The U.S. effort to box out Huawei shows how complex and intertwined the issues are, said the Asia Society Policy Institute president and a former deputy secretary of state. ASPI President Kevin Rudd, a former prime minister of Australia, said many in the U.S. semiconductor industry told him their ability to reinvest at the scale they need to remain dominant in the latest advances “hangs in part on their ability to export to China.” He asked, if the government bans those exports, will it “then step in to supplement on the order of tens of billions each year?” Rudd and ex-U.S. Deputy Secretary of State John Negroponte discussed the U.S.-China relationship at an ASPI event Tuesday. Negroponte said it's revealing that the Pentagon is resisting Commerce Department moves to restrict exports to Huawei. “It’s the Department of Defense finally calling to our attention this issue is more complex than it may seem. This technological war is going to be complicated,” he said. The U.S. makes 45 percent of semiconductors; China, 5 percent. That same day, the U.K. announced it won't bar Huawei from its 5G networks but will ban it from the “core” of those networks (see 2001280074). “Sounds like a great British fudge to me,” said Rudd.
Regardless of who wins the 2020 presidential election, tech companies likely will have to change their supply chains and reverse the international approach to research and development, said Derek Scissors, an American Enterprise Institute China scholar. Apparel and other low-value goods manufacturers were already moving to cheaper countries in Asia, but consumer technology firms were happy in China before the trade war began, said Scissors in an interview. "You could easily get a Democratic administration that wants to get tech out of China." Joe "Biden's people say they want that," Scissors said. He said the next Democratic administration won't use broad-based tariffs, as President Donald Trump has. Scissors said the U.S. dominates in advanced microchip design, and policymakers should intervene to stop industrial espionage in that field. But he said for chipmakers, restrictions on cooperating with Chinese researchers also will likely mean fewer sales in China. "If you say to Intel: you cannot do any research and development with China, the Chinese are going to find Intel a lot less interesting." Scissors said if decoupling happens, which he hopes will, the most advanced chips would likely be assembled in Japan, South Korea, Taiwan and maybe the Philippines. "The thing about China -- it's the end of a supply chain with tons of inputs where you make hundreds of billions of low-end consumer electronics every year," he said. "There's no other country that can replace that." Scissors said that scale might be found in Indonesia, Mexico, Vietnam or perhaps India.
President Emmanuel Macron said that the U.S. and France agreed to work together to reach an agreement in 2020 on modernizing the international tax rules. Macron told reporters Monday his nation's 3 percent digital services tax isn't designed to punish large companies. Rather, he said, "it's to fix the problem. And there are also plenty of French companies that will be touched." The U.S. is treating the tax as thinly disguised protectionism, and has opened an investigation (see 1908190043). Macron said that the French tax will be in place until an international pact. He said that if collections under the tax are higher than are eventually agreed to, the excess will be refunded. Senate Finance Committee ranking member Ron Wyden, D-Ore., in a statement said the "Trump administration should reject any deal that allows France and other countries to move ahead with discriminatory taxes on U.S. technology companies, in exchange for vague promises." President Donald Trump, also at the G-7 conference, didn't provide more specifics, and the French Embassy in Washington had no further comment.
IRobot CEO Colin Angle has firsthand knowledge of the intellectual property abuses Chinese companies engage in, he testified Monday on the opening day of Trump administration hearings on the proposed List 4 Section 301 tariffs on Chinese imports. But Angle asked the administration not to impose tariffs on the robotic goods it sources from China because his firm, which employs 700 in the U.S., is satisfied with China as a manufacturing platform.
A U.S.-China trade deal is 90 percent “done,” but the fate of post-agreement Section 301 tariffs on $250 billion in Chinese imports remains unknown, Myron Brilliant, who heads international affairs for the U.S. Chamber of Commerce, told reporters Tuesday. "We're getting into the end-game phase" with China, he said.
Sourcing goods from alternative countries of origin to escape Section 301 tariffs on Chinese imports can be difficult or time-consuming, so companies increasingly are turning to other ways to mitigate the duties, said experts at a Georgetown Law workshop last week on international trade. More importers seeking to lower their exposure to the tariffs are finding that making changes in customs valuation of their goods can deliver the best bang for the buck, said Lynlee Brown, a senior manager at Ernst & Young.
Delaying the increase to 25 percent on the 10 percent Section 301 tariffs on $200 billion in Chinese imports will require a “presidential proclamation” or publication of a Federal Register notice before the midnight Friday deadline to avert an automatic rate hike, emailed customs law expert Ted Murphy of Baker McKenzie Monday. President Donald Trump, for the second time since December, postponed the rate hike in a pair of tweets Sunday, citing “substantial progress” in U.S.-China trade talks (see 1902250001).
President Donald Trump might not stick to a March 1 deadline for deciding whether to raise the 10 percent Section 301 tariffs on about $200 billion in China imports to 25 percent, he told reporters at the White House Tuesday. If the U.S. and China are "close to a deal" on comprehensive trade overhaul, "I could see myself letting that slide for a little while," said Trump. "But generally speaking, I'm not inclined to do that." Trump said he's comfortable keeping tariffs on Chinese goods if he doesn't get a real agreement, "not just a deal that cosmetically looks good for a year."
The House Ways and Means Committee's outgoing chairman expressed skepticism that the new North American Free Trade Agreement with Canada and Mexico can clear the House without revisions. Chairman Kevin Brady, R-Texas, who will pass the gavel to ranking member Richard Neal, D-Mass., in January, expects Ways and Means “will be working to continue to improve the agreement until there's bipartisan support for it," he said last week. Brady thinks “the 'yes' votes for this agreement will come from lawmakers who want not just an improved NAFTA, but they want a seamless one,” with no supply-chain “disruption” in sales of “more American agriculture and technology," he said. “That desire for a seamless transition to a new agreement is both the smart thing to do for the economy, and where lawmakers will want to be."
IP theft is why this administration levied tariffs on nearly $250 billion in Chinese goods, Assistant Attorney General John Demers told the Senate Judiciary Committee Wednesday. “China’s strategy is the same: rob, replicate, and replace. Rob the American company of its intellectual property, replicate the technology, and replace the American company.” Chairman Chuck Grassley, R-Iowa, noted Huawei Chief Financial Officer Meng Wanzhou was arrested on suspicion of breaking Iranian sanctions (see 1812060042), and that a Chinese firm allegedly tried to avoid export controls for Boeing satellite technology. With the two nations in a 90-day negotiating period, President Donald Trump this week told Reuters he would intervene in the case if its prosecution would prevent a U.S.-China deal. The suggestion “is extremely disturbing,” said Sen. Richard Blumenthal, D-Conn., asking Demers if it disturbed him as well. There is precedence for such action, as the president told the Commerce Department to roll back its “death penalty” for ZTE after it lied about punishing officials who had violated North Korea sanctions (see 1805240064). Demers declined to comment on Wanzhou’s case. “What we do at the Justice Department is law enforcement. We don’t do trade,” he said. Sen. Kamala Harris, D-Calif., told Demers she introduced a bill that would extend the extraterritorial authority of U.S. prosecutors for cyber espionage. Demers said that could be helpful. Peter Harrell, a Center for a New American Security senior fellow, suggested the government should expand bans on imports that use stolen IP; give more funding to the International Trade Commission so it can identify those cases; and create a better private right of action for companies whose property was stolen.