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U.S. unlikely to screen investments in China: ex-Trump official

Nazak Nikakhtar says Beijing now has 'no incentive' to alter trade practices

Chinese and U.S. flags at the 2021 China International Fair for Trade in Services in Beijing in September. U.S. tariffs appear to be inflicting "minimal" pain on China, Nazak Nikakhtar told Nikkei.   © Reuters

WASHINGTON -- The U.S. is not expected to screen outbound investments unless something dramatic forces its hand, a key Trump administration trade official told Nikkei, downplaying a proposal here aimed at preventing sensitive technologies from leaking to China.

"Outbound investment restrictions can be used to prevent, to a degree, technology transfers when export controls have not met the challenge," said Nazak Nikakhtar, who served as acting undersecretary of commerce for industry and security.

The Biden administration is believed to be weighing the option to bolster America's economic security. "But this is going to be such a polarizing topic for the industry," Nikakhtar said, pointing to growing interest in investing in China by financial firms and other foreign companies.

"Unless we see some kind of massive Chinese government intervention in the market in a way that significantly disrupts U.S. private capital investments, I don't think the U.S. government will articulate to private industry the urgency for taking extreme action like this," she said.

The U.S. currently imposes tariffs on a large portion of Chinese goods under Section 301 of the Trade Act of 1974. A response to what were deemed Chinese intellectual property theft and misappropriation, the tariffs were hoped by many to "slow down imports and inflict enough pain such that China would then adhere to its 'phase one' commitments," Nikakhtar said, referring to a deal signed by the Trump administration and Beijing in January 2020.

But she said China's pain from the Section 301 tariffs "appears to be minimal."

"There's really no incentive, at this point, for China to behave any differently," she said.

Chinese industrial subsidies have been another cause of trade tensions with Washington. "There was a plan to address industrial subsidies through a 'phase two' or a new type of deal," Nikakhtar said, adding that the Office of the U.S. Trade Representative is looking at a new Section 301 investigation.

"The industrial subsidies received by state-owned enterprises and other businesses in China are excessive and designed to distort trade -- that is to say, tilt trade in China's favor -- and I think we're going to see evidence of economic distortions in any new Section 301 investigation," she said.

As acting undersecretary of commerce for industry and security in the Trump's administration, Nazak Nikakhtar played a key role in its hard-line trade policies on China.

Nikakhtar outlined three potential scenarios for the U.S. moving forward: maintain the current Section 301 tariffs on intellectual property theft, maintain the Section 301 tariffs and potentially add new ones to address industrial subsidies, or abandon the Section 301 tariffs for IP theft in favor of new ones to address industrial subsidies.

"I would think right now that all options would be on the table," she said.

Meanwhile, Chinese President Xi Jinping has urged the U.S. to scrap sanctions targeting Chinese high-tech companies. The Biden administration will likely find it "very hard" to ignore calls to ramp up pressure on China, Nikakhtar predicted.

"If Congress is getting frustrated that things aren't being done quickly enough -- a concern which is amplified by news of China's advancements in hypersonics, hypersonics that appear to have been enabled by U.S. technologies -- then there will be a call for more aggressive action," she said.

U.S. President Joe Biden has called for a multilateral approach in engaging with China, looking to work with allies and other partners to address trade and other issues. But Nikakhtar stressed the need for the U.S. to make the first move.

"As a practical, realistic matter, you can't have every country have the exact same political and economic will to move in the same direction, at the same pace, at the exact same time," she said.

"The U.S. can lead because our economy is less entangled with China than, maybe, Europe, so moving first is less painful for us," Nikakhtar said. "But I think other countries will have no choice but to do the same, even though it will be slightly more painful for them to disentangle."

"Moving away strategically from China could actually incentivize the U.S. and our allies to weave our supply chains closer together in a stronger, more long-term strategic and sustainable way," she said.

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