Trade Update (August 24)
Last week, the U.S. and China delayed a review of the Phase One trade deal initially slated for Saturday (Aug. 15). On Tuesday (Aug. 18), President Trump told reporters he canceled the scheduled trade consultations and suggested the U.S. could pull out of the Phase One deal.
“I postponed talks with China. You know why? I don’t want to deal with them now. I don’t want to deal with them now,” Trump told reporters in Yuma, AZ. “With what they did to this country and to the world, I don’t want to talk to China right now,” he added.
Regarding the talks, White House Chief of Staff Mark Meadows indicated the “check-in” would not be rescheduled.
“Obviously the trade representatives talk to each other on a pretty regular basis and I think there’s a real frustration by the president and by many Americans about the lack of transparency and what happened with this virus and even still, the lack of transparency with what happened, how it happened, and how contagious it was,” Meadows said.
On Monday (Aug. 17), Senate Finance Committee Chairman Chuck Grassley (R-IA) said the Trump administration should not pursue a trade agreement with Taiwan if doing so could derail discussions with China.
“I’m for a free trade agreement with Taiwan but I wouldn’t want that to stand in the way of a Phase Two with China,” Grassley said.
However, he also said that if negotiations with China stall, then the U.S. could move ahead with Taiwan.
On Monday (Aug. 17), the Commerce Department announced it would broaden its foreign direct product rule to capture more U.S. exports.
The new rule builds on an initial May rule that applied U.S. export controls “to any foreign-produced item that is the direct product of a plant or major component of a plant located outside the United States when the plant or major component of a plant itself is a direct product of U.S.-origin ‘technology’ or ‘software” that falls under specified export control classification categories.”
The draft Federal Register notice said the administration will ban, “the reexport, export from abroad, or transfer (in-country) without a license, of certain foreign-produced items when the foreign-produced item will be incorporated into, or will be used in the ‘production’ or ‘development’ of any ‘part,’ ‘component,’ or ‘equipment’ produced, purchased, or ordered by an entity listed on the Entity List.”
Commerce Secretary Wilbur Ross said the amendments to the foreign direct product rule showed the department’s commitment to thwarting Huawei’s acquisition of U.S. technology.
The Semiconductor Industry Association, which represents 95 percent of the U.S. semiconductor sector, was surprised by the rule and said it could severely disrupt industry.
China blasted the new rule, and said, “China firmly opposes the deliberate smear and suppression of Huawei and other Chinese companies by the U.S.”
To view the draft Federal Register notice, click here.
Democratic nominee for president Joe Biden has indicated he would prioritize passing domestic economic stimulus through Congress before negotiating any new trade deals.
Even Democratic leaders who have criticized Trump’s current “trade war” are backing this strategy. Chairman of the House Ways and Means Subcommittee on Trade Earl Blumenauer (D-OR) said he is not concerned about Biden placing trade agreements outside his top priorities.
“I don’t think there’s a need to rush in and try to pretend that (a new trade deal) is something that’s going to be a part of a 100-day agenda,” he told Politico, and urged Biden to complete a holistic review of Trump’s tariffs before rescinding any actions.
The campaign has stressed Biden would reengage U.S. allies that declined to work with Trump on his “go-at-it alone” China trade policy. A Biden official said efforts would be “distinct” from any large international trade pacts, and, “trade negotiations over big trade deals are something that will in sequence follow a dramatic set of domestic investments.”
During the first three days of the Democratic National Convention, speakers have largely ignored trade issues and rather hit the president on his handling of the COVID-19 pandemic and economic downturn.
Some trade analysts are skeptical of the Biden campaign’s lack of emphasis on trade issues, and note that strong allies, including Canada and the European Union, will immediately demand action on unilateral tariffs Trump has implemented. Additionally, some of Biden’s domestic economic goals, for example bringing back supply chain manufacturing from Asia, will require him to pay attention to trade issues immediately.
At this point, it is unclear whether a Biden presidency would return to the free-trade agendas of Presidents Obama and Clinton, or take a more populist track.
American-Made PPE Bill
On Tuesday (Aug. 18), Senators Rob Portman (R-OH) and Gary Peters (D-MI) introduced legislation to strengthen efforts to onshore production of personal protective equipment (PPE) in the U.S. The bill would require the Defense Logistic Agency (DLA) to issue long-term contracts for American-made PPE.
“The American people should not have to rely so heavily on foreign countries for personal protective equipment, and that’s why we must bring PPE production back to our shores,” Portman said.
“When I talk to PPE manufacturers about re-shoring this production to America, the number one thing I hear is the need for long-term contracts. Multi-year contracts give producers the certainty to know that their investment in the United States will be worth it, because the government will be there to buy the PPE they produce. By reshoring production of PPE, we can continue to support a safe and effective reopening of our schools, workplaces and the economy and I urge my colleagues to support this important bipartisan legislation,” he added.
To view a press release on the legislation, click here.
Global Trade Plummets
Global trade hit its lowest levels since 2007 in the second quarter of 2020. Consequently, a V-shaped rebound “may prove overly optimistic,” the World Trade Organization (WTO) said on Wednesday (Aug. 19).
On Wednesday (Aug. 19), the “good trades barometer” published by the WTO read 84.5 on a scale where 100 corresponds to trade growth in line with medium-term trends. Both automotive goods and air freights were the worst hit.
The data was consistent with a previous WTO forecast that merchandise trade would have fallen 18.5 percent in the second quarter.
“The heavy economic toll of the COVID-19 pandemic suggests that the projections for a strong, V-shaped trade rebound in 2021 may prove overly optimistic,” the WTO said, but added that “an L-shaped recovery is a real prospect.”
 “White House chief of staff: U.S.-China check-in won’t be rescheduled.” Inside U.S. Trade, 19 Aug. 2020. https://link.edgepilot.com/s/3326d299/9O2jt9UYJ06OkUkacjWUNw?u=https://insidetrade.com/daily-news/white-house-chief-staff-us-china-check-won%25E2%2580%2599t-be-rescheduled
 “Grassley worried a Taiwan trade-deal push could interfere with China talks.” Inside U.S. Trade, 18 Aug. 2020. https://link.edgepilot.com/s/c69d051c/C7tfR0bP1Em026BbH9giXw?u=https://insidetrade.com/daily-news/grassley-worried-taiwan-trade-deal-push-could-interfere-china-talks
 “Commerce broadens scope of foreign direct product rule.” Inside U.S. Trade, 18 Aug. 2020. https://link.edgepilot.com/s/5fdd8760/V50EWrLdkEKwykWAkOYPcg?u=https://insidetrade.com/daily-news/commerce-broadens-scope-foreign-direct-product-rule
 Bade, Gavin. “For Biden, untangling Trump’s trade wars takes backseat to economy.” Politico Pro, 20 Aug. 2020. https://link.edgepilot.com/s/78ca853b/gsDgg4K6rU_HPoP077YtsQ?u=https://subscriber.politicopro.com/article/2020/08/for-biden-untangling-trumps-trade-wars-takes-backseat-to-economy-1972034
 Leali, Giorgio. “Global trade plumbs lowest level since 2007.” Politico Pro, 19 Aug. 2020. https://link.edgepilot.com/s/fd940749/4SuwPl8Q4UuuVW0VlgwqEA?u=https://subscriber.politicopro.com/article/2020/08/global-trade-plumbs-lowest-level-since-2007-3983430