US CHINA TRADE WAR–US China Trade War Update–Trump’s Tweets and Xi’s Speech Calm the Trade War WatersTRADE WAR EXPANDS WITH US THREATENING TARIFFS $150 BILLION IN CHINESE IMPORTS, SECTION 301, SECTION 232 STEEL AND ALUMINUM CASES, DAMAGE TO US AG STATES and US CHINA TRADE WAR RISKY CHICKEN GAME

TRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

TRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR UPDATE APRIL 10, 2018

Dear Friends,

This is an update to the first blog post, which gave an overview of the Trump Trade War.

President Trump’s tweets on April 8th and 10th and most importantly President Xi’s April 10th speech did a lot to calm the nerves of investors in the US and China that no trade war was imminent.  President Xi in his April 10, 2018 speech at the BOAN Conference in Hainan pledged to open China further to imports and to investment and to protect the intellectual property rights (“IPR”) of foreign companies.

Now in response to the Section 301 case, we can expect a round of intense negotiations between the US and China until November 18, 2018 to see if President Xi’s promises can be put into writing and the threats of a trade war averted.  Although President Xi pledged to move the reform process expeditiously, the Section 301 case has external deadlines.  After the May 15th hearing and final comments on May 22nd, there are still 180 days, 6 months, or until November 18, 2018 before the US takes action under Section 301.

Section 301 are usually settled with trade agreements so the question is what will China agree to and what will be in the Agreement.

Most importantly, the hope is that this Section 301 action can also help solve the Steel and Aluminum crisis in the Section 232 case as part of these negotiations so that China will lift its $3 billion in retaliation on US imports, which has already been put in place.  That is a hope of many US farmers.

My next update will describe the exclusion process in detail in the Section 232 Steel and Aluminum cases, the Section 201 Solar case and the procedures going forward in the Section 301 IP China case.

If anyone has any questions or wants additional information, please feel free to contact me at my e-mail address bill@harrisbricken.com.

Best regards,

Bill Perry

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PRESIDENT XI’S SPEECH AND PRESIDENT TRUMP’S TWEETS HELP CALM THE TRADE WATERS AND HOPEFULLY AVERT A TRADE WAR

As the potential for a US China full blown trade war appeared to escalate last week with increasing rhetoric from both sides, cooler heads appeared to prevail as both sides stepped back from the brink.

On April 8, 2018, over the weekend and before the President Xi April 10th speech, President Trump appeared to step back and tone down his rhetoric with regards to China.  Trump specifically tweeted:

“4/8/18, 5:12 AM

President Xi and I will always be friends, no matter what happens with our dispute on trade. China will take down its Trade Barriers because it is the right thing to do. Taxes will become Reciprocal & a deal will be made on Intellectual Property. Great future for both countries!”

Very smartly, President Trump decided not to attack China or the Chinese people and that did a lot to calm the waters and provoke a positive reaction from China.  As President Xi stated in his April 10th speech, “With the future in mind, we need to treat each other with respect and as equals.”

After President Xi’s speech, President Trump tweeted on April 10th:

“4/10/18, 10:51 AM

Very thankful for President Xi of China’s kind words on tariffs and automobile barriers…also, his enlightenment on intellectual property and technology transfers. We will make great progress together!”

In effect, all the US anti-trade rhetoric had created a crisis atmosphere and the question is how China would react.  President Xi’s speech helped the US walk back the rhetoric in preparation for negotiations.  Although Trump maybe a good negotiator, the other side still has to come to the table.

Thus, Chinese President Xi Jinping’s speech on April 10th speech at the Boao forum in Hainan, China was extremely important to clear the rhetoric away in preparation for negotiations.  The Boao forum is an annual forum of Asian government and business leaders in Hainan.  In that speech, although not referring to Trump trade action by name, President Xi responded by pledging to open China more to foreign investment and imports and to substantially increase protection for intellectual property held by foreign companies.

One can see the entire April 10th President Xi speech at https://www.youtube.com/watch?v=KgUcL4rdpI0.

President Xi’ made clear in the speech his support for global development cooperation and peace.  He stated that only peaceful development and cooperation can bring a win-win situation.  He also stated that China has no choice but to pursue development and connectivity, and that reform and innovation are keys to human development.  President Xi emphasized that countries have to treat each other with respect and as equals.

President Xi described China as a socialist country with Chinese characteristics, not a Communist country. President Xi stated that China will not threaten anyone else or the international system.  It is determined to build World Peace and global prosperity.

President Xi also stated that China is committed to its strategy of opening up China, and China will stay open and will open up even further.  President Xi stated that greater openness will move economic globalization further so as to benefit people.

President Xi also pledged to take concrete action and measures to significantly broaden market access in the financial area, insurance, and other areas.  Xi specifically mentioned easing equity restrictions in the automobiles area.

President Xi pledged stronger IP protection and to protect IPR of foreign companies and to expand imports.  He also stated that China does not seek a trade surplus but a balance of payments and that China will significantly lower imports tariffs for autos and other products.  Xi specifically stated:

“With regard to all those major initiatives I have just announced, we have every intention to translate them into reality sooner rather than later.  We want the outcomes of our opening up efforts to deliver benefits as soon as possible to all enterprises and people in China and around the world.”

President Xi also stated:

“Openness versus isolation and progress versus retrogression, humanity has a major choice to make.  In a world aspiring for peace and development, the Cold War mentality and zero‐sum mentality look even more out of place.”

Xi called for “a new approach to state‐to‐state relations, featuring dialogue rather than confrontation and partnership instead of alliance.”

Xi further stated that China will create “a more attractive investment environment. Investment is like air and only fresh air attracts more investment from the outside.”

With regards to intellectual property, President Xi stated:

“Stronger IPR protection is the requirement of foreign enterprises, and even more so of Chinese enterprises.  We encourage normal technological exchanges and cooperation between Chinese and foreign enterprises, and protect the lawful IPR owned by foreign enterprises in China.”

The real question now will be implementation, and China will no longer have the luxury of taking as much time as it wants to make these reforms because the Section 301 clock is ticking.  After the May 22nd final comments at USTR, pursuant to the Section 301 statute, the Trump Administration has another 180 days or six months or until November 18, 2018 before it takes action and imposes tariffs on the $50 billion in imports.

Most Section 301 cases end up with a negotiated settlement so we should expect the same end game in this case with intense negotiations by both sides.

If anyone has any questions about these cases or about the Trump Trade Crisis, Section 301 IP Case against China, Section 201 Solar Case, Section 232 case on Steel, Aluminum or Uranium or US trade policy, the antidumping or countervailing duty law, trade adjustment assistance, customs, False Claims Act or 337 IP/patent law, please feel free to contact me.

Best regards,

Bill Perry

US CHINA TRADE WAR APRIL 7, 2018

Dear Friends,

This is the first of two blog posts.  The first blog post gives an overview of the Trump Trade War/Crisis with the World and specifically with China.  The second blog post will get into the details and the complexities of the Section 232 Steel and Aluminum cases, the Section 301 China Intellectual Property (“IP”) case and the Section 201 Solar Cells case.  But this trade war is getting bigger and bigger.

Having just returned from a month in Europe on March 26th, I wanted to put together another blog post, but every day there has been another significant trade development.  While in Europe, I was thinking that my next blog post would be entitled “Trump’s World Trade War”. Had the Trump Administration taken a World Trade War too lightly?

But after I returned from Europe, the narrative changed as country after country negotiated country exemptions out of the Section 232 Steel and Aluminum Tariffs.

But then on April 1st the Chinese government issued a $3 billion retaliation list aimed at US imports in response to the Section 232 tariffs, much of it agricultural products.  On April 3rd. the Trump Administration announced $50 billion in potential tariffs on Chinese imports in the Section 301 case.  See attached Presidential Proclamation and 301 Fed Reg Notice with US retaliation list, FED REG NOTICE 301 PLUS PROPOSED US RETALIATION LIST FED REG PRESIDENTIAL DETERMINATION 301 CHINA  The Chinese government immediately reacted with its own attached list of $50 billion in tariffs on US imports into China.  China-301-Retaliation-List-Chinese-and-English.  Both lists will be described in more detail in my second blog post. Both lists cover many, many different products from agricultural products to machinery, automobiles and airplanes.

On April 5th, in response to China’s $50 billion in retaliation, President Trump proposed and USTR Lighthizer agreed on another $100 billion in tariffs on Chinese imports.  $150 billion in tariffs on Chinese imports completely offsets the $130 billion in US exports to China.  The US and China are now involved in a game of trade war chicken.  Who will blink first?

So the new title of the newsletter below is “Trump’s World Trade War?? Maybe Not.  Now Definitely Yes”  But as Shakespeare stated in Hamlet, maybe there is a method to Trump’s madness.  Trump appeared to be ready to start a World Trade War at the beginning of March, but at the end of March, Trump appeared much more interested in using the threat of high tariffs to get a better trade deal to open up foreign markets.  Tariffs give Trump leverage in trade deals.

But then the trade war started to escalate with China as both sides created retaliation lists.  The only shining light in this trade conflict is that the $150 billion tariffs will not take place right away.  There will be a hearing in May to determine which imports to target and then the actual decision implementing the US tariffs will be months away.

The Chinese government will also not implement the $50 billion in threatened tariffs until it sees what the Trump Administration does. Meanwhile there will be intense negotiations between the US and Chinese governments.

Two readers have criticized me for not focusing enough in past blog posts on the trade deficits with China and high tariffs China puts on US exports.  US exports in 2017 were $2.4 trillion, $1.6 trillion in goods and the impact of a trade war on US companies and jobs is becoming very clear.  With regards to China, the United States exported $130.369 billion to China in 2017, imported $505.597 billion in 2017 leaving a trade deficit of $375.227 billion.  Concentrating only on trade deficits, however, ignores the very large amounts exported by the United States to the World and China.

But the real question is strategy.  Trump’s strategy apparently is to use the threat of high tariffs on imports from China and other countries to extract better trade deals which lower duties on and barriers to US exports.  As indicated below, USTR Lighthizer’s strategy, in part, is based on the belief that China has not kept its promises.  The Chinese government negotiates, but does not live up to its deal so only a true threat of big trade retaliation will force China to change its practices when it comes to intellectual property and mercantilism.  if the strategy works, more power to President Trump.

But, sovereign countries may not react the same way as private businesses.  Sovereign countries are very aware of face and whether the US Government respects the other country.  If President Trump pushes too hard, he risks so angering the other country, that no trade deal can be negotiated.  See the movie the Gathering Storm when Winston Churchill asked his British constituents on a subway train whether his government should negotiate a peace treaty with Hitler.  The answer was never!!

More importantly, because of the real negative economic impact Trump’s trade policy has already had on farm states, which is a core constituency and part of Donald Trump s base, Trump should know that he truly has bet the House/his Presidency on his trade deals.  If his trade strategy does not work, the economic damage his policy will do on his constituency will badly damage Republicans in the mid-terms and he probably will be a one term President.  Going into the midterms, Republican Senator Grassley from Iowa, which has been hit hard by Trump’s trade policy, has stated that Trump will own any harm caused by his trade strategy and any retaliation caused by it.  Senator Grassley should know because Iowa is changing from a state that was firmly in the Republican camp and pro-Trump to a now battleground state.

The objective of this blog has been to warn about the perils of protectionism.  I do not want to exaggerate the situation.  If Trump’s strategy works and he gets better trade deals, he will be in a very good situation.  But if the trade deals go south, especially with China, Trump’s core constituents will be badly hurt in a trade war by retaliation and there will be election hell to pay.  Trade is becoming Trump’s Obamacare lightening rod.

If anyone has any questions or wants additional information, please feel free to contact me at my e-mail address bill@harrisbricken.com.

Best regards,

Bill Perry

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TRUMP’S WORLD TRADE WAR?? MAYBE NOT.  NOW DEFINITELY YES.

On February 27th, USTR Robert Lighthizer on the Laura Ingraham show on Fox News stated that it was ridiculous to think that the United States was going to get into a trade war with China.  On April 6th, in light of Trump’s decision to impose another $100 billion in tariffs on China’s imports in response to China’s threatened $50 billion on US exports, Lighthizer’s statement is simply ridiculous.  The United States has a full-blown trade war with China.  Lighthizer’s original statement, however, indicates that he may have underestimated the response of other countries to his trade demands.

At the start of March, it certainly appeared that the Trump Administration had started a trade war not only with China, but with the entire world.  In effect, the United States apparently had created a World Trade War. With tough trade NAFTA negotiations with Mexico and Canada, Europe issuing its own retaliation list in response to the Section 232 Aluminum and Steel Tariffs along with very tough tariffs for China and long retaliation lists aimed at US exports, it certainly looked like a World Trade War.

As I visited many cities in Germany, including Berlin, my fear was that the Trump Administration, like Germany, was taking a trade “war” too lightly. On March 2, 2017, President Trump tweeted:

“When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. Example, when we are down $100 billion with a certain country and they get cute, don’t trade anymore-we win big. It’s easy!”

President Trump apparently was referring to a $100 billion bilateral trade deficit with a certain country, but it was not clear which one. In 2017, the U.S. ran a global goods deficit of $810 billion. The largest bilateral trade deficit was $375 billion with China.  But in 2017 total US exports were $2.4 trillion with $1.6 trillion being goods.  Agricultural products amounted to only $137 billion, the rest were manufactured goods.

This tweet followed the announcement to impose broad tariffs  of 25% on steel imports, and 10% on aluminum imports pursuant to the Section 232 cases.  On March 16th, the EC issued its own attached retaliation list, TWO EU RETALIATION LISTS.

In response, on March 2, 2018, the Wall Street Journal (“WSJ”) in an article entitled, “Trade Wars Are Good, Trump Tweets,” immediately criticized Trump’s trade action along with many economists and others, stating:

That is what most economists would call a classic “trade war,” which Investopedia defines as “a negative side effect of protectionism that occurs when Country A raises tariffs on Country B’s imports in retaliation for Country B raising tariffs on Country A’s imports.”

Most economists and policy makers consider trade wars unpredictable, destabilizing and damaging, the most notorious example being the cycle of tit-for-tat retaliation intensified by the 1930 American Smoot-Hawley law that aggravated the Great Depression.

At a March 21st hearing in the House of Representatives Ways and Means Committee, USTR Lighthizer gave a measured step by step argument on the Section 232 Tariffs and the Section 301 China IP Case against China to explain Trump’s trade strategy.  To see the two hour plus hearing before Ways and Means, see https://www.youtube.com/watch?v=MxqNWw5PObk.

On March 22nd, Commerce Secretary Wilbur Ross appeared before the House Ways and Means Committee to defend the Section 232 Steel and Aluminum tariffs.  Many Representatives expressed substantial concern about the retaliation against different US exports products, such as agricultural products, and the impact on downstream steel users.  To see this long hearing with Wilbur Ross, click on the following link https://www.youtube.com/watch?v=vylt-NTsT8I.

Upon my return from Europe, on March 26th, the situation appeared to change with a number of countries, including Canada, Mexico, South Korea, the EC, Argentina and Brazil, negotiating final or temporary trade agreements with the US in the Section 232 cases to get country wide exemptions.  See attached Section 232 Fed Reg notice outling exemptions for countries and for products, which can be filed by US end user companies. EXCLUSION FED REG STEEL AND ALUMINUM.  The exemptions for Canada and Mexico are only good depending upon the results of the NAFTA negotiations.  The EC, Brazil and Argentina exemptions are only good until early May when hopefully final agreements will be negotiated.  This was apparently part of USTR Lighthizer’s strategy before tackling China.  See below.

With regards to South Korea, in the final agreement, in exchange for a country wide exemption from the Section 232 Steel and Aluminum tariffs, it agreed to limit its steel exports to 70% of the average steel exports over the last three years and also open up its own market slightly to more auto imports from the US.  Since South Korea is the third largest steel exporter to the US, that reduction does mean that there will be less steel in the US market.

But then the trade war started to escalate again, especially with China.  On April 1st, China announced it was levying tariffs on 128 different US imports into China totaling $3 billion in response to the Section 232 tariffs on Steel and Aluminum.  China also took its case to the WTO and stated that since there are no negotiations, it can levy those tariffs now.  See the attached $3 billion Chinese retaliation list, SECTION 232 CHINA LIST RETALIATION TARGETS, which has already been imposed on US imports into China.

On April 3rd, pursuant to the Section 301 case on Intellectual Property, the Trump Administration announced its threatened $50 billion-dollar tariff list to offset the intellectual property allegedly stolen by China every year.  See attached list and Presidential Proclamation, FED REG PRESIDENTIAL DETERMINATION 301 CHINA FED REG NOTICE 301 PLUS PROPOSED US RETALIATION LIST.  Immediately, China announced its own attached $50 billion retaliation list on tariffs to be imposed on US imports, China-301-Retaliation-List-Chinese-and-English, if Trump follows through on his threat.

On April 5th, in response to the Chinese $50 billlion retaliation list, President Trump asked the USTR to add another $100 billion on the $50 billion already proposed against China.  The April 5th exchange between the President and USTR Lighthizer are attached.  TRUMP STATEMENT 100 BILLION LIGHTHIZER RESPONSE.  On April 6th, China said it would respond, but $150 billion is more than total US exports to China of $130 billion.

US proposes, China retaliates, the US raises the anti.  China responds.  This is a true trade war and exactly what the Wall Street Journal and others have predicted.

The only good point is that neither list has been implemented yet and as described below in more detail, the actual implementation of the tariffs is probably months away.

TRUMP HAS BET THE HOUSE/HIS PRESIDENCY ON BETTER TRADE DEALS

In his book, the Art of the Deal, Donald Trump states at page 222:

“USE YOUR LEVERAGE

The worst thing you can possibly do in a deal is seem desperate to make it.  That makes the other guy smell blood, and then you’re dead.  The best thing you can do is deal from strength, and leverage is the biggest strength you can have.  Leverage is having something the other guy wants.  Or better yet, needs.  Or best of all, simply can’t do without.”

Trump has made it clear that he wants tariffs.  Through the Section 232 process and the Section 301 IP Case against China, Trump got his tariffs and his leverage.  Now the question is what is Trump’s trade strategy.

On March 10th, in a Pennsylvania speech after the announcement of the Section 232 tariffs on steel and aluminum, President Trump stated with regards to trade:

European Union. . . They kill us on trade… They have trade barriers.  We can’t even sell our farming goods.   . . . Then they say we want those tariffs [aluminum and steel] taken off.  We are going to tax Mercedes Benz, BMW.  . . .You want money to come into our country.   . . . We are like $100 billion down with the European Union.  We had stupid politicians doing stupid things.  Think of $100 billion.  I’ve already had $71 billion Mexico, $130 billion.  That is a real number.  The deal was bad the day they made it.  Mexico charges a 16% tax nobody talks about.  I talk about it.  We are either going to renegotiate NAFTA – and I say we won’t put the tariffs on Mexico and Canada.  Canada is brutal.  We have a deficit with Canada.  They send in timber, steel a lot of things.  Our farmers in Wisconsin are not treated well when we want to send things to them.

I don’t blame them.  Why should I blame them?  They outsmarted our politicians for decades.  I don’t mean Obama.  I mean all of them since Bush the first.  That includes a lot of territory.  Ronald Regan. . . Not great on trade.

We used to be a nation of tariffs.  Countries had to pay for the privilege of taking our product, our jobs.  They had to pay.  They want to sell their products.  They had to pay.  Today in China.  They sell a car to the US they pay 2.5%.  We sell a car in China, which is almost impossible to do, it is probably . … 25%.  That is why we have a trade deficit with China.  It is not good.  We are changing it.  It takes a while. . .

We have a trade deficit with countries of the world…of almost $800 billion.  Who makes these deals?  . . . It is more than Obama.  Plenty of Presidents allow that to happen.  We are going to get a lot of things straightened out.  NAFTA is under work right now.

Now they are going to be very good. . .If you make a decent deal for the American people, we will have no problem with tariffs.  I said ..  something to the European Union. Look you are killing us.  We are losing $100 billion a year…You are not accepting our product.  I want to help the farmers . . .

You hear the European Union.  It sounds innocent.  It is not innocent.  They are very tough and smart.  They sell stuff into us and we … charge them practically nothing.  We sell things into them, you can’t get through the barriers.  They have artificial barriers.  It is not monetary, environmental.  They come up with things you would not believe.  We can’t get our product in there.  I said open up your barriers.  Get rid of your tariffs and we will do this. . .  We have a lot of work to do.

That is the Trump strategy.  Raise tariffs and if necessary raise tariffs again and then use those tariffs as leverage to get a better trade deal.  But what if the other country does not cooperate and puts out its own retaliation list?  That is the risk of Trump’s trade policy; the economic situation in Trump country, especially in the agriculture states, turns down.

To see a more optimistic prediction of the Trump trade strategy, see this April 4th interchange between Neil Cavuto on Fox Business with Larry Kudlow, now Trump’s new economic advisor, stating that deals will be worked out.  See https://www.mediaite.com/tv/cavuto-battles-kudlow-in-tense-standoff-you-dont-sound-like-the-larry-kudlow-i-respected-and-admired/.

Meanwhile, on April 5th the Commerce Department reported that in February 2018, the US trade deficit rose to $57.6 billion, 9½%, to its highest level in almost 10 years, although the trade deficit with China narrowed sharply falling 18.6% to $29.3 billion.  In February US exports of goods increased 2.3% to $137.2 billion, but goods imports jumped 1.6% to $214.2 billion.

On April 4th, Mark Zandl, chief economist at Moody’s Analytics, predicted that Trump’s trade policy to date has cost 190,000 jobs.

THE DOWNSIDE OF TRUMP’S TRADE WAR STRATEGY–AGRICULTURE

But in the agriculture states, a hard rain is going to fall and is falling.  Just from the initial attached $3 billion-dollar list, which has gone into effect, agriculture has been the top target. SECTION 232 CHINA LIST RETALIATION TARGETS. Agriculture experts expect that the soybeans, sorghum, beef, pork, wheat, corn and cotton are all on the target lists for both cases.  For most of these farm products, US farmers export billions to China.

Attached is list from Washington State indicating the potential indirect impact to the state of the $50 billion in tariffs, which may go into effect. China 301 retaliation by Value US China-301-Retaliation-List-Chinese-and-English.  Attached is another spreadsheet of the actual impact on Washington State of the $3 billion in tariffs in effect now in response to the steel and aluminum tariffs, WASHINGTON STATE China 232 FINAL retaliatin list and Washington exports.  The total is over $150 million in Washington State exports, including cherries ($100 million), Aluminum Scrap ($49 million), Apples ($17.6 million) and wine ($1.4 million).

On April 5, 2018, in an article entitled “What a Trade Fight Would Mean For Trump Country”, the Washington Examiner looked at the downside of the Trump trade war and attacks on other countries.  Farmers are getting smashed and they are a core Trump constituency.  As the Washington Examiner states:

President Trump’s hardball tactics to extract trade concessions from China could crush communities that fuel his political support, with Republicans in Congress paying the price in November.

A Brookings Institution analysis revealed that a U.S.-China trade war would impact agriculture and manufacturing and could disproportionately cost working class jobs in counties Trump carried in the 2016 election. Of the 2,783 counties affected, the president won 2,279; compared to just 449 that went for Democrat Hillary Clinton.

Nearly 1.1 million jobs in Trump country are tied to trade with China, according to the Brookings study. Voters there, supportive of the president’s agenda and long eager for the U.S. to combat Beijing’s unfair trade practices, might give the administration latitude to negotiate better terms.

But if the confrontation escalates and the economy suffers, congressional Republicans could shoulder the blame. Already facing a challenging re-election environment, they count a growing economy among their few advantages. They have minimal time to weather any storm and, unlike Trump, can’t rely on the loyalty of the GOP base.

“This could have a huge, negative impact in the midterms — and beyond — if the trade tit for tat continues,” Dave Carney, a veteran Republican strategist based in New Hampshire, said. Although, he added: “If the president gets concessions and jobs continue to grow and most importantly voters give him credit for that victory, then things will improve for his party.”

The Brookings Institution, a centrist think tank in Washington, examined industries and jobs that would be affected by a trade war with China based on the threats being lobbed back and forth since Trump began moving in March to crack down on Beijing. . . .

Nothing concrete has actually happened, yet. Wall Street, and top executives at corporations who stand to lose business, are operating under the assumption that a deal will be reached before the saber-rattling evolves into an extended showdown. . . .

The agriculture industry, the economic backbone of many rural communities in the heartland, is less sanguine and isn’t waiting for negotiations between Washington and Beijing to falter to sound the alarm. In a press release, the American Soybean Association said “Chinese Retaliation is No Longer a ‘What If’ for Soybean Farmers.”

Soybean farmers export 60 percent of their crop, about $14 billion worth annually, to China. ASA Vice President Davie Stephens, a soybean farmer in Clinton, Ky., said he awoke Wednesday morning to a 30-40 cent per bushel drop in the price of soybeans, which appeared related to the increased specter of a trade war.

“Farmers are worried,” Stephens said in a telephone conversation. “My local community would feel the impact.”

Trump at times has been bellicose in his rhetoric, vowing that he would do whatever is necessary to force China to treat U.S. imports fairly. “When you’re already $500 Billion DOWN, you can’t lose,” he tweeted. But the administration in general sought to calm nerves, with top officials insisting that Trump is intent on avoiding a major spat with Beijing.

“You know, there are carrots and sticks in life, but he is ultimately a free trader. He’s said that to me, he’s said it publicly. So he wants to solve this with the least amount of pain,” Larry Kudlow, the president’s chief economic adviser and an ardent free trader, told reporters.

Republicans worried about the midterm elections don’t sound reassured. Hoping to run on a $1.3 trillion tax overhaul that accelerated economic growth in the first quarter of the year and delivered massive tax cuts, Republicans have seen their economic message usurped by Trump’s proposed tariffs.

Worse, Republicans fear that an unintended trade war might erase the economic gains they’re depending on to buttress the party against political headwinds that threaten to wipe out their majorities in the House and Senate. As Brookings discovered, more than 2.1 million jobs could be adversely affected by a confrontation with China, including almost 1 million in the 449 Clinton counties.

That’s because China’s potential retaliatory targets include white-collar industries such as pharmaceuticals and aerospace. House Republicans are defending 23 districts won by Clinton 17 months ago, and trade war aftershocks that rumble through Clinton counties could add to GOP woes in the affected red seats.

Working-class voters might not fret too much about stock market volatility attributed to Trump’s trade policies. But it could push the white collar set right into the arms of the Democrats, especially in educated, upscale suburbs that typically vote Republican but are drifting, because of dissatisfaction with the president’s polarizing leadership.

“If I were a Democrat, what I would be running up Trump’s ass is how these shenanigans are DESTROYING values in 401ks and college savings plans,” a GOP strategist said. “Most people don’t know a cashew farmer or whiskey distiller but do worry about their own retirement account and paying for college.”

The problem for President Trump is that according to an April 5th article by Newsmax, as reported by Morning Consult, Trump’s approval rating across the 50 states has fallen to 41%.  The Rasmussen Poll shows Trump rising to 51%, but when polling is done at a state level, it is not that pretty.  In contrast to West Virginia, which shows a huge bump for Trump, Iowa dropped by 9 points, Idaho dropped by 6 points, Montana by 5 points and Oklahoma by 5 points.  These states have several things in common.  First, they are strong Republican red states and second they are agriculture states.  Iowa has been a very reliable Republican state, but is now considered a battleground state.

In addition, on February 8, 2018, the Wall Street Journal reported that in contrast to the rest of the economy, farm Incomes are falling, “Farm incomes are forecast to decline 7% to $60 billion in 2018.”

To win the midterms, these states have to stay in the Republican column.  For Trump to win the Presidency in 2020, he has to carry the farm belt.  If he loses the farm states, he loses the Presidency.

On April 5, 2018, the Wall Street Journal in article entitled “Tariff Showdown Shifts to Intense Negotiation Period,” stated:

Congress has been reluctant to do anything beyond warn the Trump administration that it risks a full-blown trade war, although behind the scenes some lawmakers, especially Republicans, want the government to find a quick solution to the tension.

“Every town hall I go to, trade or tariffs is one of the big questions. That’s what’s on their mind,” said Sen. Joni Ernst (R., Iowa) . . . . “They are starting to question the president and where we’re going with this,” she said, adding that she was going to express her concerns directly to Mr. Trump on Wednesday. “I need for him to understand that we’re hurting in the Midwest and this is not helping.”

Iowa is among the largest soybean- producing states, and the state’s other senator, Republican Sen. Chuck Grassley, noted on Wednesday that he had cautioned Mr. Trump his administration would own any harm caused by Chinese retaliation.

Emphasis added.

THE REAL PROBLEM OF A TRADE WAR WITH CHINA—THE AVERAGE AMERICAN SUPPORTS TRUMP ON THIS ACTION—CHINA STARTED IT

On the day, China announced its $50 billion retaliation list, much of which was aimed at constituents of Donald Trump, including US farmers in rural states, Rasmussen reported that Donald Trump’s popularity for the first time in its daily polling had shot to 51%.

The People’s Daily recently asked me to comment on the Section 232 and 301 trade actions against China.  As I stated in my comments, the majority of Americans, 70% in recent polls, believe that it is time to stand up to China’s trade practices.  Many Americans see Chinese trade practices as being unfair.  So the perception of trade disputes with China is very different than the perception of trade disputes with other countries, such as the EC, Mexico and Canada.  In fact, after the Chinese Government proposed $50 billion in tariffs in response to the US tariffs and Trump countered with another $100 billion in proposed tariffs, many Americans indicated strong support for President Trump.

The Chinese press indicates that many Chinese are very angry at the US and Trump, but the US Press indicates that many Americans believe that China has taken too much advantage of the US China trade relationship and strongly support President Trump.  With both the Chinese and US populations riled up, this makes it much more difficult for the Governments to step back and negotiate a settlement.

In the March 22nd Editorial, “Trump’s China Tariffs”, the Wall Street Journal, in effect, stated that China started the trade war.  Although the Wall Street Journal states that Trump’s trade policy with China is the wrong economic strategy to get it to change, the WSJ also states:

“No one should be surprised by the $60 billion in border taxes on China, given that Mr. Trump campaigned on worse. He is also responding to the genuine problem of Chinese mercantilism. China’s government steals the intellectual property of U.S. companies or forces them to turn it over, and Beijing uses regulation to discriminate against foreign firms.

This might have been tolerable when China was a smaller economy trying to reform, and the U.S. made a reasonable bet in 2001 when it let China enter the World Trade Organization. The gamble was that China would continue to reform, adapt to global trade norms, and eventually become a genuine market economy.

That hope showed early promise but has become forlorn as President Xi Jinping has pushed “national champions” like Huawei and Tencent. Facebook still can’t operate in China, and Tesla is punished with a 25% tariff on imported electric cars. The U.S. tariff on cars from China is 2.5%. China’s predatory behavior has eroded political support in the West for the very free-trade rules that have lifted hundreds of millions of Chinese out of poverty.”

Emphasis added.

But the Wall Street Journal (“WSJ”) in the same editorial warned:

“The President’s trade hawks, led by White House aide Peter Navarro, want to punish China more than they want to change its behavior. Mr. Navarro really does believe that China today is the equivalent of Germany a century ago. Mr. Trump said Thursday that this tariff action would be “the first of many.”  This is the mentality that could lead to a trade war and economic damage for everyone.  . . .”

When it comes to free trade and economics, the Wall Street Journal is the voice of reason, which many free trade Republicans in Congress listen to.

On April 6, 2018, after Trump’s announcement of another $100 billion in tariffs, the WSJ in an article entitled “The Architect of Trump’s Tough-on-China Policy” described in detail USTR Lighthizer’s strategy with regards to China:

WASHINGTON—President Donald Trump’s tough policy on China trade took shape in a White House meeting last August—and at the center was an often-overlooked man.

Decades of quiet negotiations had gotten nowhere, U.S. Trade Representative Robert Lighthizer told senior White House advisers and cabinet officials gathered in the Roosevelt Room.

“China is tap, tap, tapping us along,” he said, meaning it regularly promised policy changes but didn’t deliver. He punctuated his talk with charts showing how the trade deficit with Beijing had widened. . . .

U.S. Ambassador to China Terry Branstad, linked by videophone, asked for a chance to conduct another round of talks based on a rapport he was developing with the Chinese. He found little support. It was time to act, starting with a formal investigation of China for unfair trade practices, Mr. Lighthizer argued.

A few days later, Mr. Trump announced an investigation of alleged Chinese violations of U.S. intellectual-property rights—headed by Mr. Lighthizer. It marked the start of the most dramatic and high-risk effort in decades to force the world’s second largest economy to change its behavior, which culminated this week in an order threatening to slap tariffs on $50 billion of Chinese imports, a move that also had Mr. Lighthizer’s imprint on it.

After China threatened tariffs on an equal amount of imports from the U.S., Mr. Trump on Thursday called that “unfair retaliation” and said he might put tariffs on a further $100 billion of Chinese imports, tripling the amount subject to them. A Chinese Commerce Ministry spokesman said on Friday Beijing ”is fully prepared to hit back forcefully and without hesitation.”

Mr. Lighthizer’s role became clear to the Chinese when the Trump economic team landed in Beijing in November for a round of discussions. Mr. Trump made sure the U.S. trade representative met with top Chinese leaders while some others waited outside.

In a session with President Xi Jinping, Mr. Lighthizer laid out how fruitless the U.S. considered past negotiations and how the president was concerned the U.S. trade deficit continued to expand. While US officials saw Mr. Lighthizer’s comments as a lawyerly argument, Chinese officials described their reaction as shocked.

Today, Mr. Lighthizer is exchanging letters with China’s senior economic envoy on measures Beijing could take to head off a trade war. Negotiations are likely to stretch over many months— an ambiguity that could rattle financial markets and lift prices on goods earmarked for tariffs. . . .

Many U.S. businesses say they are fed up with what they view as unfair Chinese subsidies to local companies, and strong-arm tactics that make them hand over technology to Chinese partners. Still, they worry U.S. threats of tariffs could backfire and leave them vulnerable to retaliation. . . .

Early in the Trump administration, Commerce Secretary Wilbur Ross, a longtime Trump ally who had done business in China, was expected to lead China economic policy. He privately referred to Mr. Lighthizer, a former trade attorney, as his lawyer, say business executives, who took it as a slight. A Commerce official said Mr. Ross meant only that the two had worked together previously on steel issues.

Mr. Ross’s star dimmed when the president dismissed an early package of deals the commerce secretary negotiated with Beijing as little more than a repackaging of past offers, say senior White House officials. “Shut it down,” Mr. Trump told Mr. Ross in July when he stripped Mr. Ross of his China role and closed down the talks, according to senior administration officials.

Mr. Ross continues to work on China issues, including advising Mr. Lighthizer on which Chinese imports to target for tariffs, a Commerce official said.

Mr. Lighthizer, by contrast, managed to bridge a sharp divide over trade among Mr. Trump’s warring factions.

To so-called nationalists like trade aide Peter Navarro, who was itching to take on China, Mr. Lighthizer was a China hawk. Mr. Navarro is mainly an idea man, who has seen his role as making sure the White House carries out the president’s campaign pledge to stop China from “ripping us left and right.” Mr. Lighthizer runs a trade agency, plots strategy and carries it out. The two have worked together to develop on China policy, though they sometimes disagree on tactics.

To the so-called globalists such as former National Economic Council Director Gary Cohn, who worried about the impact of trade fights on markets, Mr. Lighthizer was the skilled attorney and former congressional aide who understood how Washington worked.

To Mr. Trump, Mr. Lighthizer was a kindred spirit on trade—and one who shuns the limelight. The two men, who have a similar chip-on-the-shoulder sense of humor, bonded. Mr. Lighthizer caught rides to his Florida home on Air Force One. Mr. Trump summons Mr. Lighthizer regularly to the Oval Office to discuss trade matters, administration officials say.

“Lighthizer has everyone’s trust, regardless of their views on trade,” said Kevin Hassett, the White House chief economist. . . .

Mr. Lighthizer, on the other hand, is a skilled international trade litigator, more in the mold of former U.S. Trade Representative Charlene Barshefsky, who negotiated China’s entry into the WTO. The Trump team thinks China experts have been too quick to back off in negotiations with Beijing.

By the time he took office in May, the administration was fighting internally over whether to impose tariffs on steel and aluminum imports globally. China policy was on the back burner.

While Mr. Lighthizer believed the metal glut was due to Chinese excess production, say administration officials, he thought a fight at that point would be self-defeating because the focus would be on U.S. tariffs, not Chinese trade and investment practices. Assessing tariffs on all steel exporters, many of which are U.S. allies, would paint the U.S. as a villain instead of China.

Rather than risk the ire of Mr. Trump, who considered steel tariffs a campaign promise, Mr. Lighthizer worked quietly with Mr. Cohn and others to get the issue set aside in favor of other priorities.

U.S. trade representatives often regard themselves as lawyers for U.S. exporters, trying to open up new markets. Mr. Lighthizer saw things differently, viewing big U.S. companies as job outsourcers that sometimes had to be reined in.

At a September meeting with about 100 CEOs organized by the Business Roundtable, he said he understood they had to maximize profits, which sometimes meant exporting jobs. “My job is different,” he told the group, according to participants. “My job is to represent the American workers. We’re going to disagree.” It was a position some in the audience found arrogant. . . .

As with his boss, bluntness is his calling card. In the mid-1980s, as a U.S. Trade Representative official who negotiated with Japan, he once grew so frustrated he took a Japanese proposal, turned it into a paper airplane and floated it back at the Japanese negotiators as a joke. In Japan, he became known as “the missile man.”

In a Senate hearing last month, when Democratic Sen. Maria Cantwell of Washington said his China plans could hurt U.S. aircraft makers, he dismissed her concerns as “nonsense.”

As the U.S. moved toward confrontation with China last fall, after the August Roosevelt Room session, Mr. Lighthizer worked to make sure the administration was united. Previously, the U.S. had often balked at confronting China out of fear a fight would tank the global economy and make China less willing to help on national-security issues.

Defense chief Jim Mattis, though, backed a tough approach because he was concerned China was illicitly obtaining U.S. technology and could gain a military edge, say individuals familiar with his thinking. Others in the national-security agencies were tired of what they felt were unmet Chinese promises on Korea and other security issues.

Mr. Cohn, then the economy chief, was as fed up with Beijing as Mr. Lighthizer, say officials. As a longtime president of Goldman Sachs, Mr. Cohn had lobbied to do business unimpeded in China and didn’t get the approvals he sought.

At the end of February, China sent its chief economic envoy, Liu He, to Washington to try to restart negotiations. Mr. Liu was ready to pledge that Beijing would open its financial market.

He found a frosty welcome. The Chinese embassy had requested 40 visas so Mr. Liu could bring a full entourage. The State Department granted just a handful.

Mr. Liu couldn’t get any time with President Trump. Instead, he met with Mr. Lighthizer, Mr. Cohn and Treasury Secretary Steven Mnuchin. The three delivered a simple message, say officials familiar with the talks: The U.S. isn’t going to get “tapped around” like prior administrations.

The U.S. wanted substantial changes in trade practices and barriers, which Mr. Lighthizer detailed. They included cutting the tariff China imposes on auto imports from 25% to something closer to the U.S. tariff of 2.5%. The U.S. also wanted a $100 billion reduction of its $375 billion annual merchandise trade deficit with China. To punctuate those demands, the administration planned to threaten tariffs.

One more obstacle needed to be cleared away. President Trump, frustrated that the steel- tariff matter had been indefinitely delayed, was sympathetic to pitches by Messrs. Navarro and Ross that he should finally move on the issue. In early March, Mr. Trump said he would impose 25% tariffs on steel and 10% tariffs on aluminum from any exporting nation.

The international response threatened to drown out the China initiative as U.S. allies complained they were unfairly targeted.

On Tuesday evening, March 20, senior officials gathered again in the Roosevelt Room to decide how to proceed with the tariffs scheduled to go into effect in three days. Mr. Navarro, the trade adviser, argued tariffs should be imposed across the board as the president threatened, say officials. That would increase U.S. leverage with steel-exporting nations, which could be expected to offer concessions to avoid tariffs, he argued.

Mr. Lighthizer, aligned this time with Mr. Ross, pressed for an alternative course. Grant nearly all nations except China temporary exclusions from the tariffs, they proposed, according to participants, but then limit their exports through quotas. That would make the U.S. seem more reasonable in steel negotiations and help form a coalition against China.

The group produced a memo in which the different views were articulated. Mr. Trump backed Mr. Lighthizer’s side.

With the steel issue defused, at least temporarily, Mr. Trump announced on March 22 the U.S. would threaten tariffs on Chinese imports. He thanked Mr. Lighthizer for his help and invited him to say a few words.

“This is an extremely important action,” Mr. Lighthizer said, “very significant and very important for the future of the country, really, across industries.”

Over coming months, the ability of the U.S. to maintain pressure on China will depend on factors including the reaction of markets, opposition by U.S. industries and farmers, and retaliation by China against U.S. companies. Chinese leaders say they are confident they would prevail in a trade war, say U.S. individuals who have met with them recently, and chalk up U.S. threats to Mr. Trump’s midterm congressional electioneering.

Jorge Guajardo, a former Mexican ambassador to China and now a Washington consultant, has seen up close how Beijing can pressure companies and wear down governments. “The big question is, ‘Will the U.S. blink?’” he said. “Or will they stay the course so China is forced to understand there is a new way of doing business.”

As I predicted in past newsletters when Robert Lighthizer originally obtained the USTR job, he would be a very tough negotiator especially with China.

To also see the raw emotion about China’s trade policies, see the videos mentioned above at the following two links.  The first link is for Robert Lighthizer’s testimony at House Ways and Means on March 21st with the focus on the Section 301 against China at https://www.youtube.com/watch?v=MxqNWw5PObk.  The second link is to the testimony of Wilbur Ross at the House Ways and Means on March 22nd at https://www.youtube.com/watch?v=vylt-NTsT8I.  Throughout the hearings, all the Congressmen and Ross himself put tremendous emphasis on China’s overcapacity in the Steel and Aluminum industries.  Many Congressmen agreed that substantial pressure had to be put on China because of its trade policy and the perception that for too long China has taken advantage of the US in trade negotiations.  The videos are long, but the US emotions and political feeling about trade with China are very real.

On March 25th in another editorial entitled “Donald Trump’s China tariffs make sense”, USA Today came out in favor of the Trump trade policy with regards to China:

“The Chinese should know that business as usual isn’t fair trade: Our view

President Trump has done many counterproductive things on trade. His recently announced (and later scaled back) steel tariffs, for example, will punish car makers and other industrial users of steel. And his decision to pick fights with nations in Europe and North America needlessly angers important allies.

But with his announcement to impose penalties on up to $60 billion in Chinese imports, Trump has finally hit on a trade action that makes a certain amount of sense.

China’s numerous state-owned companies limit access to Chinese markets, while exports to the United States continue at a robust level. Its practice of requiring foreign companies to share trade secrets in return for market access is nothing short of a shakedown. And its tolerance for (perhaps even encouragement of) theft of intellectual property makes it a lawless frontier for international companies trying to do business

Trump’s threatened tariffs are meant to effect change in China, not — as is often the case with tariffs — to protect U.S. industries that know how to throw their weight around politically.

Many free-traders will see these tariffs as yet another in a long line of counterproductive moves by the president. There could be some truth to that reasoning. But the tariffs also reflect a growing belief among U.S. business leaders that a laissez-faire approach simply isn’t working.

Such an approach relies on the power of markets, free enterprise and the survival of the fittest companies. In China, however, a gargantuan, single-party state holds the leverage to dictate terms to private companies.

Whether these tariffs work is an open question. China will naturally respond with its own tariffs, focused on U.S. agricultural products, and perhaps with a more truculent foreign policy. . . .

To truly be effective, these threatened tariffs should be combined with the U.S. re-entry into the Trans-Pacific Partnership…, a proposed trading zone linking 11 nations (not including China) in Asia and the Americas. In fact, if the United States were to take only one action to put pressure on China, joining the TPP would be the better approach.

TPP would turn the dispute with China into a multilateral affair. In virtually all efforts to pressure a nation to change its ways, a concerted effort by multiple nations is more successful than one nation going it alone.

The road ahead won’t be easy. Trump has not done himself any favors by alienating many U.S. allies in Canada, Mexico and Europe. Or with his rash decision, at the beginning of his presidency, to take the United States out of TPP.

Even so, there’s nothing wrong with sending a message to China that business as usual isn’t sustainable.”

On March 25th, on New York Radio, the “The Cats Roundtable,” John Bolton, President Donald Trump’s newly appointed national security adviser, stated:

“[T]he president was trying to communicate to signal to China is for far too long China has taken advantage of its place in the world; trade organizations and trade arrangements. The Chinese have stolen intellectual property, patent information copyrights and trademarks, business secrets. They take the information and they don’t honor the patent rights as it might be or the copyright rights — they just copy it and build their own. It’s theft. There’s no other description for it, so when you steal somebody else’s property and make money off of it yourself, it really magnifies the consequences for American industry in a very negative way.”

I think this could be a little shock therapy.”

On April 6, 2018 in an opinion piece in the Washington Post entitled, “Trump is right: China’s a trade cheat”, Fareed Zakaria, a known Trump critic and commentator on CNN, a very anti-Trump TV network, stated his agreement on Trump’s trade China trade policy:

Ever since the resignation of top advisers Gary Cohn and H.R. McMaster, it does seem as if the Trump White House has gotten more chaotic, if that is possible. But amid the noise and tumult, including the alarming tweets about Amazon and Mexico, let’s be honest — on one big, fundamental point, President Trump is right: China is a trade cheat.

Many of the Trump administration’s economic documents have been laughably sketchy and amateurish. But the Office of the U.S. Trade Representative’s report to Congress on China’s compliance with global trading rules [see attached report China 2017 WTO Report] is an exception worth reading. In measured prose and great detail, it lays out the many ways that China has failed to enact promised economic reforms and backtracked on others, and uses formal and informal means to block foreign firms from competing in China’s market. It points out correctly that in recent years, the Chinese government has increased its intervention in the economy, particularly taking aim at foreign companies. All of this directly contradicts Beijing’s commitments when it joined the World Trade Organization in 2001.

Whether one accepts the trade representative’s conclusion that “the United States erred in supporting China’s entry into the WTO,” it is clear that the expectation that China would continue to liberalize its markets after its entry has proved to be mistaken. . ..

Look at the Chinese economy today. It has managed to block or curb the world’s most advanced and successful technology companies, from Google to Facebook to Amazon. Foreign banks often have to operate with local partners who add zero value — essentially a tax on foreign companies. Foreign manufacturers are forced to share their technology with local partners who then systematically reverse engineer some of the same products and compete against their partners. And then there is cybertheft. The most extensive cyberwarfare waged by a foreign power against the United States is done not by Russia but by China. The targets are American companies, whose secrets and intellectual property are then shared with Chinese competitors.

China is not alone. Countries such as India and Brazil are also trade cheats. In fact, the last series of world trade talks, the Doha Round, was killed by obstructionism from Brazil and India, in tandem with China. Today the greatest threat to the open world economy comes from these large countries that have chosen to maintain mixed economies, refuse to liberalize much more and have enough power to hold firm.

The Trump administration may not have chosen the wisest course forward — focusing on steel, slapping on tariffs, alienating key allies, working outside the WTO — but its frustration is understandable. Previous administrations exerted pressure privately, worked within the system and tried to get allies on board, with limited results. Getting tough on China is a case where I am willing to give Trump’s unconventional methods a try. Nothing else has worked.

TRADE WAR CHICKEN GAME—WHO WILL BLINK FIRST?

The United States and China have now entered a game of chicken, two governments going directly at each other over trade.  The question is which government will blink first: China or the United States.  I firmly believe that both countries—China and the United States need to stand down and negotiate a deal, but a deal which is enforceable.  We do not want this trade war to expand further.

To Chinese friends, I would say do not escalate the rhetoric.  Of course, China will retaliate if the $150 billion in tariffs are imposed, but as Trump has stated many times, he is a counterpuncher.  Threatening Trump is waving a red flag in front of a bull.  With the very real damage to Trump’s agricultural base, he knows how very serious these US China trade negotiations will be.

As mentioned in my blog posts just after the Presidential election in 2016, Trump’s victory was a seismic tipping point.  Trump won the election because he promised to be tough on trade. Trade was never a major issue in a US election.  Trade and specifically trade with China has now become one of the most important political issues in the US.  China is a major reason for this sea change in US politics.

As indicated above, the WSJ articulates the position of the many Americans and the US Congress perfectly.  When China entered the WTO, Premier Zhu Ronji was China’s economic genius.  He wanted to get China into the WTO not to appease the US, but to help China internally and push it to become a more market oriented country and to lessen the impact of the State-Owned Companies.  I heard Premier Zhu make this statement in New York City in the early 2000s.

But now China appears to be moving away from a market oriented country and putting much more emphasis on State-Oriented capitalism.  The Chines State uses its economic might to target technologies and increase its economic might so as to achieve a dominant economic position in the World.

The rise in China is to be expected as China achieves the very high historical position it held in the World.  But if China wants to use its economic might to achieve political dominance, the World will react to that strategy and counter it.

The perception is that the WTO has done nothing to deal with Chinese mercantilism and the rise of China’s state-oriented capitalism.  The WTO is to quote Mao a “paper tiger”.

The American perception of China’s mercantilism and its state-oriented capitalism means that there is little sympathy for China and that does not bode well for the future of US China trade relations.

As Trump has made clear in many political statements, his new trade policy will be reciprocity.  The United States will not open its border to Chinese imports if China shuts down its own border to US exports in the same sector.  The United States will not let Chinese companies invest in certain sectors of the US economy if China prohibits investment by US companies.

That is where the Trump trade policy is headed. With trade being the main political issue at the present time, I suspect that the Trump trade policy will become the US trade policy not only during the Trump Presidency but the US trade policy for many years in the future.

To my US friends, I would make the point that the Chinese have a different World view.  We have the American dream, but China has its own dream.  Thus, it would be a big mistake to make a personal attack on the Chinese government and the Chinese people.

On April 5th, in an article entitled “Mexican president to Trump: ‘Nothing and no one stands above the dignity of Mexico”, Politico reported:

President Enrique Peña Nieto of Mexico blasted Donald Trump in a video message on Thursday, vowing that “nothing and no one stands above the dignity of Mexico” and adding that the U.S. president’s main gripes were Congress’ problem, not Mexico’s. . . .

“As Mexicans, we may disagree among ourselves, especially during election periods, but we will always be united when it comes to defending our country’s dignity and sovereignty,” Peña Nieto said.

The same point stands with regards to China.  On April 5th I heard a Fox News reporter state we want the US to be the hegemon, the major power in the World.  China wants the same thing.  They want to be the hegemon, just like the United States, the major power in the World.  Does that mean that inevitably there will be a military conflict between the United States and China?  Hopefully not.

One reader blasted me because I did not describe China as Communist China.  Sorry, I do not want to go back to the period before Richard Nixon and Henry Kissinger opened China to the outside world.  I do not want to go to war with China, but “hegemon” talk fuels nationalist/jingoist talk that we the United States are so powerful everyone must bow down to us.

That is what Adolf Hitler believed with regard to Germany and his memorial in Berlin is a parking lot over his old World War 2 bunker as Germany has done everything in its power to educate the average person about the real danger of the Nazi creed and, in effect, to expunge Hitler and Nazism from its history.  World War 2 left Germany destroyed and caused the deaths of 20 million people.  That is where puffed up nationalism leads.

Recently, in a video called the Value of Travel, Rick Steves, a well-known travel writer and producer on PBS, stated that he spends on average 4 months every year out of the United States. Steves stated that one of the major benefits of his travel experience is that he has learned that although we in the US have the American dream, people in other countries have their own national dreams.  See https://www.youtube.com/watch?v=kYXiegTXsEs.

The point is that I view China as a friendly economic competitor and would rather trade with China than go to war with it.  President Xi Jinping has pledged to the peaceful rise of China, and I hope that is what China truly believes or millions of lives will be lost in another World War, something to be avoided at all costs.

The bottom line is that Trump’s trade war with China is very risky and it will be a very bumpy ride in the next few months with developments on a day by day basis.  But my firm hope is trade agreements that will be win win, not only for the United States, but for our trading partners, including China.  We all need good trade deals, which are enforceable.

In my second blog post, I will outline from a technical point of view, the developments in the Section 232 Steel and Aluminum cases, the Section 301 IP Case against China, NAFTA negotiations and new trade cases against China.

If anyone has any questions about the Trump Trade Crisis, including the Section 232 case on Steel, Aluminum or Uranium or US trade policy, Section 301 intellectual property case against China, the antidumping or countervailing duty law, trade adjustment assistance, customs, False Claims Act or 337 IP/patent law, please feel free to contact me.

Best regards,

Bill Perry

US CHINA TRADE WAR – SECTION 232 CASES SLOW DOWN, CHINA TRADE PROBLEMS INCREASE, TAA FOR COMPANIES, SECTION 201 SOLAR, BAT DIES, NAFTA NEGOTIATING OBJECTIVES, NEW AD 337 CASES

TRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR UPDATE AUGUST 7, 2017

Dear Friends,

Recently there have been two developments of note in US China trade relations.

NORTH KOREA AND NO SECTION 301 CASE AGAINST CHINA FOR THE TIME BEING

As mentioned in my last blog post, the North Korea crisis is affecting the US China Trade Relationship.  The decision of China to back the UN Security Council resolution on sanctions against North Korea has caused the Trump Administration to pull back and not move forward with a Section 301 case against China.

As Politico reported today:

NORTH KOREA SANCTIONS WAYLAY CHINA TRADE PROBE: To be honest, there were conflicting signals from administration officials early last week on the timing of an announcement that Trump would ask U.S. Trade Representative Robert Lighthizer to investigate Chinese policies that compel foreign compel transfer technology and other intellectual property to do business there. Some said the announcement would come Thursday or Friday; others said it was not imminent.

It now appears that the “not imminent” camp was right. The reason was the State Department’s fear of upsetting its successful push for Chinese cooperation on new UN sanctions against North Korea. The new Security Council resolution, which passed 15-0 on Saturday, targets North Korea’s largest source of external revenue by imposing a total ban on the country’s exports of coal, in addition to iron, iron ore, lead, lead ore and seafood.

The resolution imposes “over one billion dollars in cost to N.K.,” Trump wrote on Twitter, referring to a State Department estimate of how much Pyongyang would lose in hard currency in terms of export earnings.

As for the IP probe for China, sources said it could still happen, but there were conflicting signals on how soon. One administration official suggested there might not be an announcement this week because Lighthizer is out of the country.

Emphasis added.

When China helps the US on North Korea, Trump is going to lay back and not attack China over trade issues.  As mentioned before, Trump is the first President to overtly link trade deals with foreign policy issues.  He has made it very clear to China help us on North Korea and China will get a better trade deal.  So far that seems to be Trump’s goal with China.

President Trump is learning that trade is complicated.

SECTION 201 SOLAR CELLS CASE

Many companies have been calling me about the Section 201 Solar Cells case.  In that case, the US International Trade Commission {“ITC”) just issued its attached public prehearing report, 2017.08.01 ITC Solar 201 Prehearing Report PUB.  The hearing is scheduled for August 15th and the Commission’s injury determination is to be sent to the President on September 22nd.

The Staff Report shows that imports are up, value of imports are down, but US producers’ production and capacity have increased during the period of investigation 2012-2016.  Moreover, US producers’ profits and sales have increased in the period.

This is a very mixed staff report with no clear trends and could lead to a negative ITC injury determination on September 22nd.  The August 15th hearing will be very interesting.

If you have any questions about these cases, please feel free to contact me.

Best regards,

Bill Perry

US CHINA TRADE WAR JULY 31, 2017

Dear Friends,

With the passage of the Trump Executive Order telling agencies, including the Department of Defense (“DOD”), to further study the problem, Trump’s trade war in the Section 232 Steel and Aluminum cases has run into reality—the impact on US downstream producers.  With a Greek Chorus of Senators and Congressmen telling the Administration to go slow, the dire warnings by downstream US users of these raw materials, and the threats of retaliation from many foreign countries, President Trump punted and decided to further study the situation.  As indicated below, in their comments numerous steel users were telling Commerce not only that Steel Tariffs would seriously damage their companies causing the loss of hundreds of thousands of jobs, but also that the Steel tariffs themselves could damage US national security by cutting DOD suppliers from very important supply lines for raw materials.

Apparently, President Trump and the Trump Administration listened.  It is easy for Candidate Trump to talk protectionism, but President Trump is now learning it is much more complicated.

Now is the time for an Emperor has no clothes moment.  The problems of the Steel industry go back decades long before Wilbur Ross arrived because of the decision to give big bonuses to management and large pensions to the Steel unions, which the companies simply can no longer fund.  These payments led to the failure to modernize and update steel production facilities and also produce specialized types of steel. That failure to produce many specialized types of steel at cost efficient prices has led to screams by US downstream steel producers with millions of jobs at stake.

But with Commerce saying there is no time deadline for the Section 232 Steel report and the Steel Unions crying doomsday and the loss of thousands of jobs, what is the solution?? As explained below, TAA for Companies, not trade protection, is the solution.  An alternative solution is needed for the Steel crisis that will not harm national security and injure more US industries.  TAA for Companies makes US companies more competitive without affecting the market in any way.

Meanwhile,  there is now talk of significant US trade sanctions against China because of North Korea.  Commerce also continues to find China a non-market economy country, and the US China Economic Talks fell apart over steel and aluminum, but also, in part, North Korea.

There are also dire warnings about the impact of the Section 201 Solar Case on US solar projects and the loss of thousands of jobs.  But the Border Adjustment tax is now officially dead, and USTR has released NAFTA negotiating objectives and the negotiations themselves are scheduled to start up on August 16 with one real issue being the impact on US agricultural exports.

New antidumping and countervailing duty cases have been filed against Cast Iron Soil Pipe Fittings and a Section 337 case against Ribbon Cables.

If anyone has any questions or wants additional information, please feel free to contact me at my e-mail address bill@harrisbricken.com.

Best regards,

Bill Perry

TRUMP’S TRADE WAR—TRUMP PUNTS ON THE SECTION 232 STEEEL AND OTHER NATIONAL SECURITY CASES

Although President Donald Trump and Commerce Secretary Wilbur Ross thought they had found a panacea, cure all, for US trade problems, using Section 232 National Security cases to put large tariffs and/or quotas on Steel, Aluminum and other raw material products, something happened on the way to the Trump trade heaven—reality.  Even though Commerce Secretary Wilbur Ross promised to send completed Section 232 reports to the President by the end of June and President Trump promised that July would be the month of trade, nothing has happened to date, except for a Trump Executive Order stating that the Department of Defense and other agencies are to further study the manufacturing base needed to support US national security.

The first problem is an Emperor has no clothes moment—the problems of the Steel Industry go back decades.  The Steel industry’s problems boil down to large bonuses to management n the 1970s and 1980s and the large pensions given to Steel unions, which are in place today.  Those bonuses and pensions prevented the Steel industry from modernizing their production facilities and also specializing into specific types of steel.  Downstream steel users, such as the automotive industry, are moving away from commodity products as raw material steel inputs, and to specialized steel made to order of the downstream user.  All industry has become specialized and the US Steel Industry has not modernized so it can no longer produce certain types of steel or produce certain types of steel cost efficiently and that seriously damages downstream steel users that also manufacture in the United States.

That leads to the second big problem the steel industry has only 141,000 jobs while the jobs in the Steel Users industry are in the millions.  This is probably the reason that the Department of Defense (“DOD”) woke up.  Steel users probably told DOD you want your tank parts?

This is the time for the US Government and Congress to look at another alternative.  Tariffs and quotas simply will not save the Steel Industry, but Trade Adjustment Assistance for Companies just might.  It is time for the US government to back a proven alternative that has saved 1,000s of US manufacturing companies in the past.  A program that both President Obama and President Trump want to write off, but actually has a proven track record of saving US trade injured manufacturing companies without any impact on US market or imports.

In fact, as indicated below, directly contrary to statements of Secretary Ross, many US companies that are receiving trade adjustment assistance are steel users and cannot be competitive with imports because US steel price are higher than world market prices.

What is the TAA for Companies secret sauce?  Making US companies competitive again.  Only by making US manufacturing companies competitive again will the trade problems really be solved.  US industry needs to cure its own ills first before always blaming the foreigners and that is exactly what TAA for Companies does—helps US companies cure their own ills first by making them competitive again.

SECTION 232 STEEL CASE

As stated in the last blog post, in response to pressure from President Trump, Commerce Secretary Ross has self-initiated National Security cases under Section 232 of the Trade Expansion Act of 1962, 19 U.S.C. 1862, against imports of steel and aluminum, which go directly into downstream US production.  The danger of these cases is that there is no check on Presidential power if the Commerce Department finds that steel or aluminum “is being imported into the United States in such quantities or under such circumstances as to threaten to impair the national security, the Secretary shall so advise the President”.  The Secretary shall also advise the President on potential remedies.

On April 20, 2017, President Trump and the Commerce Department in the attached press announcement and fact sheet along with a Federal Register notice, COMMERCE FED REG SECTION 232 NOTICE Section 232 Investigation on the Effect of Imports of Steel on U.S Presidential Memorandum Prioritizes Commerce Steel Investigation _ Department of Commerce, announced the self-initiation of a Section 232 National Security case against imports of steel from every country.  See video of Trump signing the Executive Order with Secretary Ross and Steel Producers at https://www.youtube.com/watch?v=EiVfNOl-_Ho.

Commerce held a hearing on May 24th in this case.  The video of the hearing can be found at https://www.commerce.gov/file/public-hearing-section-232-investigation-steel-imports-national-security.

In the past Secretary Ross has stated that the Section 232 case is meant to fill the gaps created by the patchwork of antidumping and countervailing duties on foreign steel, which he said have provided only limited relief to the U.S. industry.

If the Secretary reports affirmatively, the President has 90 days to determine whether it concurs with the Secretary’s determination and “determine the nature and duration of the action that, in the judgment of the President, must be taken to adjust the imports of the article and its derivatives so that such imports will not threaten to impair the national security.”

Once the President makes his affirmative determination, he will report his decision to Congress, but it is questionable whether Congress can disapprove the decision.   The statute also does not provide for any appeal to the Court of International Trade.  Commerce also is very protectionist and in antidumping and countervailing duty cases.  The only check in trade cases is the injury determination by the independent US International Trade Commission, but there is no such determination under Section 232.

On July 26th Politico reported that the Section 232 Steel and Aluminum cases had stopped:

TRUMP HITS THE BRAKES ON 232 REVIEWS: The Trump administration is unlikely to make any decisions regarding whether to limit imports of steel and aluminum for national security reasons any time soon, after the president himself told The Wall Street Journal on Tuesday that “we don’t want to do it at this moment.”

The administration had already missed its initial deadline of wrapping up the pair of Section 232 reports by the end of June, and Trump indicated Tuesday that was in part because of various regulations regarding any decisions.  . . .

 Back of the queue: Trump was confident that his administration would eventually be “addressing the steel dumping,” which he called “a very unfair situation.” He did not, however, indicate the action would be imminent: He started by saying it would come “very” soon, but then backed off and said it would be “fairly soon.”

It will also likely come after other high-profile items on his policy agenda are completed. “We’re waiting ’til we get everything finished up between healthcare and taxes and maybe even infrastructure,”

The initial report on the Trump decision was a July 25th article in the Wall Street Journal in which Trump stated that with regards to the Section 232 Steel case, “we don’t want to do it at this moment” because of the complexity of the issue.  Trump further stated:

“You can’t just walk in and say I’m doing to do this.  You have to do statutory studies … It doesn’t go that quickly.”

The Wall Street Journal reported that Trump started to say he would make a move “very” soon but stopped himself and instead said “fairly soon.”

Trump also stated that the steel issue is “a very unfair situation”, and that any final decision would not be made until work is done on other major initiatives.  As Trump stated:

“We’re waiting till we get everything finished up between healthcare and taxes and maybe even infrastructure.”

On July 26, 2017, it was reported that a Commerce Department spokesman refused to suggest a revised date for its determination on whether to impose new national security trade restrictions on steel imports saying only that the President’s comments “speak for themselves.”

On July 27th, before House Ways and Means, Commerce Secretary Ross indicated sympathy with comments from users where certain steel and aluminum products were not produced domestically, but had no sympathy with the argument that steel prices could be so high as to hurt downstream producers stating that is the nature of dumping and what eventually happens when “we let imports run amok.”

After the briefing, Congressional representatives stated that tariffs and/or quotas will be delayed for a while longer.  The Representatives indicated that during the meeting Ross had read the President’s statement from the Wall Street Journal that “we don’t want to do it at this moment” and that the Administration would most likely take action “fairly soon.”

On July 26th it was also reported that that the United Steelworkers union (“USW”) had stated that Trump decision to delay a Section 232 determination on steel imports could have “devastating” consequences on the US Steel industry and the jobs in that industry as foreign trading partners rush to export steel to the U.S. under a long-delayed threat of tariffs.  As USW President Leo Gerard stated:

“Since the President announced an investigation in April, attacks on the U.S. steel sector have skyrocketed, with imports up 18 percent.  Trading partners have targeted the U.S. market for fear that the United States will finally stand up for its producers and workers and protect our national security.”

Gerard acknowledged that trading relationships in the steel sector are “complex.”, but went on to state:

“But enough time, attention and investigation have passed to know what needs to be done.  Steel, the foundation of our national security, is crumbling under the onslaught of foreign imports. Much of that is illegally traded.”

Meanwhile, even before the July 25th statement, on July 5th Kevin Brady, Chairman of House Ways and Means, urged the President to take it slow.  Brady stated:

“Our advice to the President has been pretty public: Take your time, get it right.  We want to make sure that however the White House frames their ultimate action, that it doesn’t punish our allies who are trading fairly. And we want to make sure it doesn’t give a green light to those trading unfairly to do more of it. And it’s important, too, that whatever that ultimate decision is that it actually works for America and doesn’t backfire.”

Brady acknowledged that overcapacity in the global steel market was causing problems for domestic producers. But he called for a “balanced” solution that takes into account other interests as well.

On July 7th it was reported that the Department of Defense intended to drill down on the Steel Report and was “tapping the brakes on any potential effort by President Donald Trump to hit steel imports with tariffs of up to 25 percent.”

On July 21st President Trump issued an Executive Order ordering a thorough review of the national defense industrial base and the government to gather information about whether U.S. companies can meet the commercial demand for national security goods including steel, aluminum, circuit boards and flat-panel displays.

Under the terms of the executive order, an interagency group will present a report to the White House within 270 days that identifies goods that are essential for national security and analyzes the ability of the defense industrial base to produce those goods.

The attached Executive Order, Presidential Executive Order on Assessing and Strengthening the Manufacturing a, specifically stated in part:

Presidential Executive Order on Assessing and Strengthening the Manufacturing and Defense Industrial Base and Supply Chain Resiliency of the United States . . .

By the authority vested in me as President by the Constitution and the laws of the United States of America, it is hereby ordered as follows:

Section 1. Policy. A healthy manufacturing and defense industrial base and resilient supply chains are essential to the economic strength and national security of the United States. The ability of the United States to maintain readiness, and to surge in response to an emergency, directly relates to the capacity, capabilities, and resiliency of our manufacturing and defense industrial base and supply chains. Modern supply chains, however, are often long and the ability of the United States to manufacture or obtain goods critical to national security could be hampered by an inability to obtain various essential components, which themselves may not be directly related to national security. Thus, the United States must maintain a manufacturing and defense industrial base and supply chains capable of manufacturing or supplying those items.

The loss of more than 60,000 American factories, key companies, and almost 5 million manufacturing jobs since 2000 threatens to undermine the capacity and capabilities of United States manufacturers to meet national defense requirements and raises concerns about the health of the manufacturing and defense industrial base. The loss of additional companies, factories, or elements of supply chains could impair domestic capacity to create, maintain, protect, expand, or restore capabilities essential for national security.

As the manufacturing capacity and defense industrial base of the United States have been weakened by the loss of factories and manufacturing jobs, so too have workforce skills important to national defense. This creates a need for strategic and swift action in creating education and workforce development programs and policies that support job growth in manufacturing and the defense industrial base.

Strategic support for a vibrant domestic manufacturing sector, a vibrant defense industrial base, and resilient supply chains is therefore a significant national priority. A comprehensive evaluation of the defense industrial base and supply chains, with input from multiple executive departments and agencies (agencies), will provide a necessary assessment of our current strengths and weaknesses.

Sec. 2. Assessment of the Manufacturing Capacity, Defense Industrial Base, and Supply Chain Resiliency of the United States. Within 270 days of the date of this order, the Secretary of Defense, in coordination with the Secretaries of Commerce, Labor, Energy, and Homeland Security, and in consultation with the Secretaries of the Interior and Health and Human Services, the Director of the Office of Management and Budget, the Director of National Intelligence, the Assistant to the President for National Security Affairs, the Assistant to the President for Economic Policy, the Director of the Office of Trade and Manufacturing Policy, and the heads of such other agencies as the Secretary of Defense deems appropriate, shall provide to the President an unclassified report, with a classified annex as needed, that builds on current assessment and evaluation activities, and:

  • identifies the military and civilian material, raw materials, and other goods that are essential to national security;
  • identifies the manufacturing capabilities essential to producing the goods identified pursuant to subsection (a) of this section, including emerging capabilities;
  • identifies the defense, intelligence, homeland, economic, natural, geopolitical, or other contingencies that may disrupt, strain, compromise, or eliminate the supply chains of goods identified pursuant to subsection (a) of this section (including as a result of the elimination of, or failure to develop domestically, the capabilities identified pursuant to subsection (b) of this section) and that are sufficiently likely to arise so as to require reasonable preparation for their occurrence;
  • assesses the resiliency and capacity of the manufacturing and defense industrial base and supply chains of the United States to support national security needs upon the occurrence of the contingencies identified pursuant to subsection (c) of this section, including an assessment of: . . .
    • exclusive or dominant supply of the goods (or components thereof) identified pursuant to subsection (a) of this section by or through nations that are or are likely to become unfriendly or unstable; and the availability of substitutes for or alternative sources for the goods identified pursuant to subsection (a) of this section;
  • identifies the causes of any aspect of the defense industrial base or national-security- related supply chains assessed as deficient pursuant to subsection (d) of this section; and
  • recommends such legislative, regulatory, and policy changes and other actions by the President or the heads of agencies as they deem appropriate based upon a reasoned assessment that the benefits outweigh the costs (broadly defined to include any economic, strategic, and national security benefits or costs) over the short, medium, and long run to:
    • avoid, or prepare for, any contingencies identified pursuant to subsection (c) of this section;
    • ameliorate any aspect of the defense industrial base or national-security-related supply chains assessed as deficient pursuant to subsection (d) of this section; and
    • strengthen the United States manufacturing capacity and defense industrial base and increase the resiliency of supply chains critical to national . . . .

DONALD J. TRUMP

THE WHITE HOUSE, July 21, 2017

Emphasis added.

EMPEROR HAS NO CLOTHES —STEEL INDUSTRY PROBLEMS HAVE BEEN GOING ON FOR DECADES BECAUSE OF ITS FAILURE TO MODERNIZE DESPITE 40 YEARS OF PROTECTION FROM STEEL IMPORTS

After graduating from law school, in the late 1970s I went to work for a law firm in Washington DC and one of our clients was Bethlehem Steel Shipbuilding.  In the Spring of 1979, at a firm party, one of the heads of the company told me all I want to do is stop in the imports.  After joining the US International Trade Commission (“ITC”) in October 1980 I watched Bethlehem Steel file case after case against steel imports.  In 1985 while at the ITC, I asked the head of Bethlehem Steel’s Sparrow’s Point Factory how important the Continuous Castor was to Bethlehem Steel.  He replied, “We’ve bet the company on the continuous castor”.  Bethlehem Steel bet too late. The Korean steel producers already had the continuous castors.

Later, my former boss, the former ITC General Counsel, represented Bethlehem Steel for decades bringing trade cases against steel imports.  The US steel industry has had 40 years of protection from steel imports and yet it continues to decline.  Bethlehem Steel after 40 years of protection from steel imports is now green fields.

On July 14, 2017, former ITC Commissioner Dan Pearson of the Cato Institute summarized some of these problems in a Market Watch article entitled “Trump would further damage U.S. manufacturing if he restricts steel imports” stating:

“In a recent hearing on the investigation, Secretary Ross made clear that highly protectionist measures are under consideration. What Ross didn’t address is whether additional steel import restrictions would harm the U.S. economy.

Unfortunately, they certainly would. Our country may be only weeks away from presidential action that would further damage the competitiveness of the broad manufacturing  sector.

Five points are particularly relevant:

First, it’s not clear there is any legitimate national security justification for invoking Section 232. There is no doubt that much U.S. military equipment requires steel. The key question is how best to obtain specific types of steel needed for various national-security applications.

Most steel used by the military comes from domestic suppliers, such as United States Steel Corp. . ., AK Steel Holding Corp.  . . and Nucor Corp. . . . or from countries with which the United States has amicable relations. Keeping the U.S. market open to steel imports would assure that the military will have access to both foreign and domestic steel products needed to maintain national security. If the Pentagon wishes to ensure domestic sources for some products, it could establish long-term contracts with U.S. mills—no import controls are required.

Second, potential Section 232 restrictions must be viewed in the context of the existing U.S. steel marketplace. Roughly 200 antidumping or countervailing duty measures already are in place on steel products, making steel one of the country’s most protected sectors. As a result, U.S. prices for many steel products are significantly higher than world prices, greatly disadvantaging American manufacturers that require steel as an input.

Third, any additional import restrictions would do far more harm to steel-using manufacturers than any benefit that could accrue to steel mills. That is simply due to the raw numbers. Steel mills employ just 140,000 workers. Manufacturers that use steel as an input employ 6.5 million, 46 times more.

Steel mills account for a rather narrow slice of the overall U.S. economy: $36 billion in 2015, equaling only 0.2% of U.S. gross domestic product (GDP). By contrast, the economic value added by firms that use steel as an input was $1.04 trillion – 29 times more – or 5.8% of  GDP.

Any government action to drive steel prices even higher by further restricting imports will hurt steel- consuming manufacturers. Their costs will rise, thus reducing their competitiveness relative to companies in other countries. Carrier, the company that in December said it wouldn’t shift 800 jobs from Indianapolis to Mexico after all, is hardly the only firm that could reduce its steel costs by shifting production overseas.

Fourth, other nations likely would retaliate. When a foreign power acts arbitrarily to curtail its imports, negatively affected exporting countries aren’t amused. Since the United States is only a minor exporter of steel, retaliation likely would be focused on innocent, export-competitive sectors. The United States is the world’s largest exporter of military equipment, so those firms may be targeted.

The United States also is the world’s largest agricultural exporter; farm and food products would be vulnerable across the board.

Fifth, a country that imposes import restrictions always reduces its own economic welfare. This is true even if other countries don’t retaliate. Economists have understood since the work of David Ricardo that it is unwise to try to be self-sufficient when others are able to provide products at lower costs.

Import restrictions lead to inefficient resource use, lowering national economic welfare in the process. In other words, consumers are hurt more than protected industries are helped.

The Section 232 process may be intended to inflict pain on foreign nations by curtailing their exports. We can’t be sure whether U.S. import restrictions will hurt other countries, but we can be certain that restrictions will hurt America. Limiting steel imports creates a genuine threat to economic growth and prosperity. It is very difficult to build a stronger national defense when the economy is getting weaker.

But shouldn’t something be done to help steel mills and their workers as they deal with import competition? The Department of Commerce should think seriously about proposing enhanced economic adjustment assistance. It would be good public policy to encourage this historically protected industry to restructure and adapt to free trade in steel. . . .

My former boss, who later represented Bethlehem Steel for decades in trade cases, in the early 2000s told me that the problem with steel is that the employment in the entire US steel industry is less than one high tech company.

CONCERNS OF DOWNSTREAM STEEL INDUSTRIES

On May 31, 2017, public comments were filed at the Commerce Department on the Section 232 Steel case.  My last newsletter contained numerous comments from large associations representing steel users, including the American Automotive Policy Council (“AAPC”) and the truck and engine manufacturers association warning about the devastating impact high steel tariffs would have on the automotive and truck industry.  Not only would restraints on Steel imports damage downstream industries, but they would also damage the national security of the United States.  Many suppliers to the US DOD are dependent on imported steel made to certain specifications to make the downstream products to DOD specifications.  In many cases, US steel producers no longer produce steel to the specifications required by the DOD and many downstream users, such as the US automotive industry.

Thus the AAPC stated;

Although sympathetic to the challenges the steel industry faces, we are concerned that if, as a result of this Section 232 investigation, the President were to increase tariffs on foreign steel or impose other import restrictions, the auto industry and the U.S. workers that the industry employs would be adversely affected and that this unintended negative impact would exceed the benefit provided to the steel industry from this Executive action.

Steel is a critical input into the manufacture of automotive products. The price of steel in the United States is already significantly higher than in the markets where our competitors build the majority of their cars and trucks.  This puts U.S. automakers at a competitive disadvantage.

The Association of Equipment Manufacturers warned not only about the devastating impact on their industry, but went on to warn that steel tariffs would have a negative impact on US national security stating that US equipment manufacturers:

must source steel from international producers because the steel’s formula matches a specific spec required to ensure a piece of equipment’s proper function and performance that is not otherwise available in the United States. Inhibiting access to foreign steel will force manufacturers to procure steel from a domestic supplier that may not match required specifications, thus degrading the quality and performance of the equipment and risking operational safety concerns.  In cases where a particular type of steel is available from domestic suppliers, a sudden surge in demand will likely lead to extended procurement timeframes and delays in the manufacturing process.

Since equipment manufacturers provide parts and equipment to the Department of Defense, in fact, high tariffs on imported steel could, in effect, damage the national security of the United States.

The Forging Industry Association representing the US forging industry also stated:

As noted above, the steel forging industry supplies many products essential to national security, including numerous tank and automotive forgings for combat vehicles, small caliber weapons forgings, ordnance forgings, and forgings used in building airplanes, helicopters, ships and submarines. . . .

US steel forgers rely almost exclusively on domestically-produced SBQ steel. . . . The “globally competitive prices” are critically important – if the price for domestic SBQ steel is higher in the U.S. than anywhere else in the world due to tariffs or trade restrictions, then we begin to see less imports of raw material and more imports of downstream products. . . .

In effect, when current trade laws are used to remedy injury in one subsector of the economy, such as steel, they often shift the injury to another tier within the manufacturing sector.

The Industrial Fastener Institute representing the US Fastener industry warned that:

Fastener manufacturing is a major consumer of metals, including steel. Since fasteners can be made anywhere in the world, the U.S. industry is dependent on access to adequate supplies of globally priced raw materials such as steel to remain globally competitive. . .  .

However, even with a healthy domestic industry, history has shown that fastener manufacturers must sometimes import raw material because the particular types of steel needed are not available in the quantities, quality or form required. (Fasteners are made out of round form, not sheet, flat or bar products.) By some accounts, the U.S. steel industry is able to produce only about 70 percent of the total steel consumed in the U.S. . . .

The Motor & Equipment Manufacturers Association was even more explicit about the potential negative impact of this case on US national security:

Our industry is closely associated with the U.S. defense industry.  . . . Adjustments to steel imports that prevent our members from obtaining the type of steel they need in a timely manner or increases to production costs would jeopardize our ability to manufacture in the United States and to provide these critical products to the U.S. defense industry. . . .

MEMA member companies need specialized steel that either is not available at all in the U.S. or is not available in sufficient quantities. Certain foreign steel producers worked closely with MEMA member companies to develop the specialized steel and this type of collaboration benefits the U.S. by improving products. Continued access to these types of steel are critical to our industry. Attached to these comments is a non-exhaustive list of steel products that must be excluded from any import adjustments (see Appendix I). Several of our member companies are submitting exclusion requests directly as well. . . .

Motor vehicle component and systems manufacturers are the largest employers of manufacturing jobs in the U.S. and many of these companies import steel of all types, including specialized steel products, to manufacture goods in the U.S. that are then sold to the U.S. defense industry, U.S. government and consumers. Disrupting American manufacturing operations or increasing costs through adjustments to steel imports would not benefit the national security of the United States. Such adjustments to steel imports would, in fact, detrimentally impact U.S. employment, compromising our economic and national security.

The National Electrical Manufacturers Association (“NEMA”) stated in its comments:

Some electrical steels are imported into the U.S. because they are not available from domestic or North American suppliers. Loss of access to these materials would cause grave harm to NEMA manufacturers, who would no longer be able to manufacture and supply DOE-compliant products, and their customers – which include U.S. electric utilities as well as tens of thousands of industrial, commercial, and defense/national security facilities – but would have no effect on domestic or North American steel manufacturers, since they do not manufacture/produce or offer for sale those materials today.

Like the chorus in a Greek tragedy, US manufacturers that rely on steel as a key raw material input cried their warning that not only would imposing restrictions on steel imports injure downstream steel manufacturers, but also US national security itself. President Trump now appears to be listening.

ALUMINUM

The other Section 232 case that is behind steel is Aluminum.  On April 27, 2017, President Trump and the US Commerce Department self-initiated a Section 232 National Security case against imports of aluminum from all countries.  Attached are documents related to the Case, Aluminum Presidential Memo Summary ALUMINUM FED REG PUB Section 232 Investigation on the Effect of Imports of Aluminum on US National S.  The hearing was on June 22, 2017 and the video of that hearing can be found at https://www.youtube.com/watch?v=k3Bnwi3DWHg.

But in a letter to Commerce, 44 Senators and Representatives argued that the ongoing investigation under Section 232 could include aluminum imports that have little to do with national security but is used to make things like food and beverage cans.  The Congressional representatives and Senators stated that specific type of rolled can aluminum sheet and primary aluminum “could yield import restrictions or tariffs on these products – a result that would not increase their availability in the U.S. but would necessarily impose additional costs to American end-users and American consumers.”

The National Foreign Trade Council said in comments filed on behalf its 200 member companies in sectors including energy, capital goods, transportation, consumer goods, technology, health care products, services, e- commerce and retailing “We believe that imposition of high tariffs or restrictive quotas on aluminum products is not an appropriate response” to concerns that excess capacity in China has led to the closings of many aluminum smelters in the United States.  The NFTC went on to state:

“Many of the industries that rely on aluminum as an input are themselves suppliers for our nation’s defense- related needs, building the ships, aircraft, machinery, high technology weapons and other goods that a modern military demands.”

In contrast to the Commerce lack of data in the Section 232 Steel case, however, in the Aluminum case, in June 2017 the US International Trade Commission (“ITC”) has just issued the attached fact finding report on the US aluminum industry, ITC ALUMINUM PUBLICATION, which is based on questionnaires sent to US producers.

TRADE ADJUSTMENT ASSISTANCE FOR FIRMS/COMPANIES – A BETTER ALTERNATIVE TRADE REMEDY WHICH ACTUALLY WORKS

As indicated in previous blog posts, I feel very strongly about the Trade Adjustment Assistance for Companies program because with very low funding it has a true track record of saving US companies injured by imports.

Donald Trump’s proposed budget, however, would 0, zero, out the trade adjustment assistance for companies program.  Although Secretary Wilbur Ross has made it very clear he wants to increase exports to reach the 3% plus growth rate, putting protectionist walls up to limit imports of steel, aluminum and many other products invites retaliation.

The Trade Adjustment Assistance for Firms/Companies program does not put up barriers to imports.  Instead the TAA for Companies program works with US companies injured by imports to make them more competitive.  The objective of TAA for Companies is to save the company and by saving the company it saves the jobs that go with that company.

In fact, many of the companies receiving trade adjustment assistance are steel users or downstream US manufacturing companies, which have been injured by US trade actions.  They are the collateral damage caused by US trade actions.

A cursory analysis comparing companies in the TAA for Firms program to trade actions (AD, CVD, etc.) in 2015 revealed a strong correlation between those companies and trade actions. TAA for Firms works with small, medium sized, mostly manufacturing companies that encounter business declines linked to import competition.  ITC maintains a list of current AD/CVD cases, which, when combined with other known trade actions, yielded 116 unique product descriptions. Between 2005 and 2015 1,654 companies entered TAAF – publicly available information provides a brief description of these companies’ products. For the TAAF companies, 70% of the product descriptions match with trade actions. Steel actions alone match with 31% of the TAAF companies.

On the one hand, this is not surprising, trade actions occur in industries with concerning levels of trade, therefore, one would expect trade impacted companies in those industries. This only supports the assertion that TAAF is being applied where it should be expected.

On the other hand, the variety of companies in the TAAF program is surprising to anyone who looks closely – they certainly do not fall into predictable categories. The variety of products and level of specialization among manufacturing companies is astounding.  The TAAF companies are not the subjects of the trade actions, but the downstream buyers of those products. That one category of product, steel, would match so often, strongly stands out. An often heard anecdote from the TAAF program, quotes the business owner who says his cost of raw materials exceeds the cost of the finished imported product. It was only after performing this analysis that recollection confirmed that the anecdote was most often repeated related to companies using steel as a raw material.

It should be emphasized that this was a cursory analysis.  TAAF firms are thought to be a fraction of those experiencing trade impact. The level of analysis consisted only in rough comparisons of rough descriptions. Perhaps more surprising is that with over 45 years of TAAF program operation and what has become a vast national debate about manufacturing and jobs, no thorough analysis of trade impact exists. We do know there is a lot of it in a lot of different products and industries. And we strongly suspect that the experience of TAAF confirms the damaging downstream impact of trade actions. The good news is that TAAF companies tend to recover and grow.  Some consistent outcomes of the program are longevity of companies, sales increases that exceed the economy and industry levels,  strong productivity growth, and job growth that at least recovers lost jobs and one can infer, preserves many more.

In contrast to TAA for workers, TAAF or TAA for Companies is provided by the Economic Development Administration at the Commerce Department to help companies adjust to import competition before there is a massive lay-off or closure.  Yet the program does not interfere in the market or restrict imports in any way.

Right now the total cost to the US Taxpayer for this nationwide program is $12.5 million dollars—truthfully peanuts in the Federal budget.  Moreover, the Federal government saves money because if the company is saved, the jobs are saved and there are fewer workers to retrain and the saved company and workers end up paying taxes at all levels of government rather than being a drain on the Treasury.  In his budget, Trump increases TAA for Workers, but kills TAA for Companies.  Yet to retrain the worker for a new job, the average cost per job is $5,000.  To save the company and the jobs that go with it in the TAA for Companies program, the average cost per job is $1,000.

Moreover, TAA for Firms/Companies works.  In the Northwest, where I am located, the Northwest Trade Adjustment Assistance Center, http://www.nwtaac.org/, has been able to save 80% of the companies that entered the program since 1984. The Mid-Atlantic Trade Adjustment Assistance Center, http://www.mataac.org, uses a video, http://mataac.org/howitworks/, to show in detail how the program resulted in significant turnarounds for four companies. The reason the TAA for Firms/Companies is so successful—Its flexibility in working with companies on an individual basis to come up with a specific adjustment plan to make them competitive once again in the US market as it exists today.  For a sample recovery plan, see http://mataac.org/documents/2014/06/sample-adjustment-plan.pdf, which has been developed specific to the strengths, weaknesses and threats each company faces.

But as also stated in my last blog post, in this environment with so many injured companies, funding for TAA for Firms/Companies has to be increased so it can do its job.   Moreover, with the threats of a massive trade war in the air, which will injure all US companies and destroy US jobs, the US government needs to look at an alternative—TAA for Firms/Companies is that alternative.

TRUMP AND CHINA

US CHINA’S NORTH KOREA PROBLEM MAY MEAN ROCKY TRADE PROBLEMS

Recently, at a speech to Chinese government officials, when asked what the major trade issues are between China and the US, I mentioned North Korea.  During the election campaign, Donald Trump often pointed to China as a source of the many trade problems for US companies.

At the Mar -A -Lago meeting with Xi Jinping, however, Donald Trump appeared to step back and explicitly linked Chinese help with North Korea to a better trade deal between the two countries.  This is the first time a US Administration has directly linked a foreign policy objective with a trade relationship.

But now Trump is frustrated because he believes China is not helping enough with North Korea and wants to develop a “cogent China strategy”. On July 31st, based on conversations with administration officials,Politico reported that the Trump Administration is considering “a handful of economic measures to punish China, with a final decision coming as soon as this week . .  . ..  The article goes on to state:

Trump’s aides met over the weekend to discuss options, including trade restrictions or economic sanctions, and they will continue those conversations today. It remains too early, however, to say what the president might decide, the officials said. . . .

The decision may come as the president grows increasingly frustrated with Beijing over its handling of the North Korea missile situation, including Friday’s latest intercontinental ballistic missile test. “I am very disappointed in China. Our foolish past leaders have allowed them to make hundreds of billions of dollars a year in trade, yet they do NOTHING for us with North Korea, just talk. We will no longer allow this to continue. China could easily solve this problem!” Trump said on Twitter over the weekend.

On the trade front, Trump has also long complained about what he sees as unfair trade practices by Beijing, and he has been encouraged particularly by some of the harder-line aides in his administration – like chief strategist Steve Bannon and Office of Trade and Manufacturing Policy Director Peter Navarro – to crack down on China.
To read more about this issue, please see the attached July 31st article from Politico, Trump plan on China may come as soon as this week – POLITICO.

CHINA STILL A NONMARKET ECONOMY COUNTRY IN CVD CASES

On July 25th, since the argument was made that China is a market economy country in the Aluminum Foil case, Commerce released the attached memo, DOC CHINA BANKING NONMARKET, starting that the interest rates set by Chinese banks are not set by market forces and thus no Chinese bank interest rates can be used in CVD cases.  This memo indicates that Commerce is not going to treat China as a market economy country in antidumping and countervailing duty cases any time soon.

STEEL AND ALUMINUM PROBLEMS STOP US CHINA TRADE NEGOTIATIONS

On July 19th, optimism was reported at the start of the U.S.-China Comprehensive Economic Dialogue.  Chinese Vice Premier Wang Yang stated “The giant ship of China-U.S. economic and trade relations is sailing on the right course.”

But on July 20th the optimistic tone changed as the disagreement over excess Chinese steel and aluminum production capacity along with North Korea problems stopped the conference in its tracks.  China refused to agree to specific cuts in steel and aluminum production capacity and the United States was unwilling to move onto other concerns.

Chinese Vice Premier Wang Yang stated:

“Let me stress here that dialogue and negotiation are different from each other.  The core objective of negotiation is to have visible and tangible results, but the primary task of dialogue is to increase mutual understanding, mutual trust and consensus.

“Dialogue cannot immediately address all differences, but confrontation will immediately damage the interests of both.

“President Trump said, ‘Coming together is a beginning, keeping together is progress and working together is a success.  China is ready to work together with the U.S. and make sure this CED will build on existing achievements and achieve win-win results.”

NAFTA NEGOTIATIONS

The United States, Canada and Mexico will sit down together for the first round of talks to formally reopen NAFTA on Aug. 16 in Washington.

On July 17th, the USTR released its attached “Summary of Objectives for the NAFTA Renegotiation”, USTR NAFTA RENGOTIATION OBJECTIVES.

SOLAR 201 ESCAPE CLAUSE CASE

On May 17, 2017, Suniva filed a Section 201 Escape Clause against all Solar Cell imports from all countries at the US International Trade Commission (“ITC”).  On May 23, 2017, in the attached Federal Register notice, ITC iNITIATION NOTICE SOLAR CELLS, the ITC decided to go ahead and institute the case.  If the ITC reaches an affirmative determination, within 60 days the President must decide whether or not to impose import relief, which can be in the form of increased tariffs, quotas or an orderly marketing agreements.

At the ITC, Section 201 cases are a two stage process.  The ITC must first determine whether “crystalline silicon photovoltaic (“CSPV”) cells (whether or not partially or fully assembled into other products) are being imported into the United States in such increased quantities as to be a substantial cause of serious injury, or the threat thereof, to the domestic industry producing an article like or directly competitive with the imported articles.”  The ITC has determined that the investigation is “extraordinarily complicated” and will make its injury determination within 128 days after the petition was filed, or by September 22, 2017. The Commission will submit to the President the report required under section 202(f) of the Act (19 U.S.C. § 2252(f)(1)) within 180 days after the date on which the petition was filed, or by November 13, 2017.

Notices of appearance at the ITC were due on June 22nd at the ITC.  During the injury phase of the investigation, the ITC will hold an injury hearing on August 15, 2017.  Prehearing briefs are due at the ITC on August 8, 2017.  Posthearing briefs will be due at the ITC on August 22nd.

If the ITC reaches an affirmative determination, it will go into a remedy phase and the hearing in that phase will be on October 3, 2017.

On June 26, 2017, Green Tech Media in the attached article, Suniva and SolarWorld Trade Dispute Could Halt Two-Thirds of US Solar Installat, along with a report estimated that if the ITC reaches an affirmative determination and if Trump adopts the solar import trade tariffs Suniva and SolarWorld Americas are seeking, such an action could wipe out as much as 65.5 percent of solar projects that are expected to be built in the U.S. from 2018 through 2022.

The GTM article further states:

Suniva’s and SolarWorld’s new trade dispute would strike a devastating blow to the U.S. solar market, erasing two-thirds of installations expected to come on-line over the next five years.

If the petition is successful, shockwaves will be felt across all segments of U.S. solar. Utility-scale solar is most at risk, with more than 20 gigawatts already at risk of cancellation if module prices fall back to 2012 levels.

The report determined that such a trade action would “cause unprecedented demand destruction”, and went on to state:

If Suniva’s and SolarWorld’s proposal is approved by the U.S. International Trade Commission and President Trump, there will be a new minimum price on imported crystalline silicon solar modules and a new tariff on imported cells. Put together, the U.S. could miss out on more than 47 gigawatts of solar installations. That’s more than what the U.S. solar market has brought on-line to date.

On July 24th, Reuters reported:

Installations in the United States last year hit a record. Jobs are mushrooming too. The domestic industry now employs more than 260,000 people, according to The Solar Foundation, most of them construction workers hammering panels on rooftops and erecting utility-scale solar plants in the nation’s blistering deserts.

But signs of a chill are already visible as the industry waits to see how President Donald Trump responds to a recent trade complaint lodged by a Georgia manufacturer named Suniva. The company has asked the administration effectively to double the price of imported solar panels so that U.S. factories can compete. About 95% of cells and panels sold in the U.S. last year were made abroad, with most coming from China, Malaysia and the Philippines, according to SPV

That has the solar industry bracing for the worst. Panic buying has sent spot prices for solar panels up as much as 20 percent in recent weeks as installers rush to lock up supplies ahead of potential tariffs.

Skittish U.S. energy customers are putting some solar projects on hold. Manufacturers are eyeing other markets to develop. And some investors are running for cover. Funding for large U.S. solar deals fell to $1.4 billion in the second quarter, down from $3.2 billion in the first quarter and $1.7 billion a year earlier, primarily due to concerns about the trade case, according to research firm Mercom Capital Group.

Developers of solar farms that provide utilities and big companies with energy are particularly vulnerable; panels account for as much as half of the cost of their projects.

A steep rise in panel prices “could be huge and disastrous for large-scale solar,” said Tom Werner, chief executive of San Jose-based SunPower Corp . . ., a top U.S. solar company that is majority owned by France’s Total  . . … “Developers are alarmed and planning.”

BORDER ADJUSTMENT TAXES (“BAT”) ARE FINALLY DEAD

On July 27th it was reported that White House and congressional leaders agreed to drop the BAT as they move to comprehensive tax reform. The proposal, which would have placed a tax on all imports, had been a very important part of House Republicans’ tax reform blueprint as a way to pay for a corporate tax cut. House Speaker Paul Ryan, House Ways and Means Chairman Kevin Brady, Treasury Secretary Steven Mnuchin, Senate Majority Leader Mitch McConnell, Senate Finance Chairman Orrin Hatch, and National Economic Council Director Gary Cohn said in a statement.

“While we have debated the pro-growth benefits of border adjustability, we appreciate that there are many unknowns associated with it and have decided to set this policy aside in order to advance tax reform,

[W]e are now confident that, without transitioning to a new domestic consumption-based tax system, there is a viable approach for ensuring a level playing field between American and foreign companies and workers, while protecting American jobs and the U.S. tax base.”

NEW TRADE CASES

ANTIDUMPING AND COUNTERVAILING DUTY CASES

CAST IRON SOIL PIPE FITTINGS FROM CHINA

On July 13, 2017, the Cast Iron Soil Pipe Institute filed an antidumping and countervailing duty case against Cast Iron Soil Pipe Fittings from China.

FOREIGN ANTIDUMPING AND COUNTERVAILING DUTY LAW AND CASES

UNIVERSAL TRADE WAR CONTINUES

CHINA AD/CVD NEWSLETTERS

Attached are newsletters from Chinese lawyer Roland Zhu and his trade group at the Allbright Law Office about Chinese trade law, Team’s newsletter-EN Vol.2017.27 Team’s newsletter-EN Vol.2017.28 Team’s newsletter-EN Vol.2017.29

SECTION 337 AND IP CASES

NEW 337 CASES AGAINST CHINA

RIBBON CABLES

On June 30, 2017, 3M Company and 3M Innovative Properties Company filed a Section 337 case against Shielded Electrical Ribbon Cables.  The proposed respondents are Amphenol Corporation, Wallingford, Connecticut; Amphenol Interconnect Products Corporation, Endicott, New York; Amphenol Cables on Demand Corporation, Endicott, New York; Amphenol Assemble Technology (Xiamen) Co., Ltd., China; Amphenol (Xiamen) High Speed Cable Co., Ltd., China; and Amphenol East Asia Limited (Taiwan), China.

If you have any questions about these cases or about Trump and Trade, the impact on downstream industries, the Section 232 cases, North Korea US China trade problems, the 201 case against Solar Cells, border adjustment taxes, US trade policy, the antidumping or countervailing duty law, trade adjustment assistance, customs, False Claims Act or 337 IP/patent law, please feel free to contact me.

Best regards,

Bill Perry

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