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Trump Risks Trade Escalation with China over IP

President Trump has taken a first step toward calling out China for alleged intellectual property rights violations—which could also end up being the first shot in an all out trade war.

President Trump signed an executive order yesterday giving U.S. Trade Representative Robert Lighthizer the power to look into whether a full investigation is necessary to determine if China is harming American IP rights.

In a statement, the White House said “Reports suggest that China has greatly benefited from the theft of American IP, in some cases forcing American companies to transfer their innovation to benefit China.”

The statement continues, saying hundreds of billion of dollars have been lost through IP theft, and the U.S. International Trade Commission said more stringent controls over IP rights could result in 2 million more American jobs.

China had been having an easy time of it with Trump, trade wise. Despite his threats to label China as a currency manipulator and to impose tariffs on goods from the country, the president had backed down from the fiery rhetoric—partly because he seemed to hit it off with Chinese President Xi Jinping when the two met at Mar-a-Lago in April and partly because Trump realized China could be the answer to resolving U.S. tensions with North Korea. That hasn’t gone according to plan, however, and tensions with the North Korean leader have never been higher.

And now things might be heating up between the U.S. and China all over again, as it’s unlikely China would refrain from retaliating if an investigation is triggered.

Last week, sources close to the matter said the president was planning to impose duties on China under section 301 of the 1974 Trade Act. In response to these reports, China Commerce Ministry spokesperson Gao Feng said both China and the U.S. would “hurt” if the countries choose to fight instead of cooperate.

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In a statement following Trump’s executive order, the ministry issued a statement that read: “If the U.S. side ignores the facts, and disrespects multilateral trade principles in taking action that harms both sides’ trade interests, China will absolutely not sit by and watch, will inevitably adopt all appropriate measures and resolutely safeguard China’s lawful rights.”

Trade talks between China and the U.S. had been going smoothly, if not overly productively.

In April, Commerce Secretary Wilbur Ross outlined the two things the U.S. wanted out of its relationship with China going forward: a greatly reduced trade deficit and an increase in overall trade between the two nations. China was essentially given 100 days to show “tangible results.”

Though the White House acknowledged China’s progress in areas such as credit ratings, bond clearings and beef imports, trade talks in July seemed to stall without meaningful results.

If any actions result from yesterday’s executive order, they could prove just as slow going since Lighthizer has a year to determine if an investigation is necessary.