Trade war ‘on hold’ to tariffs on the way (2018.05.29)

Welcome to Issue 4 of Transpacifica, coming to you this week on Tuesday following the U.S. Memorial Day holiday.

I’ve been on the road in Europe much of the last two weeks, including for the China Internet Research Conference hosted at University of Leiden. I was grateful to be hosted by Privacy International in London for a discussion on AI, digital policy, and privacy in China. Video of the event, with Scarlet Kim, is available online, and there’s only more to explore as Europe’s General Data Protection Regulation has now gone into effect. Meanwhile, while last edition went into some depth on ZTE’s interactions with the U.S. government, an updated and edited version of that material appeared in the Washington Post‘s Monkey Cage blog. Thanks to the editors for featuring and improving that analysis.

Further travel note: I’ll be in Beijing in two weeks and may be (co-)organizing a get-together for those interested in talking tech policy and U.S.–China relations on June 12. Please write to me if you might be interested in a meet-up. –Graham Webster

As always: Please encourage friends and colleagues to subscribe to the Transpacifica newsletter; here is the web version of this message, ideal for sharing on social media; and you can follow me on Twitter at @gwbstr. Please send your comments, quibbles, and suggestions to [email protected].

A week in the life of U.S.–China economic ties

The past week has been whirlwind for U.S.–China trade and investment ties, especially in technology industries. Let’s take a look:

  • Stage-setter: FT on May 17 reported on deep divides within the Trump administration over China economic issues as Vice Premier Liu He began meetings in Washington: “Thursday’s trade talks began against a backdrop of continuing divisions between senior officials eager to strike a deal, such as Treasury secretary Steven Mnuchin, and China hawks, such as White House trade adviser Peter Navarro, according to people familiar with the administration’s internal discussions. The White House on Wednesday initially said Mr Mnuchin, commerce secretary Wilbur Ross and US trade representative Robert Lighthizer would lead Thursday’s discussions with Mr Liu and his delegation. It only later added that Mr Navarro and National Economic Council chair Larry Kudlow would join them.”
  • May 20: Treasury Secretary Steven Mnuchin declared, “We’re putting the trade war on hold. … We have agreed to put tariffs on hold while we try to execute the framework.”
  • May 21 (the Monday following Liu’s visit): In a tweet written in the style of a New York Times headline, Trump started Monday morning saying: “On China, Barriers and Tariffs to come down for first time.” AP reported that while administration officials were saying U.S. farmers would benefit, intellectual property issues were not resolved.
  • May 22: WSJ reported that the outlines of a deal had been reached to save ZTEfrom corporate death after U.S. sanctions enforcement action resulted in a ban on U.S. components. (See Transpacifica’s last edition.) “If completed, the Trump administration would remove the ban on U.S. companies selling components and software to ZTE, a penalty that has threatened to put the company out of business. Instead, ZTE would be forced to make big changes in management, board seats and possibly pay significant fines, [WSJ‘s sources] said.” Trump, however, denied any deal.
  • May 22: The Chinese government announced decrease in car import duties from 25 percent to 15 percent, effective July 1.
  • May 24: Reuters reported Ross said of a potential ZTE deal: “If we do decide to go forward with an alternative, what it literally would involve would be implanting people of our choosing into the company to constitute a compliance unit.”
  • May 25: Three days after denying a deal to keep ZTE in business, Trump tweeted: “Senator Schumer and Obama Administration let phone company ZTE flourish with no security checks. I closed it down then let it reopen with high level security guarantees, change of management and board, must purchase U.S. parts and pay a $1.3 Billion fine. Dems do nothing….” Trump’s “security guarantees” were not fleshed out very well, but the U.S. implants seemed to be part of the concept.
  • May 27: The Hill reports “More than 60 Dem lawmakers demand ethics investigation into Trump’s relationship with China.” “Rep. David Cicilline (D-R.I.) posted a letter to David Apol, acting head of the federal government’s ethics office, to Twitter on Sunday, stating that the request was prompted by Trump ‘advocating’ for ZTE just days after the Chinese government gave one of the president’s business endeavors a $500 million loan.”
  • May 27: Elements of a trade deal were reportedly being discussed, and Ross was reportedly to hammer things out during a trip to China this week.
  • May 28: NYT reported that Ivanka Trump got seven new Chinese trademarksaround the same time as the ZTE deal was being developed. The story, by Sui-Lee Wee, quips: “Coincidence? Well, probably.
  • May 28: U.S. and Chinese representatives traded accusations over intellectual property at the WTO.
  • May 28: Xi Jinping gave a speech, widely covered by official media, on building China into a world leader in science and technology. This paralleled Xi’s April speech on “indigenous innovation” and “core technologies”—national priorities from which there is no sign the Chinese government will retreat in the face of U.S. pressure.
  • May 29: The “trade war” may no longer be “on hold.” The White House posted a document announcing “investment restrictions and enhanced export controls for Chinese persons and entities related to the acquisition of industrially significant technology” would be announced by the end of June, and that “the United States will impose a 25 percent tariff on $50 billion of goods imported from China containing industrially significant technology,” with the list of imports to be announced by June 15.
  • May 29: China’s Ministry of Commerce responded to the White House announcement, per NYT translation: “‘We feel surprised by the tactical statement issued by the White House, and yet it was also unsurprising,’ an unnamed spokesperson for the Chinese Ministry of Commerce said in the statement released by Xinhua, the official news agency. “This is clearly contrary to the consensus that China and the U.S. reached not long ago in Washington. No matter what measures the U.S. side unveils, China has the confidence, the capacity and the experience to defend the interests of the Chinese people and core national interests. China urges the United States to move toward each other in the spirit of the joint announcement.’”
Taking the above as backdrop, Ross’ trip to Beijing seems unlikely to result in a breakthrough. Given well-known fault lines within the Trump team, it is not even clear whether the White House announcement was in strategic alignment with preparation for Ross’ trip. Perhaps the announcement is designed to give Ross some extra leverage, but it seems just as plausible it was designed to undermine talks and skid toward the tariffs and disruptive measures that seem consistently the preferred outcome for several members of the administration and—depending on his mood at Twitter time—the president himself.

About Transpacifica

The Transpacifica newsletter is produced by me, Graham Webster, a senior fellow with Yale Law School’s Paul Tsai China Center and fellow with New America, where I am coordinating editor of the DigiChina project, working from a home base in Oakland, California. The opinions expressed here are my own, and I reserve the right to change my mind. For three years after its founding in February 2015, this newsletter was known as U.S.-China Week. It now appears biweekly, delivered by free e-mail subscription.






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