The administration faces court challenges over its Section 301 tariffs, its ban on WeChat, and its ever-changing TikTok deals. The House meanwhile passed two bills banning trade with Chinese entities employing Uighur or other forced labor and another renewing Caribbean Preferences.
The weekly trade report with LC
The court case filed on September 10th by HTMX Industries, a manufacturer and importer of vinyl tiles, against the Section 301 tariffs has exploded. Over 3,400 companies, including some of the largest US corporations, have joined the effort, filing their own copy-cat lawsuits with the US Court of International Trade. These are likely to be consolidated into a single case. The Trump administration immediately asked the court to pause the litigation pending a decision on how it will proceed.
The plaintiffs aren’t given a good shot at winning, but if they do prevail, China would almost certainly respond to a removal of the US tariffs by ending its counter-tariffs, which are harming many US companies.
Even if the plaintiffs don’t win, the weight of so many court challenges – based on credible complaints that the government made technical and procedural mistakes and that the tariffs are harming domestic companies – makes clear that there is strong opposition to President Trump’s unilateral tariff strategy. As the November election approaches, the tariff optics aren’t good for the president. The large number of suits might make it easier for a new president to withdraw the tariffs.
Biden mum
Democratic presidential candidate Joe Biden has left it open whether he’d retain the tariffs on China. He’s only saying that he would review them. This is in keeping with the Biden campaign’s election strategy of hiding its policy preferences — and the candidate — until after the election.
The companies joining the Section 301 suit include Tesla, Ford, Mercedes, Volvo, Target, Home Depot, and Kraft Foods. The imports subjected to Section 301 tariffs are varied and include both parts and finished products. The auto companies may have another incentive for suing the US government. China, the largest vehicle market in the world, is a crucial market for these companies.
The companies are seeking termination of the tariffs and refunds with interest added for tariffs already paid.
The lawsuits should play well in Beijing, which has also been calling for an end to the Section 301 tariffs.
Rule of law missing in action
While the companies make a common case against the tariffs for having been imposed beyond the time period allowed under Section 301 and for violating certain procedural requirements under the law, some companies are adding blunt details about their own experiences.
Tesla, which wants the court to overturn the tariffs on both List 3 and List 4A, was granted temporary exemptions from the 25% tariff for a number of its parts imports, but the requested exemption for its most important Chinese import – the computer and screen for its electric Model 3 vehicle – was denied last year. The US Trade Representative (USTR) office said that the request was denied because the technology in the computer is strategically important to China. But in its court filing, Tesla states that the “imposition of List 3 and List 4 duties was arbitrary and capricious because USTR did not provide meaningful opportunity to comment, failed to consider relevant factors when making its decision, and failed to draw a rational connection between the facts found and the choices made.” The company claims the tariffs are making a significant dent in its profits. In its exemption request, Tesla noted that the components aren’t available from other suppliers.
Mercedes said in its filing that the tariffs represent “prosecution of an unprecedented, unbounded, and unlimited trade war impacting over $500 billion in imports” from China, whereas the Section 301 law “did not confer authority on defendants to litigate a vast trade war for however long, and by whatever means, they choose.”
TikTok, the deal that changes hourly
There were yet more twists and turns in the TikTok saga this week.
The chagrin expressed by some last week that a US president interfered in a private transaction, forced a foreign company to enter a joint venture and share its tech with a US partner, and skewed the outcome to favor a crony supporter – in essence, copying how business is done in China – intensified this week.
It has become clear that the TikTok deal is not as the president has characterized it, being much less favorable to the US than portrayed by the administration. This raises further questions about using national security as a rationale for forcing it through. Though there are national security implications to the Chinese app’s accessing data on US nationals, it is not clear how much the new arrangement mitigates the risk.
Observers say it remains unclear how and if US user data can be walled off from access by TikTok owner ByteDance and thus by the Chinese government.
The arrangement and the government’s involvement came under harsh criticism from many sources. Axios, for instance, called the deal a “Potemkin village” aimed at “creating the temporary appearance of a presidential win.” Others called it “the worst possible outcome,” much worse than the original Microsoft offer that the president rejected in favor of Oracle, owned by a Trump supporter. The technology website TechDirt called the deal “a complete joke… a grift to let Trump claim he had done something while really just handing a big contract to one of his biggest supporters.” An op-ed in the pro-Trump New York Post called the continually changing transaction a “clown show.” A Trump-appointed federal judge put a block on the administration’s ban on TikTok downloads just hours before it was set to go into effect, giving its Chinese owner more time to negotiate a better deal.
CFIUS credibility damaged
One expert in how the Committee on Foreign Investment in the United States (CFIUS) functions called the deal “the worst possible outcome: a chaotic, confusing process that undermines the legitimacy and non-partisan nature of CFIUS and all for a ‘deal’ that does not effectively address national security because ByteDance still holds majority control…. This case will make it harder for CFIUS to do its job effectively in the future.”
The moral of this fiasco, applicable to much of the Trump trade agenda, is that if there’s a genuine security concern, make the case persuasively to the public, listen to objections, take them into account in the revision, let the measure be proportioned to the danger, don’t muddy the waters with collateral desires, hew to the letter of the law, and only then act decisively.
New US Commerce Department export restrictions of US technology to China’s largest chip manufacturer, Semiconductor Manufacturing International Corporation (SMIC), will provide a good test of whether those lessons have been learned. They don’t seem to have been learned in the case of WeChat, widely used by Chinese-Americans and American businessmen in communicating with relatives and counterparts in China, where it is ubiquitous.
House passes anti-forced labor bills directed against Chinese abuses
Two bills aimed at halting imports of goods made with forced labor in China’s Xinjiang Uighur Autonomous Region passed the House with strong bipartisan support and little dissent.
On September 22nd the House passed the Uighur Forced Labor Prevention Act (UFLPA) by 406-3, and then passed the Uighur Forced Labor Disclosure Act (UFLDA) as an amendment to the FY21 Continuing Resolution temporary government funding bill.
Passage of these bills, which toughen US actions to restrict imports of goods made with forced labor, comes a week after the US Customs & Border Protection agency issued five “withhold release orders” on September 15th that ban imports from five entities that produce cotton, clothing, hair, and computer parts in Xinjiang or with Uighur workers. Those orders were not as sweeping as human rights activists, China hawks, and others had wanted. The legislation passed this week – if it also passes the Senate and is signed into law – will be more restrictive.
Proving a negative?
Under the UFLPA, companies importing products made in Xinjiang would have to provide “clear and convincing evidence” that they are not made with forced labor. The UFLDA would require companies listed on US exchanges to disclose detailed information about products with Xinjiang in their supply chains and report whether forced labor is involved in any aspect of their production.
US law already prohibits the importation of products made with forced labor. What the two bills do is put more responsibility on companies to assure they aren’t importing such products. For that reason, many companies opposed these bills as imposing difficult requirements on them. The US Chamber of Commerce said they would stop legitimate trade more than they would block imports of forced-labor products.
Already apparel companies are scrambling to determine if there is Xinjiang cotton in their supply chains that might be made with forced labor. China produces about 20% of the world’s cotton, and most, about 85%, comes from Xinjiang where there is no transparency about factory labor practices. Hence, it’s no easy task to discern if a supply chain is tainted or to prove it is not.
Xi doubles down
Xi Jinping is meanwhile doubling down on his policy of repressing Islam and the Uighurs.
“Practice has proven that the party’s strategy for governing Xinjiang in the new era is completely correct,” and it must continue for the long term, Mr. Xi said at a two-day party conference on Xinjiang policy that concluded Saturday, according to a state media report.
Chun Han Wong, “Xi Says China Will Continue Efforts to Assimilate Muslims in Xinjiang,” Wall Street Journal, September 28, 2020.
Xi, faced with rising opposition abroad to his policies and the likelihood of reduced export markets as a consequence, is trying to re-orient Chinese exporters toward domestic Chinese markets.
Meanwhile, following the mainland Communists’ takeover of Hong Kong, requests for British National Overseas (BNO) passports by citizens of the formerly self-governed city-state are being received in record numbers, the Taipei Times reports.
House passes Caribbean Preferences bill
The Caribbean Basin Trade Partnership Act passed the House without dissent on September 22nd, extending the CBTPA’s trade preferences through 2030. The preference program gives duty-free and quota-free access to imports of clothing made with fabric, thread, and yarn that are produced in the US.
Because it requires beneficiary countries to import US products, it is not as strong a preference program as the Generalized System of Preferences (GSP), but it does provide an opportunity for the apparel industries in the involved countries to be highly competitive in the US market.
It would normally be expected to quickly pass the Senate and be signed into law. However, Senate Republicans including Finance Committee Chairman Chuck Grassley (R-IA) have said they think the CBTPA should be enacted together with renewal of the GSP, which expires at year-end.
There is concern that in the crush of activity as the election nears — with Congress having to deal with year-end “must pass” legislation and possible disarray in the aftermath of the election — Congress could fail to act on the trade preference bills and they might be left to expire.
The CPTPA’s lead sponsor, Rep. Terri Sewell (D-AL), called it “critical to our continued diplomatic relationships in the Caribbean Basin. The bipartisan effort to reauthorize this program will allow us to export more American-made goods and strengthen Western supply chains, while contributing to economic development and job creation in Haiti and… throughout the Caribbean Basin region.”
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