightenment on intellectual property and technology transfers.”

The U.S. would gain additional leverage by starting a third trade action against China on services. Trade cases take months to prepare, but the threat of action would signal that the U.S. has other measures it could employ. Ultimately, a trade case could be used to impose tariffs on even more goods, but the U.S. already has employed that weapon.

The U.S. Treasury is putting together restrictions on Chinese investment. Those also could be employed in this case, said the individuals familiar with the administration’s thinking. For instance, the U.S. could prohibit Alibaba from offering cloud-computing services in the U.S., or block the company’s expansion in the country, until the China lifted its restrictions, they said.

Beijing has been able to count on support from U.S. business against the White House’s tariff plans. More than 100 U.S. trade associations recently wrote a letter to the House Ways and Means Committee opposing levies as counterproductive and a kind of tax on U.S. businesses and consumers. Investment restrictions aimed at Chinese competitors could have more support, particularly from businesses that feel shut out from the Chinese market.

Write to Bob Davis at bob.davis@wsj.com

Appeared in the April 17, 2018, print edition as ‘U.S. Weighs Trade Action Over China’s Tech Limits.’

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