In what Bloomberg billed as the White House's "latest salvo in the trade war between the world's two largest economies", the Trump administration released a 35-page report late last night fleshing out its national security concerns emanating from China's theft of intellectual properties as well as economic policies that shield domestic Chinese companies from competition.
The report, titled "How China's Economic Aggression Threatens the Technologies and Intellectual Property of the United States and the World", accuses China of achieving its brisk economic growth through "aggressive acts, policies, and practices that fall outside of global norms and rules (collectively, 'economic aggression')" (surprisingly, not through nosebleed levels of debt issuance), before it lists two categories of said "economic aggression" that are the focus of the report; they are:
The cites comments from the US intelligence community, which note that "Chinese actors are the world's most active and persistent perpetrators of economic espionage" and that China covets technology in key industries like "electronics, telecommunications, robotics, data services, pharmaceuticals, mobile phone services, pharmaceuticals, satellite communications and imagery and business application software."
When thefts of technology are reported, China does everything it can to stymie investigations. Indeed, economic espionage is a main focus of China's intelligence services, and the US believes that China's Ministry of State Security has no fewer than 50,000 intelligence officers operating abroad - and no fewer than 40,000 operating domestically.
The report also offers details about how China violates US export-control laws by exploiting the growth in "dual-use" technologies (aka those that have civilian and military purposes). As an example, the report cites a conspiracy involving a naturalized US citizen who was born in China. She managed to send back to China details about sensitive technology involving "systems and components for the development of marine submersibles vehicles" - and was later caught and prosecuted by US officials, to whom she confessed.
From 2002 to 2012, Yu admitted in a plea bargain that "at the direction of co-conspirators working for Harbin Engineering University (HEU), a state-owned entity in the People’s Republic of China, Yu obtained systems and components for marine submersible vehicles from companies in the United States. She then illegally exported those items to the PRC for use by her co-conspirators in the development of marine submersible vehicles–unmanned underwater vehicles, remotely operated vehicles, and autonomous underwater vehicles–for HEU and other state-controlled entities."
While harming competition with its economic espionage abroad, China protects its domestic industries through tariffs, as well as regulations and restrictions on foreign ownership and investment. The Chinese government dominates most industries and plays a crucial role in how capital is allocated in the corporate sector. For example, until recently, state-controlled investment funds had been focused on acquiring natural resources (in part, agricultural companies to help secure supplies of food for China's population). Now, state investment is focusing on technologies, chiefly telecommunications, robotics, AI and other fields.
"China’s biggest sovereign wealth fund, the China Investment Corporation, has used a significant fraction of the $800 billion of assets under management for a venture fund focusing on Silicon Valley," the report says.
The report was authored by the White House Office of Trade and Manufacturing Policy, an entity led by Peter Navarro - one of the administration's biggest advocates for an aggressive trade policy. Navarro appeared on Fox Business late Tuesday to advocate for Trump taking steps to stop China from buying "Silicon Valley", though he admitted that steps to limit Chinese purchases of real estate "are not on the table."
The report offers the most comprehensive account yet of the Trump administration's gripes with China's trade tactics. However, it doesn't really tell us anything we didn't already know about the administration's views. And as a result, it hasn't had much of an impact on US markets, as stock futures appear poised for a higher open and to snap a trade-inspired losing streak.
Read the full report below: