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China Threatens With Trade War Retaliation If US "Damages Trade Ties"

Just hours after President Trump authorized an inquiry into China's alleged theft of intellectual property, China's Ministry of Commerce said it would take action to defend its interests if the United States damages trade ties.

“This is just the beginning, I want to tell you that. This is just the beginning,” Trump told reporters, and after signing an executive memorandum giving his trade representative, Robert Lighthizer, the power to explore ways to challenge China’s alleged theft of intellectual property and forced transfer of technology - the Trump administration estimates that theft of intellectual property by China could be worth as much as $600 billion - China said the US should "respect objective facts, act prudently, abide by its World Trade Organization pledges, and not destroy principles of multilateralism", an unidentified spokesman of China's Ministry of Commerce said in a statement according to Reuters.

"If the U.S. side ignores the facts, and disrespects multilateral trade principles in taking actions 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." The ministry also said the United States should "treasure" the cooperation and favorable state of China-U.S. trade relations, and warned that any U.S. action to damage ties would "harm both sides trade relations and companies".

State news agency Xinhua said the U.S. investigation is a unilateralist "baring of fangs" that will hurt both sides.

In a preemptive move to allay US probe findings, China said it was continuously strengthening its administrative and judicial protections for intellectual property. That said, China's policy of forcing foreign companies to turn over technology to Chinese joint venture partners and failure to crack down on intellectual property theft have been longstanding problems for several U.S. administrations. 

Meanwhile, experts on China trade policy said the long lead time could allow Beijing to discuss some of the issues raised by Washington without being seen to cave to pressure under the threat of reprisals. China repeatedly rebuffed attempts by previous U.S. administrations to take action on its IP practices, and has insisted it rigorously protects intellectual property.

Jacob Parker, vice president of China operations at the U.S.-China Business Council said Trump's memo is only the beginning of the process, but that he expected a decision on how to move forward from the administration in 60-90 days. "I think it will be much faster than a year," Parker said.

In any case, the investigation is likely to cast a shadow over U.S. relations with China, its largest trading partner, just as Trump is asking it to put more pressure on North Korea to give up its nuclear program. Trump has told Beijing he would be more amenable to going easy on China over trade if it were more aggressive in reining in North Korea. China responded by saying the issues of trade with the United States should not be linked to the North Korea problem. Ken Jarrett, president of the American Chamber of Commerce in Shanghai, said in a statement on Tuesday that trade and North Korea should not be linked, but that the investigation was a "measured and necessary step".

"The president's executive order reflects building frustration with Chinese trade and market entry policies, particularly those that pressure American companies to part with technologies and intellectual property in exchange for market access," he said. "Chinese companies operating in the United States do not face this pressure."

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In an article in the Financial Times timed to coincide with the announcement, Trump’s commerce secretary, Wilbur Ross, accused Beijing of being a “primary culprit” for the theft, piracy and espionage of US intellectual property. Ross claimed China’s government and companies were deliberately targeting US companies pioneering technologies that China lacked as part of a plan known as “Made in China 2025”. “[Trump] is the first president to take any meaningful steps toward dealing with this hugely important issue,” Ross wrote.

At the same time, critics accused Trump of not going far enough. “Unfortunately, the failure to move robustly is another White House mistake in its already long history of troubled dealings with Beijing,” Gordon Chang, a China hawk known for his book The Coming Collapse of China, wrote in the Daily Beast. “From a trade point of view alone, Trump’s action, despite his calling it ‘a very big move,’ looks exceedingly weak.”

Until last week Trump had been expected to announce a so-called ‘section 301’ case against China, which he accused of “raping” the US economy during his presidential campaign. This would have allowed the US to impose tariffs or other trade restrictions on China under the 1974 trade act.  Experts had predicted such a move could draw a “very aggressive” response from Beijing and might even cause a full-blown trade war with potentially huge global ramifications.

Instead, Trump has asked Lighthizer to consider whether this kind of move is necessary, a process that will take up to a year. Trump’s decision to land a far softer blow on China than expected means a trade war between the world’s top two economies is contingent on China's ongoing behavior; to be sure the relationship between the two nations appears increasingly fraught with US secretary of state, Rex Tillerson, warning earlier this month that ties were at a historic “pivot point” .

On the eve of the announcement, a Chinese state-run newspaper had warned the move would “poison the overall US-China relationship” and on Monday a spokesperson for China’s foreign ministry said there would be “only losers in a trade war”.