If the U.S. wants China to play fair on trade, pushing away like-minded allies is not the way to make it happen, a leader of the American business community in China said Monday. "Maybe it's the worst tactic, as far as we can see here in China," William Zarit, chairman of the American Chamber of Commerce in China, told CNBC's "Street Signs Europe," referring to President Donald Trump's imposition of metals tariffs on close trading partners last week. The Trump administration on Thursday announced sweeping steel and aluminum tariffs on Canada, Mexico and the European Union (EU) under a ruling called Section 232 that cites national security concerns. All three were exempt for a month following Trump's initial announcement of the measures in early spring, and their leaders have issued scathing criticisms and threats of retaliation in response. "We see the U.S. needs to work with like-minded countries whose economies are based on competition and market forces," Zarit said. "And so this tactic, we here don't see this tactic makes a lot of sense because we do need to work with our allies to address the differences of our economic structures." Known as AmCham for short, the non-profit and non-governmental organization represents more than 3,300 individuals from 900 companies operating across China.

Pressuring China

U.S. officials are in negotiations with their Chinese counterparts to stave off a potential trade war, as the Trump administration pushes for Beijing to reduce the trade deficit between the two countries and adopt fairer trade practices. China exports far more of its goods to the U.S. than America exports to China, resulting in Beijing's record-high trade surplus of $375.2 billion in 2017. Talks were said to be making some progress when Trump announced last week that Washington would impose tariffs on $50 billion worth of hi-tech Chinese products, leading officials in Beijing to threaten to drop any potential deals if the tariffs went ahead.

Chinese commercial practices are a genuine concern for foreign companies there, but American investors want a way forward that includes allies, rather than turn them away with trade restrictions, said Jake Parker, vice president of China operations at the U.S.-China Business Council. "We'd like to see the administration work with other multilateral allies to bring pressure to bear against China for its discriminatory policies," Parker told CNBC, saying that there was a broad consensus in the international community that U.S. and foreign industry in China needed to be better protected. "However, when we impose steel tariffs and potentially automotive tariffs on these countries, it makes it less likely for them to want to collaborate with U.S., even if they agree with this consensus on some of the challenges that companies face in the China market," he said.

China's highly restrictive market

Foreign investors have long lamented China's restrictive investment laws, which shield and subsidize local enterprises from competition and lack adequate protection for companies' intellectual property rights. Foreign investment laws require joint ventures of at least 50 percent Chinese ownership in a range of sectors from manufacturing and automotives to securities and technology — a requirement that does not exist in European and American markets.

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Beijing also mandates forced technology transfers, U.S. investors say, whereby international businesses are forced to share their critical technology with Chinese joint venture partners. Beijing has in recent months promised to lift some of the ownership restrictions in certain sectors and halt the forced tech transfers. Among G20 countries, China remains the most restrictive in terms of openness to direct investment. And numbers reveal the extent of the imbalance: a joint report by think tanks Rhodium and the Mercator Institute for China Studies found that in 2016, China made €35.1 billion worth of acquisitions in the EU, while EU acquisitions in China for the same year totaled a mere €7.7 billion.

Investment concerns trump the trade deficit