The outgoing Trump administration has implemented a number of last minute sanctions on China but left to the Biden administration what action to take regarding a currency manipulation finding against Vietnam and whether to retaliate against countries levying a discriminatory digital services tax (DST) against US internet companies.
The weekly trade report with L.C.
US Trade Representative-designate and China expert Katherine Tai gave “keynote remarks” at the January 12th virtual conference of the National Foreign Trade Council Foundation. In her remarks, Tai stressed that the Biden administration trade policy will be “worker”-oriented and that it will seek broad cooperation with congressional Republicans and outside stakeholders. The focus on the “worker” and on working with the other political party closely echo themes that present USTR Robert Lighthizer has also touted, though in practice his policy has centered almost exclusively around the use of tariffs to win foreign concessions.
Tai did nod to trade’s benefits for the consumer — something Lighthizer seldom does. Americans “benefit from lower prices and greater selection,” she said, but added that keeping good jobs for Americans takes precedence. This week, Sen. Ron Wyden (D-OR), who is taking over the chairmanship of the Senate Finance Committee, said he hopes to confirm her “very soon.”
Lighthizer
The day before, outgoing USTR Robert Lighthizer, in an interview with the Wall Street Journal, offered praise to his successor, with whom he had worked in crafting the USMCA to win Democratic support. “She learned… how to manage different people who have different objectives and still get things done,” he said. But in the same interview, Lighthizer said he “views the Biden plan with alarm, saying it could let other nations slow or veto US actions and tie up the US in endless, pointless discussions with China.” He pointed out that the various US-China dialogues started in the 1990s were all “just a waste of time.” Lighthizer also said, according to the Journal, that his “worker-oriented trade policy” includes “stripping the WTO [World Trade Organization] of power to override US trade actions and reworking trade deals so they require more manufacturing in the US.”
Meanwhile, the White House declassified and released on January 12th its ten-page report on “US Strategic Framework for the Indo-Pacific” that was prepared in 2017 to provide “overarching strategic guidance for implementing the 2017 National Security Strategy” for the region, according to National Security Adviser Robert O’Brien. It calls for working closely especially with India and Japan and to “Build an international consensus that China’s industrial policies and unfair trading practices are damaging the global trading system,” a goal that the Trump Administration’s turn to protectionism undercut but that the Biden team favors.
Vietnam’s currency and the digital services tax (DST)
USTR released on January 15th the results of its Section 301 report on Vietnam’s currency practices. The report concluded that “Vietnam’s acts, policies, and practices including excessive foreign exchange market interventions and other related actions, taken in their totality, are unreasonable and burden or restrict US commerce” – findings that USTR said were made in consultation with Treasury. Nonetheless, “USTR is not taking any specific actions in connection with the findings at this time but will continue to evaluate all available options.”
The issue is, in essence, being forwarded to the Biden administration, which, if it chooses, can pursue the matter under the US Section 301 law. But the prospect of broad 25% tariffs being imposed on Vietnam has provoked powerful push back from the private sector and those focused on strategic interests.
USTR’s decision to pullback from escalating the confrontation with Hanoi appears to reflect its decision not to inflame trade disputes it provoked using Section 301 just before it leaves office. Thus, USTR similarly found that its Section 301 investigations of digital services taxes imposed by myriad trading partners determined they warrant retaliation, but it left decisions on how to proceed for the new administration.
New restrictions slapped on Chinese companies
Nevertheless, the Trump administration, on its way out the door, did not hesitate to throw a few more obstacles at major Chinese companies:
- adding China National Offshore Oil Corp. (CNOOC) and Skyrizon to US government blacklists,
- adding more companies to the Defense Department’s list of companies with ties to the Chinese military,
- tightening restrictions on trade in information and communications technology (ICT),
- expanding the ban on imports from Xinjiang, and
- issuing sanctions on Chinese persons involved in China’s actions in the South China Sea and Hong Kong.
This is in line with the administration’s renewed focus on the South China Sea, having reconfirmed last year Washington’s support for the 2016 arbitration ruling against China’s territorial claims. In announcing the new moves, Secretary of State Mike Pompeo said on January 14th that the US “stands with Southeast Asian claimant states seeking to defend their sovereign rights and interests, consistent with international law. We will continue to act until we see Beijing cease its coercive behavior in the South China Sea.”
CNOOC
In announcing the addition of CNOOC to the Entity List and Skyrizon to the Military End-User (MEU) list, Commerce Secretary Wilbur Ross said:
China’s reckless and belligerent actions in the South China Sea and its aggressive push to acquire sensitive intellectual property and technology for its militarization efforts are a threat to US national security and the security of the international community. CNOOC acts as a bully for the People’s Liberation Army to intimidate China’s neighbors, and the Chinese military continues to benefit from government civil-military fusion policies for malign purposes.
Commenting on China’s island buildup, Ross added, “CNOOC has repeatedly harassed and threatened offshore oil and gas exploration and extraction in the South China Sea, with the goal of driving up the political risk for interested foreign partners, including Vietnam.”
CNOOC will not be able to purchase equipment or any technology or services from US suppliers, possibly constraining its South China Sea exploration. However, the company has reportedly been seeking to diversify its suppliers anyway.
Travel bans
In addition, the State Department imposed travel bans on Chinese officials – executives of state-owned enterprises and CCP operatives – who have aided China in its illegal territorial claims. Pompeo said the new penalties are aimed at those “responsible for, or complicit in, either the large-scale reclamation, construction, or militarization of disputed outposts in the SCS or use of coercion against Southeast Asian claimants to inhibit their access offshore resources.”
These moves will tie the hands of the incoming administration – which, however, it may not mind, since it too intends to show a strong stance toward Beijing.
Withhold Release Order (WRO) enlarged
The US Customs & Border Protection agency and Department of Homeland Security this week upped the pressure on Beijing by blocking US imports of all cotton and tomato products sourced from the Xinjiang region. The block takes the form of a new Withhold Release Order (WRO) requiring the detention of the targeted items at all US ports of entry, with some flexibility for importers to prove the goods don’t fall under the WRO.
This barring of entire categories of products is a broader move than past WROs that barred imports from specific companies found to be connected to forced labor in Xinjiang. The government said the action, which took effect on January 13, reflects information reasonably indicating the imposition of forced labor on Uighur and other Moslem minorities in the region. The intent is to discourage companies from having Xinjiang products anywhere in their supply chains.
While US tomato imports from China (including seeds, tomato sauce, canned tomatoes) are small, that’s not the case for cotton products. The ban on cotton/textiles/apparel will be a challenge for the US clothing industry since so many garments are made in China. Xinjiang produces 85% of China’s cotton.
Bipartisan support for human rights action
Acting DHS Deputy Secretary Ken Cuccinelli told reporters, “Forced labor is a form of modern slavery. ‘Made in China’… is a warning label.” The WROs on broad product categories amount to a boycott, though Beijing is unlikely to challenge the move at the WTO given that the US can claim national security grounds for the move and, more importantly, can probably prove its charges. The use of forced labor automatically exempts a traded good from any protection under international trade law.
Separately this week, the Congressional-Executive Commission on China (CECC) released its annual report. This year’s report, released on January 14th, states that China may have committed genocide against Uighurs and other Moslems in Xinjiang and called for a formal “determination on whether atrocities are being committed. If the US government were to formally determine that China is committing genocide, it would mean that companies globally would be under pressure not to do any business in/with Xinjiang.
The move had been anticipated, pushed for, and under consideration for a long time. It is quite likely that the Biden administration will keep it in place.
L.C. reports on trade matters for business as well as Founders Broadsheet.
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