President Donald Trump has asked his country's top trade official to review China's practices regarding intellectual property. The move was incremental, but could eventually lead to the US imposing trade sanctions.
Mr Trump is trying to balance working with China on relations with North Korea, with his America-first trade views. Beijing warned that it will not sit idle if the probe leads to sanctions.
Mr Trump returned to Washington to sign the order, which authorises US Trade Representative Robert Lighthizer to explore whether to undertake a deeper Section 301 investigation.
If such a probe occurs and finds against China, the president could unilaterally impose tariffs, sanctions or other trade restrictions to protect US industries. The initial review is expected to take months.
Donald Trump has long railed against the massive US trade deficit with China. The total trade relationship was worth US$ 648bn last year, but trade was heavily skewed in China's favour with the US amassing a nearly US$310bn deficit last year.
Some of that deficit, the argument goes, is because Chinese firms are copying US products and ideas and either selling them back to the US at a lower price or squeezing US imports out of the Chinese market.
Concern over counterfeit goods and online piracy also pre-date the Trump administration. US firms are especially upset about rules that require local partnerships or disclosure of intellectual property to enter the Chinese market, which they say facilitates transfer of their ideas.
The Commission on the Theft of American Intellectual Property estimates that the annual cost to the US economy from counterfeit goods, pirated software and theft of trade secrets is between US$ 225bn and US$ 600bn.
The commission says that China is the world's principal intellectual property infringer and that it accounts for 87% of counterfeit items coming into the US.
In November 2015, the Office of the Director of National Intelligence put the cost of economic espionage through hacking at US$ 400bn a year. The European Union, Japan, Germany and Canada have all expressed concern over China's behaviour on intellectual property theft.
In response to the move China's commerce ministry issued a statement voicing serious concern and warning this would definitely harm bilateral trade relations.
If the US side take actions that impair the mutual trade relations, disregarding the facts and disrespecting multilateral trade rules, China will not sit idle, the statement said on Tuesday. Official media in China have criticised the measure too.
A Xinhua News Agency commentary labelled the move outdated and said it would hurt both countries. In an editorial, the official China Daily urged the Trump administration to pursue a different path.