Trade correspondent L.C. reports:
Chinese Vice Premier Liu He came to Washington on January 30-31 and met with President Trump the second day. According to US sources and the public comments of US officials, no specific agreements were reached and the two sides remain far apart on the US’s structural issues of key concern:
- forced technology transfer,
- intellectual property theft,
- government subsidies, especially to state-owned enterprises, and
- trade and investment discrimination against US companies.
It was decided that the talks would continue, at a high level, with US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin to go to Beijing in mid-month. They will likely be preparing the way for a now-expected late February meeting between Presidents Trump and Xi Jinping. This will likely take place in southern China after Trump meets Kim Jong-Un in Vietnam. The presidents’ meeting will probably be officially announced this coming week.
Lighthizer is adamant in insisting that any Trump-Xi deal include the structural changes the US is demanding, not just a Chinese promise to purchase more US exports.
A meeting of the presidents bumps up the importance of reaching an agreement. The talks face a March 1st deadline, after which, in the absence of a deal or extension, the US is scheduled to hike to 25% the present 10% tariff on $200 billion of Chinese imports.
The betting at the moment is that enough progress will be made in negotiations between the two presidents to avert a March 2nd tariff escalation. It is not expected, however, that existing US tariffs will be lifted as a result of the Trump-Xi talks. Keeping them in place, with the threat of escalation, provides the US with leverage.
No punches pulled for Huawei
Meanwhile, the Trump Administration escalated its legal targeting of China’s national telecom champion, Huawei, unveiling new indictments against the company and its CFO Meng Wanzhou. At a January 28th press conference. Acting Attorney General Matthew Whitaker told reporters “Today we are announcing that we are bringing criminal charges against… Huawei and its associates for nearly two dozen alleged crimes.”
Besides the indictment of Huawei CFO Meng for deliberate violation of Iran sanctions, a federal grand jury in Washington State (home of T-Mobile), presented ten counts against Huawei for stealing trade secrets, obstructing justice, and committing wire fraud. Between 2012 and 2014, Huawei stole technology from T-Mobile that enabled it to match the US company’s ability to test its smart phones. Although Huawei claimed the theft was done by rogue employees, the company was shown to have offered bonuses to the workers who stole the technology and deliberately sent its engineers to a T-Mobile facility in Bellevue, Washington, for this purpose. The engineers stole the technology behind T-Mobile’s phone-checking robot Tappy. This enabled Huawei to develop its own robot with the same capabilities and then use it to detect the deficiencies in its knockoff phones that were failing Tappy’s tests.
T-Mobile discovered the theft and sued Huawei in 2014, prevailing in 2017 when a federal jury in Seattle found Huawei liable for breach of contract and misappropriation of trade secrets. The jury determined that the crime was a company-wide effort. The federal government decided to expand the investigation from civil to criminal charges, resulting in the recent new indictments. The fines Huawei could face under the new charges aren’t huge but could lead to more restrictions on the company.
Congressional Trade Authority Act would curb President’s Section 232 powers
US tariffs on China are putting the Chinese economy under severe pressure. Today’s Wall Street Journal reports that “The largest number of Chinese public companies in a decade expect to incur annual losses after a weak economy hit businesses and eroded asset values….Companies are suffering from declining revenues, higher costs and a surge in write-downs on assets, such as stockpiled goods and acquired businesses.”
But retaliation by China — as well as retaliation by US allies hurt by US Section 232 (national security) tariffs on steel and aluminum — is leading to push back by Congress. A major new bill to curb presidential trade authority was introduced in the House and Senate this week, with co-sponsors from both parties. This bill, the Bicameral Congressional Trade Authority Act of 2019, is similar to last year’s Corker-Flake bill. But the new bill has much more support, and it is assumed that Senate Finance Committee Chairman Chuck Grassley (R-IA) would be interested in moving it.
The political situation has shifted since last year, with many members of Congress dismayed that the steel and aluminum tariffs have not been removed even for Mexico and Canada and that the auto tariff threat against allies remains alive. The pain their constituents are feeling from the retaliatory tariffs is strong. Democratic control of the House has opened the possibility of that chamber passing legislation to trim President Trump’s power. Now that so many Republican senators have signed onto the bill, it has a good chance of passing the Senate, provided Majority Leader Mitch McConnell (R-KY) is willing to bring it to the floor. But if Sen. Grassley, a likely supporter, moves it through the Finance Committee, McConnell would be under strong pressure to do so. Nonetheless, Sen. Pat Toomey (R-PA), the lead Senate sponsor, cautions that there has to be “much broader support” before it moves.
The Congressional Trade Authority Act would amend Section 232 of the Trade Expansion Act of 1962 to take back some of the authority to impose tariffs on national security grounds that the act delegated to the President. The bill would require congressional approval before a president could impose trade restrictive measures under Section 232. The responsibility for determining if there is a national security threat would be shifted from the Commerce to the Defense Department. The bill would also give the US International Trade Commission (ITC) authority to grant exclusions from any Section 232 tariffs instead of the Commerce Department.
The bill was introduced on January 28th in the Senate by Sens. Pat Toomey (R-PA) and Mark Warner (D-VA), with nine other co-sponsors, and in the House by Reps. Mike Gallagher (R-WI) and Ron Kind (D-WI). Major private sector groups – business, agriculture, and activists – have already come out in support.
Chinese tariffs to help fund the wall?
Meanwhile, a more Trump-friendly trade bill was introduced on January 17th by Sen. Cindy Hyde-Smith (R-MS). Her bill, the Border, Law Enforcement, Operational Control, and Sovereignty Act, would give the Department of Homeland Security (DHS) half the revenue raised from Section 301 tariffs on Chinese goods. This new revenue source would be used for enhanced security on the southern border, that is, for a wall. This would be to comply with a 1996 law requiring construction of reinforced fencing along at least 700 miles of the border and additional infrastructure for security. The senator said she intends the bill to be a way to settle the White House-Congress dispute over funding for the wall.
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