In China, the dictatorship marches on. The US president and House prepare countermeasures to secure critical supply chains, but the administration is still harrying allies including Canada, the EU, Vietnam, Mexico, and the WTO.
The weekly trade report with L.C.
Chinese Communist Party Secretary-General Xi Jinping is promoting even greater Chinese Communist Party (CCP) control over the private sector and demanding greater assistance to the Party’s needs from private entrepreneurs. The aim, according to an Axios report, is to “create a backbone team of private business people who are reliable and useful at critical moments.”
The policy will presumably be discussed and fleshed out at the upcoming CCP Central Committee Fifth Plenum expected to run from October 26-29. That will also be the occasion for unveiling the 14th Five Year Plan (2020-2025) and a longer-term vision out to 2035.
This policy is exactly what the US fears and objects to. It ties in with recent Chinese legislation requiring all private actors in China to cooperate with the government and turn over information to it. This is the issue that underlies US objections to Huawei, TikTok, and other Chinese hardware and software companies that operate in the West. It also ties in with Xi’s “Dual Circulation” strategy that aims to build up Chinese technological heft while stoking domestic demand and still keeping exports strong. Some China watchers, however, predict the strategy will be a flop because
to give consumers anything approaching a normal share of the benefits of the economy would require shifting 10% to 15% of GDP away from businesses, the wealthy and government to households. ‘Rebalancing involves a massive shift of wealth—and with it political power—to ordinary people. This will not be easy.’
https://www.aspistrategist.org.au/chinas-new-economic-strategy-may-not-sit-well-with-its-people/
Supply chain concerns in US
Meanwhile, at the White House, the president issued an “Executive Order on Addressing the Threat to the Domestic Supply Chain from Reliance on Critical Minerals from Foreign Adversaries,” an executive order (EO) directed at China. He declared a national emergency under the IEEPA (International Emergency Economic Powers Act) because “a strong America cannot be dependent on imports from foreign adversaries for the critical minerals that are increasingly necessary to maintain our economic and military strength in the 21st century.”
The EO criticizes China for gaining an advantage in critical minerals through uncompetitive actions and exploiting its dominant position, thereby making the US dependent on its supplies. Former Secretary of Defense James Mattis and three co-authors have written a Bloomberg op-ed that describes further steps that can be taken. The article is titled “The U.S. and allies can break Beijing’s monopoly on elements vital to electronics and national defense.”
House recommendations
Two reports on China were released separately by two congressional panels on September 30th.
House Intelligence Committee Democrats released a report titled, “The China Deep Dive: A Report on the Intelligence Community’s Capabilities and Competencies with Respect to the People’s Republic of China” (37 pages), and House Republicans released a report by their China Task Force (130 pages).
The Republican report’s top recommendation is radical: “The Administration should clearly and publicly state an intention to break the CCP’s totalitarianism. America’s goal must not be indefinite coexistence with a hostile Communist state, but rather, the end of the Party’s monopoly on power.”
The focus of the Democratic report is on intelligence and specifically how the US intelligence community and agencies are handling China. It also promotes the re-shoring and/or decoupling of some industries from ties to China.
The Republican report, while finding that the World Trade Organization “has been unable to force the PRC to live up to its original commitments since it joined” and that “WTO rules are inadequate to deal with many of the CCP’s pernicious policies,” does not support the White House denigration of the WTO. Instead, it suggests that the US should work for WTO reforms so it can be more effectively used against China’s abuses.
Thus, both the Mattis op-ed and the House Republican report implicitly criticize the administration’s go-it-alone, we-don’t-need-no-allies approach to critical supply chains.
Meanwhile this week, fifty senators of both parties sent a letter to Lighthizer calling for the US to negotiate a comprehensive free trade agreement with Taiwan.
Continued rough treatment of allies
Meanwhile the Trump administration is pursuing high-profile trade wars with its allies. These trade wars by most accounts have been an economic failure and have alienated allies needed in a concerted strategy to resist China.
US appeals the WTO’s Canadian lumber ruling – into the void
The US notified the WTO on September 28th that it is appealing the WTO panel ruling against its countervailing duties on Canadian softwood lumber.
This is one in a series of successful Canadian challenges to the duties, both at the WTO and NAFTA dispute settlement. The appeal is a surprise only because it highlights US hypocrisy at the WTO. The US won’t allow the Appellate Body to function for other countries, yet it appeals to it to overturn a panel ruling it doesn’t like.
Canada’s response spelled this out: “Canada is deeply concerned by the US’ actions which frustrate the proper functioning of the dispute settlement system. The US’ behavior significantly reduces the security and predictability that we collectively value in international trade.”
EU authorized by WTO to hit US with tariffs
In another WTO action, the decades-long US-EU WTO dispute over aircraft subsidies is moving to endgame. On September 30th, the WTO arbitrator has reportedly authorized the EU to impose tariffs worth about $4 billion on US exports in retaliation for illegal US subsidies to Boeing. The decision has been circulated to the parties involved but probably won’t be publicly announced for weeks.
This appears to be a loss – though an expected one – for the US. It claims it has fully complied with WTO rulings against its subsidies — by ending the last one from Washington State. The US has suggested that the amount of EU retaliation should be around $300 million — far below what the EU sought. The EU sought authorization for about $12 billion, so the outcome was also a loss of sorts for them – though most observers considered their request to be way too high.
Brussels may not move immediately to impose the authorized duties, even though the US retaliatory tariffs of $7.2 billion for Airbus subsidies has been in effect for months. The EU is pushing for a negotiated solution to the aircraft subsidies fight. Even though the EU has said it would respond as soon as authorized — targeting politically sensitive US exports including in the aircraft, agricultural, alcohol, and fisheries sectors — it may wait to see the outcome of the US elections.
Whoever is president next year would do well to take up the EU offer. There is nothing, either politically or economically, to be gained from starting another trade war with an ally with very potent retaliatory powers.
Section 201 trotted out against blueberries imports
The USTR announced on September 29th that it has requested the US International Trade Commission (ITC) to “Commence a Section 201 Global Safeguard Investigation for Blueberries.” This follows up on an earlier announcement. On September 1st, USTR had unveiled the administration’s “Plan to Help Farmers of Seasonal and Perishable Fruits and Vegetables.” The plan asks the ITC “to initiate a Section 201 global safeguard investigation into the extent to which increased imports of blueberries have caused serious injury to domestic blueberry growers.” The plan grew out of hearings USTR held with Florida and Georgia seasonal produce farmers. This was an obviously political move as Florida and Georgia are crucial swing states in the presidential election.
It is possible that other Section 201 investigations will be initiated targeting other crops.
The backdrop for this action is the dissatisfaction certain growers of seasonal crops, mainly in Florida and Georgia, have expressed over competition from Mexico. One of their goals is to make US unfair trade laws more flexible to help them target imported fruits and vegetables. This was something the US was unable to get Mexico to agree to in the USMCA negotiations.
How Section 201 is different
To impose safeguards, a government does not have to prove that exporters engage in unfair trade practices – as required by Section 301 and by the unfair trade laws – or pose a broader threat to national security – as required by Section 232 – but only that there has been a harmful surge.
This is a “global” safeguard investigation, meaning it is not targeted at a particular country but at all sources of imported blueberries. Section 201 must encompass all exporters, with some exceptions, e.g., free trade agreement partners. It is nonetheless understood that Mexico is a target, though the US imports blueberries from other countries as well.
The Section 201 safeguard law enables the President to decide what remedies to impose if an import surge is found to be injuring a domestic industry. He can choose from a panoply of trade restrictions, including quotas as well as tariffs.
Vietnam targeted for currency undervaluation and illegal logging
The administration is also escalating trade conflicts with Vietnam. The Office of the US Trade Representative (USTR) announced on October 2nd that it has opened an investigation under Section 301 into two Vietnamese trade practices: alleged illegal harvesting and trading of timber, which Vietnam uses in its competitive furniture manufacturing industry, and “acts, policies, and practices that may contribute to the undervaluation of its currency and the resultant harm to US Commerce.”
USTR didn’t announce a deadline for the investigation and resulting report and recommendations, but it could take months. USTR will have to allow time for public comments and probably hold a hearing. The president could then decide to impose trade restrictions on Vietnamese exports, but Section 301 also allows the remedy of opening talks with the offending country to try to negotiate a solution. In fact, the government is supposed to use that remedy and carry on the talks under WTO auspices. That’s what Washington promised when the EU challenged the use of Section 301 long ago.
One takeaway from this new Section 301 probe: the administration is adding yet more unilateral trade moves. This probably signals what to expect from a second Trump term.
L.C. reports on trade matters for business as well as Founders Broadsheet.
Photo credit: Xinhua.
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