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Interview

China deserves tougher restrictions, says ex-Trump trade official

Nazak Nikakhtar 'elated' by Biden's hard-line stance on Beijing

Nazak Nikakhtar helped implement former President Donald Trump's hard-line trade policies against China at the Commerce Department. (Nikkei montage/Dupont Photographers/Reuters)

WASHINGTON -- The Biden administration should step up trade restrictions to counter China's predatory economic practices including intellectual property theft, said Nazak Nikakhtar, a former Trump administration official who was on the front line of the China-U.S. trade war.

The U.S.-China standoff over technology has intensified after President Joe Biden took over, with Washington turning down China's request in late July to lift the ban on Huawei's access to U.S. technologies. To Nikakhtar, this was a welcome move.

Nikakhtar helped implement former President Donald Trump's hard-line economic agenda as an assistant secretary for industry and analysis affairs at the Commerce Department and performed non-exclusive functions and duties as Under Secretary for the Bureau of Industry and Security. She spoke to Nikkei about how the U.S. should move forward in regard to China.

Edited excerpts from the interview follow.

Q: How do you evaluate the Biden administration's response to China in the past six months?

A: You could see that some of us were nervous when President Biden came in, whether we were going to see the same things that happened for years and years before President Trump's administration. But I'm actually elated to see the aggressive statements that are being made by the Biden administration.

What I'd like to see happen is a continuation of that, and even taking it up a few levels. The reason this is important is because China has gotten incredibly aggressive with its threats and rhetoric, and it has followed this up with real and concrete actions, including increasing military activities with respect to Taiwan.

Q: The Biden administration has maintained the phase one trade agreement reached between the Trump administration and Beijing. Should tariffs be maintained on Chinese products?

A: In 2018, the U.S. government took the bold step of imposing tariffs under Section 301 of the Trade Act of 1974 to curb intellectual property theft and misappropriation. But will those tariffs remain? Well, we see that IP theft continues because there are little to no consequences; the tariffs aren't high enough.

China is a nonmarket economy and so market forces don't guide its behavior. The Chinese government subsidizes industries or lowers prices, or the government mandates currency devaluation to get around the tariffs.

And where those goods undercut our industries through predatory prices or IP theft, for example, our tariffs may need to be increased, and we should shift the tariff payment responsibility to the foreign exporters because U.S. laws allow this. Foreign exporters should pay for the damages caused by IP theft, not U.S. companies.

Q: The Trump administration prohibited crucial tech exports to Chinese companies such as Huawei by placing them on the entity list -- a move criticized as ineffective by the Biden administration, which has called for a more multilateral approach. What do you think of the criticism?

A: To begin with, there's a lot of misstatement that the Huawei entity list designation was made to slow Huawei down. That's not true. The U.S. government decided to place Huawei on the entity list because the company violated U.S. financial sanctions on Iran, and when companies violate U.S. sanctions, this is likely the outcome. The public needs to depoliticize Huawei.

I think we in the U.S. government got an incredible amount of quiet support from allies. But, back then, no ally was willing to shoulder the unpopular responsibility of imposing national security measures like the U.S. had from 2018 through January 2021. Without support from allies, our only option was to move forward first and determine if allies would ultimately follow under our top cover. And we see now that this is exactly what is happening.

Consider the fact that if we hadn't moved forward first on important national security measures back then, where would we be today? Even worse off, I'd say.

To use an analogy, let's say there's a bully in the schoolyard, and one kid has to stand up to the bully because all the other kids are a little bit reluctant to confront the bully. Well, that's exactly what the U.S. did through tougher national security measures.

While it feels good to say, "We need to go multilaterally," sometimes the reality is that nations aren't ready yet. But you still move forward and do what's right for the country until your allies are in a better position to follow. That's an obligation and an imperative.

Q: American companies affected by the export ban are concerned that rivals from other nations will take advantage in the Chinese market. How can we balance increasing U.S. competitiveness with national security?

A: Everyone understood that we needed to take important export control measures to protect our mutual national security interests. And there was an element of trust in knowing that if one of us imposed export control measures on a target, our allies wouldn't then increase exports to that target and undermine us. We were regularly speaking with allies and exchanging viewpoints to ensure that we were not undermining one another.

Today, we also need to continue to coordinate efforts with allies on supply chains. It seems to me that if we're going to build resilient supply chains, I don't want to build them in countries that are actively working to undermine our economic and national security interests.

To be clear, my job in the U.S. government was to protect this country and to protect national security without undermining U.S. industry. I was coming at it from the standpoint of "How do I protect national security while ensuring that our allies aren't substituting us and displacing us with sales to foreign adversaries?" But, again, this wasn't happening. We have good relationships with allies and they weren't interested in undermining us when national security was at stake.

Q: The Commerce Department is imposing export controls on emerging and foundational technologies. There has been some criticism from Congress that the Commerce Department is not doing enough. Why was it difficult to proceed?

A: If you think about the past 20 years and measure China's massive technological growth, the growth has been fueled by exports of critical technologies which the U.S. government permitted.

China's growth has gotten to the point that the threat is almost irreversible; it has indigenized dangerous technologies like robotics, genomics, AI, nuclear weapons, and semiconductors and it is going to use its position of power, size, and scale to accelerate the demise of the U.S. and our allies' industries until we are defenseless. That is, unless we act quickly. We have over 20 years of evidence to prove that this is China's plan.

Emerging technologies provide the right opportunities for us to leverage control of exports, because the technologies are new and nobody has really commercialized them or they're in their nascent stages of development or commercialization.

Maybe we can make sure that we and our allies mutually benefit from these technologies rather than China. We should be sharing and accelerating our technological innovations with allies instead.

Q: In June, the Senate passed a bill called the U.S. Innovation and Competition Act, which authorizes $110 billion for basic and advanced technology research over a five-year period. The U.S. has questioned China's excessive industrial subsidies. What do you think of the U.S. handing out subsidies just like China?

A: If we've made the decision in this nation that we're going to continue to trade with China, even though China leverages its distorted market and distorted prices to hollow out our industries, and despite the fact that China doesn't adhere to international trade rules, then we actually need industrial policies like China to compete with China.

Frankly, our traditional anti-industrial policy notion of "We want the market to decide the most efficient allocation of capital, rather than the government," is slowing us down because the free market is inherently slow and needs to go through trial and error before an innovation succeeds and can be meaningfully commercialized.

So, if we've really made the decision to continue to deal with China, engage with China, and trade with China, then we have no choice but to fund our industries on a regular, ongoing basis because China will do the same, in addition to its regular practice of misappropriating IP, depressing global prices, etc. to weaken us. But, if part of an aggressive industrial policy also involves measures that would protect our industries from predatory competition, now this would make a real difference. Otherwise, the path of simply having an industrial policy without appropriate guardrails is a waste of taxpayer dollars. We need to be honest with ourselves, especially when our future is at stake.

Q: Do you think that the Commerce Department can handle the industrial policy?

A: I don't think that anybody in the U.S. government is well equipped to launch and sustain an industrial policy initiative because this is something entirely new to us. Even if there were a genius who could figure out a successful industrial policy, accurately predict our adversaries' next moves, and stay steps ahead, I would say that China's mode of governance is so different, the government so much nimbler, and the government can react so much more quickly to economic forces, that I think pursuing industrial policies without appropriate guardrails against subsidy and IP leakage to China for example, is ultimately setting ourselves up for failure.

The Chinese government regularly leverages control over its entire economy to orchestrate countrywide offensive strategies to outcompete and undermine its trading partners. We have to recognize this reality and determine whether we can afford to tie our economy to a nonmarket actor that relentlessly undermines the interests of the U.S. and its allies.

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