Trump signals he favors less confrontation with China on tech

June 26, 2018 - President Donald Trump signaled he may take a less confrontational path toward curbing Chinese investments in sensitive American technologies, potentially relying on a U.S. committee that scrutinizes foreign acquisitions for national security risks.

Trump made remarks Tuesday at the White House that appeared to align with Treasury Secretary Steven Mnuchin’s approach, in an internal administration debate over how to protect U.S. intellectual property from China.

Trump directed the Treasury Department in March to weigh options for restricting Chinese investment in American companies. In May, he said the U.S. “will implement specific investment restrictions and enhanced export controls for Chinese persons and entities related to the acquisition of industrially significant technology.”

Within the administration, officials have disagreed over how to limit investment. Mnuchin favors using the Committee on Foreign Investment in the U.S., which reviews foreign acquisitions of U.S. companies for national security risks. Others favor a more aggressive approach: declaring an economic emergency and invoking a little-used 1977 law called the International Emergency Economic Powers Act.

“We have the greatest technology in the world, people copy it and they steal it, but we have the great scientists, we have the great brains, and we have to protect that,” Trump said. “And that can be done through CFIUS, we have a lot of things we can do it through.”

Trump said that China isn’t the only country to be targeted by investment curbs, echoing Mnuchin’s denial of reports by Bloomberg News and the Wall Street Journal on Sunday.

“It’s not just Chinese. We don’t want people coming in,” Trump said. “We are a very smart country. We have the most incredible people in Silicon Valley. We don’t want China or other countries.”

Reports that the U.S. was considering more extreme unilateral measures against China such as invoking IEEPA rattled markets, sending stocks in the U.S. and Asia down on Monday. Mnuchin in the afternoon tweeted that a report he will publish Friday “is not specific to China, but to all countries that are trying to steal our technology.”

“To say that they are going to implement something like this with a clearly protectionist reason with regard to China is fairly jarring—it would be a huge break in terms of open investment traditions of administrations of the past several decades,” said Brian Fleming, a former Justice Department lawyer who worked on IEEPA. “It would alter the calculus and playing field in how China competes and invests in the U.S.”

White House trade adviser Peter Navarro sought to ease investor concerns about U.S. trade policy, saying there were no plans to impose restrictions.

“All we’re doing here with the president’s trade policy is trying to defend our technology when it may be threatened,” Navarro said in a CNBC interview on Monday with the Dow Jones Industrial Average down more than 400 points.

Meanwhile, Congress is working on legislation to expand the mandate for CFIUS. If passed, foreign investors seeking to buy U.S. companies would face higher hurdles for regulatory approval. The Trump administration has backed companion proposals from the House and Senate.

“Trump may want to turn his trade rhetoric against China into concrete action, but he will ultimately be limited in the scope of actions he will take due to his paramount domestic political considerations,” said Stephen Myrow, managing partner at Beacon Policy Advisers in Washington.

If a market backlash is causing Trump to retreat on investment restrictions, “then it will be extremely difficult for him to follow through with his threatened second round of tariffs,” Myrow said.

Source: Bloomberg