President Trump and other administration officials are taking punitive measures on China to stop intellectual property theft and unfair trade practices. The effects are likely to spread widely across Silicon Valley.
President Trump and other administration officials are taking punitive measures on China to stop intellectual property theft and unfair trade practices. The effects are likely to spread widely across Silicon Valley.
By this point, you should all know the drill. Another day, another massive tariff from the Trump administration.
After rumors the past few weeks that the president was considering expanding tariffs to another $267 billion worth of imported goods from China, the administration announced today that it would expand them merely to another $200 billion worth of goods, which has the convenience of being a nice round number.
In a White House statement, the president announced a 10 percent tariff to be implemented by September 24, which will then increase to 25 percent at the start of the new year.
“For months, we have urged China to change these unfair practices, and give fair and reciprocal treatment to American companies. We have been very clear about the type of changes that need to be made, and we have given China every opportunity to treat us more fairly. But, so far, China has been unwilling to change its practices,” the statement said.
Furthermore, the president said that any retaliatory action by China would result in immediate tariffs action and an expansion of tariffs to $267 billion worth of Chinese goods. Among the options that Chinese policy circles have been mulling is putting in place an export ban on critical components in U.S. supply chains, which could massively damage the ability of manufacturers and assemblers from building their products.
China’s options for direct retaliation are limited, due to the sheer amount of exports China sends to the United States. China imports less from America than the value of goods included in these tariffs, and can no longer match them dollar-to-dollar.
One major question at the heart of the tariffs is whether they will actually prove effective in making U.S. companies more competitive against their Chinese counterparts. The Wall Street Journal published a deep-dive analysis of that topic, arguing that the tariffs are pushing China to move to more advanced industries faster — in effect encouraging China to be more competitive with the U.S., rather than less.
The U.S. Trade Representative, whose office is in charge of determining precisely what products the tariffs will apply to, provided a final list of products that will be hit by tariffs. Of the thousands originally listed in draft tariffs a few weeks ago, several hundred product categories were removed (which likely moved the final value figure lower).
From a release by the office: “Included among the products removed from the proposed list are certain consumer electronics products such as smart watches and Bluetooth devices; certain chemical inputs for manufactured goods, textiles and agriculture; certain health and safety products such as bicycle helmets, and child safety furniture such as car seats and playpens.”
So if you play in a playpen with an Apple Watch while wearing a bike helmet, you are likely in luck.
U.S. companies have massively expanded their lobbying operations to counter the tariffs in recent months, although those lobbying dollars don’t seem to be translating into a less heated set of policies.
The latest round of Trump administration tariffs is set to affect a number of different industries. At least one category previously expected to be impacted, however, is likely to be spared, according to a new report from Bloomberg.
According to anonymous sources, the tariffs impacting a slew of consumer electronics, running the gamut from the Apple Watch to Fitbit trackers to Sonos speakers, has not made it into the final language. That means, for this round at least, those products should be spared the tax that would drive up the cost of such imports.
Trump administration tariffs have been the centerpiece of a looming trade war between the U.S. and China. Earlier today, China was reportedly set to cancel further trade talks, should the U.S. announce additional tariffs. They’ve been a domestic issue as well, as companies like Harley-Davidson have announced plans to move some production overseas to avoid the fee.
Apple has been a vocal critic of the tariffs, noting the resulting price hike. Earlier this month, the company wrote a letter to the Office of the United States Trade Representative, noting, “Tariffs increase the cost of our US operations, divert our resources, and disadvantage Apple compared to foreign competitors. More broadly, tariffs will lead to higher US consumer prices, lower overall US economic growth, and other unintended economic consequences.”
CEO Tim Cook also met with the president and first lady at their New Jersey golf resort earlier this month, in what much have been one of the more awkward meals in recent memory.
The new tariffs are expected to be announced as early as today.
Another day, another whopper of a tariff. The Trump administration has been busy finalizing the rulemaking process to put 25 percent tariffs on $200 billion of Chinese goods, which will almost certainly affect the prices of many critical technology components and have on-going repercussions for Silicon Valley supply chains. That followed the implementation of tariffs on $50 billion of goods earlier this year.
Now, President Trump, as reported by reporters on Air Force One this morning, has said that he is prepared to triple down on his tariffs strategy, saying that he is ready to add tariffs to another $267 billion worth of Chinese goods. Although the president has a flair for the dramatic in many of his policies, the China tariffs are one arena in which his rhetoric has matched the actions of his administration.
Each set of these tariffs has been vociferously opposed by tech industry trade groups, but their concerns seem to have had little effect on the administration’s final thinking. Jose Castaneda, a spokesperson for the Information Technology Industry Council, called this next wave of potential tariffs “grossly irresponsible and possibly illegal.”
Yet, despite the constant threat of more tariffs, CFIUS reforms, and the ZTE debacle, China continues to dominate trade with America. Numbers released by the Department of Commerce this week showed that America’s trade deficit with other nations reached five-year highs in July, surpassing $50 billion for the month, with the China trade goods deficit hitting $36.8 billion. These numbers may well have triggered the president’s latest comments.
They may also have been triggered by the recent anonymous op-ed in The New York Times, in which a Trump “senior administration official” said that “Although he was elected as a Republican, the president shows little affinity for ideals long espoused by conservatives: free minds, free markets and free people…. In addition to his mass-marketing of the notion that the press is the ‘enemy of the people,’ President Trump’s impulses are generally anti-trade and anti-democratic.”
Anti-trade or not, it is clear that the package of tariffs and other policy reforms have done little to dampen the trade deficit or trigger a broad restructuring of the supply chains underpinning American brands.
In my discussions at the Disrupt SF 2018 conference the past few days, one persistent theme has been the durability of certain Chinese cities — particularly Shenzhen but not exclusively — to weather these trade storms. Because of the depth of expertise, fast turnaround times, extreme flexibility and cheap costs of hardware supply chains, there are sustainable advantages that the U.S. can’t hope to fight with a couple of measly tariffs — even on $500 billion worth of goods.
Indeed, as one prominent venture capitalist put it to me, hardware investing is now significantly easier for those with the right knowledge of the Chinese ecosystem. Just a few years ago, a couple of millions in capital could get a startup a working prototype. Now, startups can raise $1-2 million in some cases and get a working product into sales channels. The Chinese ecosystem around hardware has just continued to improve with alacrity.
For Trump, a much more robust policy will be needed to move the trade numbers in the other direction. Better funding for universities to produce the right talent. Pushing for a region in the U.S. to become the “Shenzhen of America” through a combination of private and public funding. Greater preferential treatment around taxes for keeping manufacturing in the U.S.
And maybe tariff the hell out of them.
A new $200 billion round of tariffs on Chinese goods could have some broader implications for U.S.-based hardware companies. New government rulings on the Trump-imposed tariffs single out a couple of key devices buy name, including the Apple Watch, Fitbit trackers and Sonos speakers.
Products like smartphones have thus far been unimpacted by fees leading to product price spikes, but other electronics could potentially be hit, due to what Reuters deems “an obscure subheading of data transmission machines in the sprawling list of U.S. tariff codes.”
That’s among the 6,000+ codes cited by the White House’s proposed tariffs. That could mean upwards of a 10 percent tariff on popular products, including the Apple Watch, Fitbit Charge and Surge and the Sonos Play:3, Play:5 and SUB.
While Trump reportedly told Tim Cook that Chinese tariffs wouldn’t impact the iPhone, it seems the promise didn’t apply across the company’s product lines. In order to not be impacted, manufacturers could potentially attempt to have products classified under a different code or apply for an extension.
Trump’s protectionist approach to trade has already impacted some U.S. industries. Last month, Harley-Davidson — a company he insisted would benefit — opted to move production overseas to avoid steep E.U. tariffs, stating that the move “is not the company’s preference, but represents the only sustainable option to make its motorcycles accessible to customers in the E.U. and maintain a viable business in Europe.”
After significant back-and-forth over the past few months, the White House intends to follow through with a pledge to place tariffs on imported Chinese technology goods while also tightening restrictions on investments by Chinese firms into American companies.
In a statement posted by the White House this morning, the administration said that it would impose a 25 percent tariff on $50 billion of Chinese high-tech goods “containing industrially significant technology.” That follows the conclusion of the U.S. Trade Representative’s Section 301 investigation into China’s industrial and intellectual property policies. What goods will be included in the tariff policy has been up for debate, but the final list will be released on June 15th. This package of tariffs is different than a separate package of tariffs focused on steel and aluminum production announced earlier this year.
The regulations around investment restrictions by Chinese companies will be announced at the end of June. The administration will also continue to litigate a case at the World Trade Organization over intellectual property protections.
All of these announcements should be taken with a shaker’s worth of salt though, since these are just the latest cards being played in a series of interconnected negotiations both internal to the White House and external with the Chinese government.
Internally, the White House has been riven with differences over how aggressively to prosecute the Chinese over its industry practices, with financiers like Treasury Secretary Steven Mnuchin taking a more flexible line while others like U.S. Trade Representative Robert Lighthizer and Director of the White House National Trade Council Peter Navarro have pushed for a much more aggressive approach. As different actors curry favor with President Donald Trump, their respective policies seem to appear and disappear.
Externally, the U.S. and China are engaged in a protracted multi-dimensional negotiation over the status of trade between the two countries. That includes both the approval of Qualcomm’s merger with NXP from the U.S. side, as well as re-authorizing a tech export license to China’s telecommunications manufacturer ZTE on the Chinese side. Expect more announcements and counter-announcements to come in the coming weeks as these negotiations continue.
For tech companies and startups, the uncertainty and lack of clarity around these tariff policies is difficult to manage. Product road maps and supply chains are being reconsidered as each new policy gets announced, making it difficult to manage future launches. While no one wants a tariff in the tech industry, clarity would certainly make any tariff much easier to stomach.
Even more challenging is the looming deadline for the announcement of investment restrictions. Given that venture capital rounds generally take several weeks to close because of the due diligence process, and the deadline for the announcement of these new investment restrictions is at the end of June, Silicon Valley founders should be hesitant to accept Chinese VC dollars while they await regulatory certainty from Washington.
I’ve written before that the national security implications of Chinese venture capitalists are overblown, but ultimately, the administration is going to have to develop a rule, and until more information is provided, any investment from a Chinese-connected firm could potentially be cut off at the last minute. Expect more developments on all of these policies as U.S. and Chinese negotiators continue hashing out a deal around trade.
In a new interview with Bloomberg television, Apple CEO Tim Cook says he addressed China trade tariffs in a late-April meeting with President Trump.
“I talked about trade and the importance of trade, and how I felt that two countries trading together make the pie larger,” Cook said, adding that while there are existing problems with U.S./China trade policies, Trump’s approach is not the right way forward. “I felt that tariffs were not the right approach there, and I showed him some more analytical kinds of things to demonstrate why.”
The tariffs are largely regarded as one key element in a looming trade war between the two superpowers. Apple, for its part, could easily get caught in the crossfire, as the company relies on China as a key to its international sales.
Apple has been hit with declining sales in the country, along with other top smartphone vendors, but its 41 retail stores in China are the most in a single region outside the U.S. It’s easy to see how the company could get caught in the midst of an escalating war trade war between the countries.
Of course, Trump does appear to have made some concessions in an unexpected area. Over the weekend, he announced plans to give ZTE a reprieve on its seven-year U.S. trade ban, after the company violated Iran sanctions. Trump cited, of all things, a loss of jobs in China as a key reason behind the reversal.
For his part, Cook is very much behind corporate tax cuts, which have been benefited Apple.“We’re also going to buy some of our stock because we view our stock as a good value,” Cook said in the interview “It’s good for the economy as well because if people sell stock they pay taxes on their gains.”
War! The Trump administration announced late last night its next daring attack on China’s unfair trade practices, and it has gone straight for the jugular, announcing that it is putting tariffs on about 1330 goods including “Parts for air conditioning machines” and “Bakery ovens, including biscuit ovens.”
Including biscuit ovens! Without the heat emanating from our precious biscuit ovens, we will be able to avoid using air conditioning when all the A/C parts run out. Brilliant.
There’s even more heat packed into these tariffs though, since Chinese-made flamethrowers were included on the list. No word yet on whether Elon Musk’s Boring Company not a flamethrower flamethrower will be counted as a flamethrower (or made in China for that matter).
Of course, the Chinese have responded with their own new tariffs list (a list different from the new tariffs the country announced on Monday). The new new tariffs includes soy, cars, and other goods from America.
Okay, I admit it: tariffs are really boring. The tit-for-tat attacks are like a really boring game of Battleship. Actually, that’s redundant — it’s just a game of Battleship, so I am going to try to spice things up with some data science.
The modern economy is complicated. What exactly is a “biscuit oven” anyway? How does the government know when to apply a tariff to a good and when not to? To solve these dilemmas, the U.S. government invented a mechanism called the Harmonized Tariff Schedule which has categories for every product in the world organized into chapters numbered 1 through 99.
Some chapters, like chapter 86 (“Railway or tramway locomotives, rolling-stock and parts thereof; [blah blah blah]”) have only a couple of dozen categories, while chapter 84 (“Nuclear reactors, boilers, machinery and mechanical appliances; parts thereof,” i.e. the cool stuff) has by my count more than 2000 categories.
I wanted to look at the 1333 categories the Trump administration picked to understand what goods seemed to draw the most attention from the trade team. Unfortunately, the list of categories was released as a PDF (thanks government!), so I had to perform several conversions to get the raw data. The entire Harmonized Tariff Schedule is available in a machine-readable format through Data.gov.
Using Python, I performed counts of the various HTS numbers to compare the number of categories available under the schedule with the number of categories that the Trump administration proposed for tariffs. This is a pretty rough analysis, since the categories are administrative and not economic (in other words, some categories could be worth billions of dollars while others are much less valuable). That said, this analysis can still give us a sense of where the administration focused on.
Two categories were hit hard by the tariffs – Chapter 30 pharmaceuticals and Chapter 86 locomotive parts. Both had more than a third of their categories added to the tariffs list with China, far above the percentage of other categories. From there, precision equipment and machinery (Chapters 90 and 84 respectively) were hit, covering roughly a quarter of products each. My complete analysis list is included below.
One hypothesis I would take from these tariffs is that they could actually be quite a bit more punitive than first meets the eye. While the tariffs are being applied to roughly $50 billion worth of goods, the goods appear to have been specifically chosen to encompass a range of parts and machines required in manufacturing.
For instance, imagine that your “Instrument panel clocks” suddenly got more expensive, so you have to source clocks from a new vendor in another country. If you have to find new sources for enough parts, you might just consider adjusting your entire supply chain in the process, even for parts that didn’t come under the new tariffs regime. It’s this second-order economic effect that I think will be important to pay attention to.
No one should read the Harmonized Tariffs Schedule, but these categories do matter for the economy, and companies are going to be racing to understand the decisions made by the administration and what it means for them. As typical with proposed rules, there is a public comment period, so expect heavy lobbying from companies to get certain items off the list (or even maybe on the list in order to drive away cheaper competitors).
Ordered by percentage:
Who would have thought a potential trade war would cause investors to sell?
U.S. markets plunged today as China announced that it was implementing tariffs on $3 billion worth of American goods, mostly in agriculture and steel production. The Dow was down nearly 600 points today an hour before markets closed, and the NASDAQ was down about 210 points, or roughly 2.92 percent.
Investors are skittish that a festering trade skirmish will grow into a full-on trade war. Even though these Chinese tariffs weren’t directed at high-tech goods, investors expect that any trade fight will ultimately hit the sector the hardest, as American exports to China are predominantly in areas like aircraft, machinery and electronics. Tech stocks were almost universally down today except for a handful of smaller players.
China’s proposed tariffs are 15 percent on 120 categories of goods, including dried apples, frozen strawberries, unshelled chestnuts, sparkling wine and various types of stainless steel piping and casings. The Chinese are going to levy a higher 25 percent tariff on pork products and aluminum scrap coming from the United States. The tariffs were implemented today, and are retaliation to the Trump administration’s announcement that it would place tariffs on steel and aluminum imports. China has not yet responded with a retaliatory tariff for Trump’s tariff on $60 billion of electronic goods, which has not yet been brought into force.
Increasing tariffs is an unusual event in a world that has made free trade agreements a major force for diplomacy over the past three decades. China joined the World Trade Organization in 2001, but market liberalization has lagged, and there are increasing constituencies in the United States and in other Western nations to reverse these trade agreements and cut a new deal.
Much as the United States is preparing a fusillade of techniques to slow down Chinese trade, the Chinese government is also attempting to use various powers to fight back. Qualcomm is still waiting for approval from China’s government for its acquisition of NXP Semiconductors, a massive deal at the heart of one of America’s most prominent technology leaders. China is also considering creating Chinese Depositary Receipts to mobilize local dollars and “buy back” local tech behemoths like Alibaba and Tencent, potentially creating a new trillion-dollar local asset market.
On the American side, U.S. Trade Representative Robert Lighthizer was quoted last week saying that a computer algorithm would try to select goods that maximize the harm to China’s trade, while minimizing the damage to American consumers. That’s gradient descent into trade oblivion.
It’s a multidimensional game, with both sides using tactics that would have been completely dismissed by policymakers just a year or two ago. Expect more gyrations in the markets in the coming weeks as we learn more about Trump’s proposed electronics tariffs, and the Chinese response to them.
In the deepening trade negotiations between China and the U.S., the bargaining chips are quite literally chips.
According to multiple reports, China has offered to increase the percentage of semiconductor chips it buys from American sources, replacing offerings from South Korea and Taiwan, if the two countries can come to an economic agreement on moving their trade relationship forward. The hope is that the redirected purchases could lower the trade deficit between China and the U.S., which hit an all-time high last year of $375 billion. China is the largest consumer of semiconductors in the world, so its trade decisions have an outsized impact on the industry and its players.
These negotiations are a response to the Trump administration’s announcement last Thursday that it would place a tariff on roughly $60 billion worth of Chinese goods, with a presumed focus on high-tech goods. China, still playing catch up from an earlier declared tariff on steel and aluminum, announced on Friday tariffs on $3 billion worth of goods, which covered goods like pork, apples, and steel pipe.
The tariff on steel pipes is a reciprocal response to the original steel tariffs, but why would China choose pork and apples? Well, the states that produce those two goods also happen to be high-priority states in the U.S. presidential election system. The largest pork producing state by a long shot is Iowa, which happens to be the first nominating contest for the presidency. The same is true of apples: among the top 10 states are Michigan, Pennsylvania, Virginia, and Ohio, all of which are critically important for Trump’s reelection campaign.
Clever, but obvious. But there is another interesting card for China to play in these complex negotiations, and that is Qualcomm’s purchase of NXP Semiconductors.
I have talked a lot about Qualcomm and the complicated strategic position it finds itself in. Qualcomm’s corporate strategy has been to invest in growing markets outside smartphones, since the smartphone market has saturated and future growth is believed to be more limited. NXP is a market leader in hot areas like automotive, growth that could be quite accretive to its acquirer. The leadership of Qualcomm has made the purchase of NXP an absolute must win for the future of the company, particularly after it fended off Broadcom’s hostile takeover.
There’s just one problem. The NXP transaction has received regulatory approval in all jurisdictions except one: China.
According to Bloomberg, China’s Ministry of Commerce, which has jurisdiction over the Qualcomm-NXP decision, is under heavy pressure to increase protections for local semiconductor players, or even more aggressively, outright block the deal. A decision from China has been expected for some time now, and Qualcomm was forced to extend its tender offer to April 2nd to accommodate China’s widening timeline.
Such a move wouldn’t be unprecedented given that China has taken Qualcomm to task before. In early 2015, Qualcomm signed an agreement with Chinese antitrust regulators to pay a $975 million fine and also to lower royalty rates for local manufacturers. Royalties are a uniquely critical part of Qualcomm’s revenue mix, and given that China is the world’s largest semiconductor market, the deal foreshadowed the challenges Qualcomm was going to face from a government determined to stand up its own semiconductor industry.
China’s government has made building a world-class semiconductor industry a major national priority, investing billions of dollars and using a variety of industrial policy tools like competition policy to protect, nurture, and develop its indigenous chip industry.
The collapse of the NXP deal could be a remarkably strong blow to Qualcomm. It would represent the collapse of almost two years of work to prepare for the transaction, forcing the company to deeply consider its future. It would also raise questions about what exactly it can do to grow, given that NXP is one of a vanishing few number of companies that could drive major value for Qualcomm shareholders. Even if it found other potential transactions, China could theoretically intervene in those deals as well.
That’s a terrible negotiation position to be in with China. Little wonder then that last week’s shareholder meeting led to remarkably low support for the election of its board members. The current CEO of Qualcomm, Steve Mollenkopf, failed to get a majority of support from shareholders, a highly unusual situation given that board members of publicly-traded U.S. companies are often reelected with vote totals exceeding dictators in third-world countries. Many shareholders voted against the slate — which ran unopposed — as a protest over Qualcomm’s handling of the Broadcom takeover among many other grievances.
Buying more U.S. semiconductors then, while simultaneously knocking Qualcomm, looks like an amazing win-win for China right now. China’s import of semiconductors stays the same, since it is merely replacing U.S. parts for other Asian suppliers, while at the same time, its decision with Qualcomm could hurt America’s sole company fighting Huawei for dominance in 5G wireless technologies.
Ultimately, I predict the NXP transaction to be approved. For all of the trade negotiations and complex strategies going on here, China needs to be seen as a place open to doing business, now more than ever as its trade practices are placed in the spotlight. However, that doesn’t mean it won’t exact serious concessions from Qualcomm, which could further erode the company’s revenues and standing in China.
For a president who came to power arguing that America needed to get smart about negotiations, maybe it is time to look at how the Chinese government is playing its hand. They are not just playing their cards well, but also securing better cards all the time from other players around the table. Little wonder then that the chips in the center increasingly seem to be heading in its direction.
Following months of investigations by the U.S. Trade Representative Robert Lighthizer, the Trump administration announced today at a White House briefing that the administration intends to place tariffs on about $60 billion of Chinese goods, with the bulk of them likely to be focused on the high-tech industry. The White House will announce a final list of goods subject to the tariffs in the next few weeks.
“We’ve lost over a fairly short period of time, 60,000 factories in our country. Closed, shuttered, gone. Six million jobs at least, gone. And now they are starting to come back,” President Trump said during the briefing. “The word that I want to use is reciprocal – when they charge 25 percent for a car to go in, and we charge 2 percent for their car to come into the United States, that’s not good. That’s how China rebuilt itself.”
Vice President Mike Pence was even more blunt, saying that “the era of economic surrender is over.”
The final size of the tariffs was higher than numbers circulated this morning by The New York Times and Bloomberg, which had indicated about $50 billion in tariffs. Previously circulated numbers ranged from a low of $30 billion to a high of $100 billion, so the number that the White House seems to have settled on is in the middle of the hypothetical range.
The United States is a major importer of goods from China, hitting an all-time high trade deficit of $375.2 billion in 2017. Tariffs on electronics and other high-tech goods portends both potentially higher prices for consumers as well as assemblers, and would also likely encourage at least some Silicon Valley tech companies to move their manufacturing and assembly work out of China to other countries and possibly even on-shored back to the U.S.
Tech industry associations have been widely opposed to tariffs, seeing them as a blunt instrument. That said, those same associations have also encouraged the administration to continue to look into unfair trade practices.
Information Technology Industry Council president and CEO Dean Garfield said in a statement that “We appreciate that the Trump Administration has listened to industry’s requests for a comment period. While we look forward to providing our feedback on the options the administration has outlined, we remain concerned with the administration’s focus on tariffs. These measures could violate international obligations and – more importantly – would punish U.S. consumers, businesses, and workers for China’s action.”
In addition to the tariffs, the White House announced that the Treasury Department will put in place restrictions on Chinese investment in tech companies based in the United States. There are not comprehensive details at time of publishing on exactly what those restrictions are, but we will report them when we have more information.
Visa restrictions, which had been floated as another tactic to fight China, were not included in the announcements so far, but more action is possible by the White House.
Updated with comments from industry association ITIC. Updated to make clear that the tariffs are on $60 billion of goods, not $60 billion of tariffs themselves, as the president described during the press conference.
Over the weekend, the Information Technology Industry Council and 44 other trade associations banded together and published a letter demanding that the Trump administration take “measured” steps to stop China’s unfair trade practices and voiced its opposition to unilateral tariffs that could damage industries as diverse as electronics and agriculture.
As we have been covering on TechCrunch, the Trump administration is readying a comprehensive “all of the above” series of policies to fight China, including tariffs that might reach above $100 billion, visa restrictions on Chinese nationals, and prohibitions on Chinese capital from buying or investing in American companies. The Trump administration is expected to develop a policy here shortly as part of the conclusion of its section 301 trade investigation into China.
The letter warns that tariffs in particular could lead to “a chain reaction of negative consequences for the U.S. economy, provoking retaliation; stifling U.S. agriculture, goods, and services exports; and raising costs for businesses and consumers.”
Interestingly, the letter leaves open the door for tariffs. From the letter:
In particular, it is critically important that the Administration work with like-minded partners to address common concerns with China’s trade and investment policies. Imposition of unilateral tariffs by the Administration would only serve to split the United States from its allies, hinder joint action to effectively address shared challenges, and ensure that foreign companies take the place of markets that American companies, farmers and ranchers must vacate when China retaliates against U.S. tariffs.
Considering the wide variety of organizations that signed onto this letter, it is interesting to note that free trade arguments are not being used here forcefully, but rather that the United States should only implement trade restrictions with the cooperation of other nations.
The letter from the trade association in many ways mirrors a letter released by House Republicans two weeks ago that similarly urged the administration against imposing unilateral tariffs on aluminum and steel, tariffs that the Trump administration had already announced that it is implementing.
Outside ITI, the signatories of the trade association letter included a spate of tech industry-affiliated associations, including Allied for Startups, CompTIA, the Computer and Communications Industry Association, the Consumer Technology Association, the Developers Alliance, the Internet Association, the Software & Information Industry Association, TechNet, and the Telecommunications Industry Association.
President Trump’s decision to block a mega-merger deal between Broadcom and Qualcomm appears to be just the opening gambit for a significantly bolder strike on Chinese technology and investment firms as well as Chinese nationals learning and working in the United States.
For an administration that is as defined by its day-to-day chaos as its penchant for flashy headlines, it is clear that the package of trade, investment, and immigration restrictions currently being drafted represents the most comprehensive and organized policy planning effort undertaken by this administration yet. President Trump and his administration is serious about bolstering American competitiveness against the growing Chinese economy.
Given the tight constellation of talent, companies, and capital between China and the U.S., the comprehensive package that Trump is increasingly likely to propose in the next few weeks would deeply alter the trajectory of Silicon Valley and technology innovation more broadly.
Politico reported this afternoon that after U.S. Trade Representative Robert Lighthizer presented a package of tariffs to be leveled on China that would total $30 billion, “Trump urged Lighthizer to aim for an even bigger number,“ with sources telling Politico that the new headline number could be $60 billion. Those tariffs would be heavily focused on technology and telecom, although they would not be limited to those sectors.
Last year, the United States trade deficit with China was estimated at $375.2 billion, according to the Bureau of Economic Analysis at Commerce, which was an all-time high.
The Office of the U.S. Trade Representative announced back in August that it had initiated what is known as a Section 301 investigation into China’s intellectual property practices “to determine whether acts, policies, and practices of the Government of China related to technology transfer, intellectual property, and innovation are unreasonable or discriminatory and burden or restrict U.S. commerce.”
It is believed that the results of that investigation could provide the underlying rationale for the new tariffs, as well as other policy changes.
The process to secure an H1B visa — the key high-skill visa predominantly used by Silicon Valley companies to bring in foreign workers to the U.S. — has gotten notably harder under the Trump administration. Additional paperwork requests have been made of applicants, and professionals knowledgable about immigration have said that they have experienced significantly higher burdens in getting visas approved.
Rumors in December swirled that the administration would ban H1B extensions when applying simultaneously for a green card — what one person described as a kind of “self-deportation,” as McClatchy’s DC Bureau reported at the time.
Now, it appears the administration is going to focus more intently on limiting Chinese immigration and take a more critical eye to Chinese nationals working in sensitive areas like science and technology, again according to Politico. Such a move could involve blocking Chinese graduate students from attending U.S. universities or preventing Chinese professionals and researchers from collaborating with their American counterparts.
As with all of these changes, it’s sometimes not the changes themselves, but the threat of them that has an impact. The number of foreign students coming to the United States to study for instance has declined by 17% the previous fiscal year ending September 30th, a trend at odds with the previous decade’s growth in foreign student enrollment. Additional restrictions placed on a single country like China could further chill that migration.
Finally, there is the expansion of the president’s authority to block Chinese investments in the United States, which is currently working its way through Congress. That expansion of power is designed to target minority equity investments, such as venture capital. Additional Treasury Department regulations are currently being drafted that would further restrict Chinese investments, even potentially without a law being passed by Congress.
As with immigration, the threat of such prohibitions could cool the capital markets between the U.S. and China, potentially severely.
In short, Trump is using an “all of the above” approach to target China’s trade practices. These policies are being discussed today, and could change widely over the next few days and weeks as more feedback from government departments and the private sector filter into the White House. But it is clear Trump wants to make a big impact on this issue, and the unusually organized policy process is a harbinger for large changes to come.