Day: April 3, 2018

The Trump administration on Tuesday escalated its aggressive actions on trade by proposing 25 percent tariffs on $50 billion in Chinese imports to protest Beijing’s alleged theft of American technology.

The Office of the U.S. Trade Representative issued a list targeting 1,300 Chinese products, including industrial robots and telecommunications equipment. The suggested tariffs wouldn’t take effect right away: A public comment period will last until May 11, and a hearing on the tariffs is set for May 15. Companies and consumers will have the opportunity to lobby to have some products taken off the list or have others added.

The latest U.S. move risks heightening trade tensions with China, which on Monday had slapped taxes on $3 billion in U.S. products in response to earlier U.S. tariffs on steel and aluminum imports.

“China’s going to be compelled to lash back,” warned Philip Levy, a senior fellow at the Chicago Council on Global Affairs and an economic adviser to President George W. Bush.

Indeed, China immediately threatened to retaliate against the new U.S. tariffs, which target the high-tech industries that Beijing has been nurturing, from advanced manufacturing and aerospace to information technology and robotics.

Early Wednesday in Beijing, China’s Commerce Ministry said it “strongly condemns and firmly opposes” the proposed U.S. tariffs and warned of retaliatory action.

“We will prepare equal measures for U.S. products with the same scale” according to regulations in Chinese trade law, a ministry spokesman said in comments carried by the official Xinhua News Agency.

The U.S. sanctions are intended to punish China for deploying strong-arm tactics in its drive to become a global technology power. These include pressuring American companies to share technology to gain access to the Chinese market, forcing U.S. firms to license their technology in China on unfavorable terms and even hacking into U.S. companies’ computers to steal trade secrets.

The administration sought to draw up the list of targeted Chinese goods in a way that might limit the impact of the tariffs — a tax on imports — on American consumers while hitting Chinese imports that benefit from Beijing’s sharp-elbowed tech policies. But some critics warned that Americans will end up being hurt.

“If you’re hitting $50 billion in trade, you’re inevitably going to hurt somebody, and somebody is going to complain,” said Rod Hunter, a former economic official at the National Security Council and now a partner at Baker & McKenzie LLP.

Kathy Bostjancic of Oxford Economics predicted that the tariffs “would have just a marginal impact on the U.S. economy” — unless they spark “a tit-for-tat retaliation that results in a broad-based global trade war.”

Representatives of American business, which have complained for years that China has pilfered U.S. technology and discriminated against U.S. companies, were nevertheless critical of the administration’s latest action.

“Unilateral tariffs may do more harm than good and do little to address the problems in China’s (intellectual property) and tech transfer policies,” said John Frisbie, president of the U.S.-China Business Council.

Even some technology groups that are contending directly with Chinese competition expressed misgivings.

“The Trump administration is right to push back against China’s abuse of economic and trade policy,” said Robert Atkinson, president of the Information Technology and Innovation Foundation think tank. But he said the proposed U.S. tariffs “would hurt companies in the U.S. by raising the prices and reducing consumption of the capital equipment they rely on to produce their goods and services.”

“The focus should be on things that will create the most leverage over China without raising prices and dampening investment in the kinds of machinery, equipment, and other technology that drives innovation and productivity across the economy,” Atkinson added.

At the same time, the United States has become increasingly frustrated with China’s aggressive efforts to overtake American technological supremacy. And many have argued that Washington needed to respond aggressively.

“The Chinese are bad trading partners because they steal intellectual property,” said Derek Scissors, a China specialist at the conservative American Enterprise Institute.

In January, a federal court in Wisconsin convicted a Chinese manufacturer of wind turbines, Sinovel Wind Group, of stealing trade secrets from the American company AMSC and nearly putting it out of business.

And in 2014, a Pennsylvania grand jury indicted five officers in the Chinese People’s Liberation Army on charges of hacking into the computers of Westinghouse, US Steel and other major American companies to steal information that would benefit their Chinese competitors.

To target China, Trump dusted off a Cold War weapon for trade disputes: Section 301 of the U.S. Trade Act of 1974, which lets the president unilaterally impose tariffs. It was meant for a world in which much of global commerce wasn’t covered by trade agreements. With the arrival in 1995 of the Geneva-based World Trade Organization, Section 301 largely faded from use.

Dean Pinkert of the law firm Hughes Hubbard & Reed, found it reassuring that the administration didn’t completely bypass the WTO: As part of its complaint, the U.S. is bringing a WTO case against Chinese licensing policies that put U.S. companies at a disadvantage.

China has been urging the United States to seek a negotiated solution and warning that it would retaliate against any trade sanctions. Beijing could counterpunch by targeting American businesses that depend on the Chinese market: Aircraft manufacturer Boeing, for instance, or American soybean farmers, who send nearly 60 percent of their exports to China.

Rural America has been especially worried about the risk of a trade war. Farmers are especially vulnerable targets in trade spats because they rely so much on foreign sales.

“Beijing right now is trying to motivate US stakeholders to press the Trump Administration to enter into direct negotiations with China and reach a settlement before tariffs are imposed,” the Eurasia Group consultancy said in a research note.

“The next couple of weeks will be very interesting,” says Kristin Duncanson, a soybean, corn and hog farmer in Mapleton, Minnesota.
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Nearly a dozen U.S. states and Washington, D.C., on Tuesday promised to defend federal automobile efficiency standards against a rollback proposed this week by Scott Pruitt, the head of the Environmental Protection Agency.

“All Americans … deserve to enjoy fuel-efficient, low-emission cars and light trucks that save money on gas, improve our health and support American jobs,” the attorneys general from 11 states said in a statement responding to

Pruitt’s proposal on Monday to ease the Obama-era standards.

The standards called for roughly doubling by 2025 the average fuel efficiency of new vehicles sold in the United States to about 50 miles (80 kilometers) per gallon. Proponents say such standards help spur innovation in clean technologies and cut emissions of the greenhouse gas carbon dioxide.

California has long been allowed by an EPA waiver to impose stricter standards than Washington does on vehicle emissions of some pollutants. Twelve other states follow California’s lead on cleaner cars.

The attorneys general, from states including New York, Iowa and Massachusetts, said they would challenge a rollback in court. California Attorney General Xavier Becerra has already threatened to sue in defense of the standards.

The statement, also signed by more than 50 mayors from around the country, said automakers have been making progress in meeting the national standards and that compliance costs have been lower than projected.

Auto industry executives have not publicly sought specific reductions in the requirements negotiated with the Obama administration in 2011 as part of a bailout deal. But they have urged Pruitt and President Donald Trump to revise the standards so it becomes easier and less costly to meet the targets.

Pruitt defended his decision at EPA headquarters on Tuesday.

“We have nothing to be apologetic about with respect to the progress we’ve made in reducing emissions as a country,” Pruitt said. The EPA will make sure that U.S. consumers would not have to buy more expensive autos as a result of efficiency standards, he said.

Pruitt, a former attorney general of Oklahoma, a major oil producer, has been criticized by politicians after reports that he paid well below market rates to live in a condo owned by a lobbyist who deals with issues overseen by his agency. Trump and White House Chief of Staff John Kelly phoned Pruitt this

week to say they supported him, an administration source said Tuesday.
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The government of Aung San Suu Kyi is opening the economy and growth is rebounding in Myanmar, though the possibility of broader Western sanctions over the Rohingya refugee crisis is nevertheless giving some foreign investors pause, according to a senior IMF official.

Shanaka Jay Peiris, the International Monetary Fund’s (IMF) mission chief to Myanmar, said in a recent interview that initial data reviewed by the IMF indicated that some foreign investors were delaying final approval of projects until there was clarity about how the situation may unfold.

“The numbers we have for FDI [foreign direct investment] aren’t showing it yet … but foreign investment approvals are slowing down, so there is some indicator that going forward FDI may be weaker,” Peiris told Reuters following the publication last week of the IMF’s latest review of Myanmar’s economy.

“Since August, investors are taking a pause. It isn’t a surprise,” he said. He said it was unclear which projects were being delayed and added that more data was necessary to better understand whether the “pause” was temporary or not.

However, leading indicators such as FDI project amounts approved by Myanmar’s government for the first 10 months of fiscal 2017/18 from April show “a marked slowdown” since September 2017, according to the IMF.

For now, FDI inflows for 2017/18 still look to be a “solid number,” Peiris added.

While it is too soon to know what it could mean for the overall economy, Peiris said: “We have to see whether project approvals were temporarily lower or will be a trend, as well as whether actual FDI inflows will fall by much. The magnitude would also matter.”

“We are not operating under the assumption that there are going to be broad economic sanctions,” he added, downplaying the risk of a decline.

Myanmar government spokesman Zaw Htay said that, “Especially in Myanmar, because of the Rakhine issue, tourism has come down, investments and FDI have come down too,” adding that the authorities were working hard to ensure macroeconomic stability.

The report by the IMF, which follows annual consultations with the government, followed a November visit to Myanmar, the first since nearly 700,000 Rohingya fled to Bangladesh after a military crackdown condemned by the international community.

The World Bank announced on Oct. 13 it was delaying the release of $200 million in budget support for Myanmar in response to the “forced displacement of the Rohingya.”

Both the United States and Canada imposed sanctions against a general in Myanmar’s military for his role in the crackdown against the Muslim Rohingya. The European Union said in February it was preparing sanctions against military leaders to hold them accountable for their role in the crisis.

The Trump administration’s aid chief, Mark Green, said last month he will visit Myanmar soon for talks with the government and to see for himself conditions of the Rohingya refugees.

Targeted sanctions

Peiris said the IMF believed that any more Western sanctions would likely target individuals in the military and not the economy.

“If the sanctions are limited to the military personnel, which has been the case to now, we believe it will be less of an impact” on the economy, Peiris said. “If it is broader, it would be more worrying.”

Overall, the IMF sees economic growth picking up toward an estimated potential rate of about 7 to 7.5 percent after lower-than-expected growth of 5.9 percent in 2016/17.

The United States remains concerned about the plight of the Rohingya, a Treasury official told Reuters, declining to comment on the status of sanctions investigations. Another U.S. official said the Trump administration was reviewing all options on Myanmar.

When asked by Reuters how concerned the government was about more sanctions, the Myanmar spokesman said such actions would affect “the whole country” because Myanmar was no longer a military dictatorship but instead run by “a democratic government elected by the people.”

“They shouldn’t do the economic sanctions,” the government spokesman said. “If the investments are affected, then it affects the people.”

Opening up

The IMF visit came shortly before Myanmar introduced regulations to bring the country’s banks closer to international standards and force them to recover mostly open-ended “overdraft loans” that make up the bulk of their lending.

Myanmar’s central bank deputy governor, Soe Thein, told Reuters in November that private banks had been given more time to clear most of their loan books.

Private banks account for more than half of banking system assets and the largest six private banks hold around 80 percent of private bank assets, according to the IMF.

The new rules compel banks to open their books to the central bank, and Peiris said initial data raised concerns about the need for more bank capital.

“It is more fragile than what has been published, so banks will have to raise capital and recognize losses,” he said.

“The question is whether owners are willing to put up the money, and if they can’t, will they try to find partners? How that will evolve is hard to tell but they will need more capital,” he said. The Fund would have a better perspective of the situation during its next visit later this year, he said.

“We and the central bank do have a sense that it is a significant issue,” he added.

Asked whether the government agreed with the IMF assessment on the banks, the Myanmar government spokesman said reforms were important to build economic stability.

“It is necessary to be careful,” he said, “We cannot afford to make any mistakes.”
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As trade frictions heat up between China and the United States, the two countries are talking tough and giving assurances at the same time that the situation will not spiral out of control.

Despite assurances, analysts both in China and in the United States are divided over just how bad the situation could get.

“Right now, the markets are reacting, farmers are reacting, trade groups are reacting and most of us are expecting a counterproductive end in the short run,” said Dave Swenson, an economist at Iowa State University. “What we think this is right now is truly a skirmish, boundaries being drawn, what we don’t know is just the extent to which both sides are willing to go to make their points.”

President Donald Trump is expected to announce a new tariff list aimed at punishing Beijing over its technology transfer policies and intellectual property theft. And while the two sides have stressed that negotiations and talks are being pursued, there has been little evidence that that is happening.

China has said it will take proportional measures to respond to any tariffs enacted by the Trump administration. In response to earlier tariffs on steel and aluminum, China launched levies of up to 25 percent this week on 128 products, including fruits, nuts, pork, wine, steel and aluminum.

China’s actions so far have shown self-restraint, but there is there is much more Beijing could do, said economist Hu Xingdou.

“For example, China owns lots of U.S. treasury and corporate bonds, buys airplanes from Boeing and soybeans etc.,” Hu said.

The initial tariffs that China issued were smart and political, he adds. Most of the items on the list are agricultural products, which China can replace with imports from other markets, Hu said.

“I think the move sends a political message even though it is seen as a trade measure. In fact, political calculation is taken into consideration,” he said.

Some of the heaviest tariffs were placed on pork and pork products and one key state that is expected to feel the pinch from the new measures is Iowa, a state where support for Trump was strong in the 2016 elections. It is also the home of former governor and now U.S. Ambassador to China Terry Branstad.

Swenson, the economist from Iowa State University, said that it is not only pork, but ethanol tariffs on China’s list that will have an impact.

“Because Iowa is the nation’s largest producer of corn, ethanol can be produced much more efficiently in Iowa than in any other state,” he said.

Some analysts in China believe that if President Trump does push ahead with tariffs targeting intellectual property theft and the country’s technology transfer policies, a trade war is inevitable.

Others argue it is unlikely that President Trump will go too far.

In an interview with the online news outlet “The Paper,” Yu Chunhai, an economist at Renmin University of China, said while trade frictions will grow, a trade war is unlikely. Yu said Trump is likely to use executive privilege to keep tensions under control and pull back when the costs are too high.

But while the building standoff brings both risks and uncertainty, it is also an opportunity.

“The crisis also presents an opportunity for China to deepen its reforms, fulfill its WTO commitments and curtail the role of state-owned enterprises in the local economy while opening up the local markets for the banking, insurance and cultural sector,” Hu said.

If it is not able to make such changes, however, Hu said the situation is likely to get worse. China has recently pledged to further open up its banking and insurance sector, but the time frame for that to happen is still three years down the road.

Joyce Huang and Ira Mellman in Washington DC contributed to this report.

 
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Stock markets in Asia and Europe saw declines Tuesday, but did not suffer losses as steep as those Monday in U.S. markets where continued fears about a U.S.-China trade war and a verbal attack on an online retailer by President Donald Trump sent stocks lower.

China’s Shanghai Composite Index finished down about 0.84 percent, while Japan’s Nikkei fell about one-half percent. Hong Kong’s Hang Seng rallied in afternoon trading to close up about one-quarter percent.

Early trading sent markets in Britain and Germany lower.

The U.S. Down Jones Industrial Average closed down 1.9 percent Monday, while the Standard & Poor’s 500 dropped 2.3 percent and the NASDAQ fell nearly three percent.

Trump has strongly criticized online giant Amazon three times in the last few days. Amazon founder Jeff Bezos also owns The Washington Post, whose revelatory stories on Trump and his administration frequently draw the president’s ire.

The U.S. leader says Amazon’s large-scale operations are detrimental to the business success of small retailers that cannot compete with its high-volume sales. Trump has also complained that the fees Amazon pays to the U.S. Postal Service to deliver merchandise the retailer sells are too low, costing the quasi-governmental agency hundreds of millions of dollars in annual revenue, although the Postal Service says its contract with Amazon is profitable.

“Only fools, or worse, are saying that our money losing Post Office makes money with Amazon,” Trump said in his latest broadside against Amazon. “THEY LOSE A FORTUNE, and this will be changed. Also, our fully tax paying retailers are closing stores all over the country…not a level playing field!” 

Since Trump started verbally attacking Amazon, the company has lost more than $37 billion in market value.

China’s announcement that it is increasing duties on 128 categories of U.S. imports worth $3 billion in annual trade also worried investors. They fear Beijing’s response to the Trump tariffs on $50 billion worth of Chinese imports could spark an all-out trade war between the world’s two biggest economies.

“The importance of tariff announcements by both the U.S. and China lies in what they may portend for overall bilateral trade and investment relations between the two countries,” said Atsi Sheth, an analyst for Moody’s Investors Service.

Late Monday, White House deputy press secretary Lindsay Walters issued a statement saying, in part, that China needs to stop “its unfair trading practices which are harming U.S. national security and distorting global markets.”
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First, the United States imposed a tax on Chinese steel and aluminum. Then, China counterpunched Monday with tariffs on a host of U.S. products, including apples, pork and ginseng. 

On Wall Street, the stock market buckled on the prospect of an all-out trade war between the world’s two biggest economies. But it hasn’t come to that – not yet, anyway.

“We’re in a trade slap-fight right now,” not a trade war, said Derek Scissors, resident scholar and China specialist at the conservative American Enterprise Institute.

China is a relatively insignificant supplier of steel and aluminum to the United States. And the $3 billion in U.S. products that Beijing targeted Monday amount to barely 2 percent of American goods exported to China.

But the dispute could escalate, and quickly. Already, in a separate move, the United States is drawing up a list of about $50 billion in Chinese imports to tax in an effort to punish Beijing for stealing American technology or forcing U.S. companies to hand over trade secrets. 

China could respond by targeting American commercial interests uniquely dependent on the Chinese market: the aircraft giant Boeing, for example, and soybean farmers.

The possibility that the U.S. and China will descend into a full-blown trade war knocked the Dow Jones industrial average down as much as 758 points in afternoon trading. The Dow recovered some ground and finished down 458.92 points, or 1.9 percent, at 23,644.19.

For weeks, in fact, President Donald Trump’s aggressive trade actions have depressed the stock market.

But many trade analysts suggested that the Wall Street sell-off may be an overreaction. 

China’s swift but measured retaliation to the U.S. steel and aluminum tariffs is meant to show “that it will not be pushed around but that it does not want a trade war,” said Amanda DeBusk, chair of the international trade department at the law firm Hughes Hubbard & Reed. “It is possible for the countries to pull back from the brink.”

“It seems to be pretty measured and proportional,” agreed Wendy Cutler, a former U.S. trade official who is now vice president at the Asia Society Policy Institute. “They didn’t seem to overreach, and they didn’t hit our big-ticket items like planes and soybeans.”

Even if China’s tariffs don’t have a huge impact on America’s $20 trillion economy, they will bring pain to specific communities. 

Take Marathon County in Wisconsin, where 140 local families grow ginseng, a root that is used in herbal remedies and is popular in Asia. Around $30 million – or 85 percent – of the area’s ginseng production went to China as exports or gifts. The county, which gave Trump nearly 57 percent of its vote in 2016, holds an international ginseng festival in September, crowning a Ginseng Queen and drawing visitors from China and Taiwan.

China’s new 15 percent tariff on ginseng is “definitely going to hit the growers hard if this happens,” said Jackie Fett, executive director of the Ginseng Board of Wisconsin. “It is the livelihood of many people. … We’re still holding on to a little bit of hope” that the tariffs can be reversed.

Jim Schumacher, co-owner of Schumacher Ginseng in Marathon, Wisconsin, said the 15 percent tax will hurt: “You’ve got to be price-competitive, even if you have the top-quality product. We’re definitely concerned. We hope something can be resolved.”

Trump campaigned on a promise to overhaul American trade policy. In his view, what he calls flawed trade agreements and sharp-elbowed practices by China and other trading partners are in part responsible for America’s gaping trade deficit – $566 billion last year. The deficit in the trade of goods with China last year hit a record $375 billion.

In his first year in office, Trump’s talk was tougher than his actions on trade. But he has gradually grown more aggressive. In January, he slapped tariffs on imported solar panels and washing machines. Last month, he imposed duties on steel and aluminum imports – but spared most major economies except China and Japan.

Now he is moving toward steep tariffs to pressure Beijing into treating U.S. technology companies more fairly. In the meantime, his administration has lost two voices that cautioned against protectionist trade policies: Secretary of State Rex Tillerson and White House economic adviser Gary Cohn. 

“Given the increasingly hostile rhetoric backed up by tangible trade sanctions already announced by both the U.S. and China, it will take a determined effort on both sides to come up with a mediated compromise that tamps down trade tensions and allows both sides to save face,” said Eswar Prasad, professor of trade policy at Cornell University.

If the dispute escalates, China can pick more vulnerable targets. In the year that ended last Aug. 31, America’s soybean farmers, for instance, sent $12.4 billion worth of soybeans to China. That was 57 percent of total U.S. soybean exports.

Brent Bible, a soybean and corn farmer in Lafayette, Indiana, has appeared in TV ads by the advocacy group Farmers for Free Trade, calling on the Trump administration to avoid a trade war. 

“We’re kind of caught in the crossfire,” he said.
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