Trade correspondent L.C. reports:
China was active this week and recently in presenting an array of concessions that appeared to meet some US demands. The concessions included a nominal retreat from Xi Jinping’s signature “Made in China 2025” program, removed the retaliatory 25% extra tariff on US vehicles, and resumed purchases of US soybeans and, in a more limited way, corn. The retaliatory tariff on these products wasn’t lifted, however.
But China’s limited commercial concessions do not address key US security complaints of Chinese hacking, cyber-theft of intellectual property, and espionage. Nor do they address subsidies to state-controlled enterprises and the favoring of ‘national champion’ industries included in the Chinese President Xi’s Made in China 2025 initiative.
The so far modest concessions mask an acute Chinese concern that the US might cut off its telecommunications firms, Huawei and ZTE, from sales to the US and other Western markets and from purchases of US advanced technology components both companies need. That could cripple two companies key to Xi’s plans to dominate the high technology sector at the expense of US and other foreign competitors.
This week, Huawei was trying to reassure European buyers that it is taking action to prevent its equipment from being used for spying. Meanwhile in the US, Sen. Marco Rubio (R-FL) said that following the arrest of Huawei’s Meng he has decided to introduce legislation to ban Huawei and ZTE from doing business in the US.
US moves and Meng
Washington continues to debate how to take the offensive against Chinese cyber-theft and espionage. The Senate Judiciary Committee held a hearing on December 12th on “China’s Non-Traditional Espionage Against the US: The Threat and Potential Policy Responses.” Government witnesses painted a stark picture of Chinese wrong-doing. Although the US press reported early in the week that the Administration is preparing a series of actions against China’s espionage involving multiple government agencies and new indictments of Chinese hackers allegedly working for Chinese intelligence, that didn’t happen. According to later reports, the plan, which would use an existing executive order enabling the government to sanction people or entities that conduct “malicious cyber-enabled activities,” has been put on hold. Bloomberg reports that it “sparked a heated debate… with [Treasury Secretary] Mnuchin, who has jurisdiction over the potential sanctions, said to be blocking the effort.”
The reports come just as differences emerged over how to treat the arrest of Huawei executive Meng Wanzhou, daughter of the company’s high-ranking Communist Party founder. This week, two Canadian citizens were detained in China in a clear effort at punishing Canada for Meng’s detention, while a Canadian court granted her bail as she awaits a hearing to determine if she will be extradited to the US. The State Department is reportedly considering issuing a travel warning for China over concern US citizens might be arrested as hostages.
Although presidential advisers including Robert Lighthizer, Peter Navarro, and Larry Kudlow all insisted last week that the Meng situation is entirely separate from the trade war and the 90-day talks, President Trump was on a different page. In a December 11th interview with Reuters, asked if he’d consider intervening in the Meng case, he replied, “Whatever’s good for this country, I would do. If I think it’s good for what will be certainly the largest trade deal ever made – which is a very important thing – what’s good for national security – I would certainly intervene if I thought it was necessary.” Ross later said the President hasn’t decided yet if he’ll intervene, but other reports say he asked his advisers what options he has for doing so and they told him to stay out of the case. Ross also noted that his reversal of the ZTE sanctions was a “personal favor” to Xi,” but “that doesn’t necessarily mean that’s a precedent.”
It also is clear that many legislators would be alarmed by an intervention, having strongly opposed the President’s softening of the penalties applied to ZTE – because it indicated a weaker stance toward China, interfered in a law enforcement matter, and suggested the US isn’t serious about enforcing sanctions. All three elements would also characterize a presidential move to lessen Meng’s punishment in order to improve relations with China.
The President did win support from one person on Capitol Hill. Senate Judiciary Committee Chairman Chuck Grassley (R-IA), who is about to become chairman of the Finance Committee and thus speaks authoritatively on both justice and trade matters, responded to the President’s statement by suggesting he could offer China a trade-off. According to Grassley, “Even though [Huawei] violated our sanctions and… laws… if it would solve the long-term thing of China not stealing our trade secrets and IP and it brought China into the rule of law according to the WTO, it’d be a pretty good trade-off.”
Japan-EU free trade agreement
The final significant step leading to implementation of the Japan-EU Economic Partnership Agreement was taken this week when the European Parliament in plenary session on 12/12 approved the free trade agreement, as well as the Japan-EU Strategic Partnership Agreement. The vote was 474-152-40 (yes-no-abstain). It is expected to enter into force on February 1st.
For Japan, this will be the second major free trade implementation in quick succession. The Japan-led TPP-11 takes effect for its seven ratifying countries on December 30th.
This new agreement gives a further push to the US to seek quick agreements in its bilateral talks with Japan and the EU. The US has succeeded in overcoming a final hurdle to implementation of the US-South Korea Free Trade Agreement (KORUS). On December 14th the South Korea National Assembly voted to ratify it. The revised deal is expected to take effect on January 1st.
USMCA faces bumpy road to Congressional approval
For the USMCA, the focus is now on the question of the best strategy for getting it through Congress. This week the USMCA managed to get entangled in the fight over the President’s demand for a southern border wall – an issue that, at this moment, appears about to provoke a partial government shutdown. The President says he’ll veto any spending bill that doesn’t include $5 billion for his wall, but Democrats say they won’t appropriate more wall money this year. Faced with this impending defeat, the President tweeted on December 13th: “I often stated, ‘One way or the other, Mexico is going to pay for the Wall. This has never changed. Our new deal with Mexico (and Canada), the USMCA, is so much better than the old, very costly & anti-USA NAFTA deal, that just by the money we save, MEXICO IS PAYING FOR THE WALL!”
The Senate minority leader, Democrat Chuck Schumer, didn’t miss the opportunity for a comeback: if Mexico’s paying for the wall, where’s the need for the US to fund it?
Farm bill
The Senate and House passed an expensive, unreformed, pork-ridden five-year farm authorization bill this week, by 87-13 and 369-47. Farmers are currently suffering from the retaliatory tariffs that many countries deliberately directed at US agricultural exports, as well as currently low commodity prices, so they were eager to be assured that basic US farm aid would continue. Separately, the Administration is discussing when it will release the second tranche of aid promised farmers who have been hurt by the trade retaliation.
Leave a Reply