SinoTech

SinoTech: Trump Delays Tariff Hike on Chinese Imports, Anticipates Trade Deal

By Rachel Brown, Preston Lim
Wednesday, March 6, 2019, 1:40 PM

On Feb. 24, President Trump announced in two tweets that he would delay the increase in U.S tariffs targeting Chinese goods scheduled for March 1 and that, “assuming both sides make additional progress,” he would hold a summit with President Xi Jinping at Mar-a-Lago to “conclude an agreement.” Trump’s announcement came at the conclusion of several days of trade talks in Washington. The talks were originally scheduled to last from Feb. 21–22, but the U.S. and China extended negotiations by another two days in what was widely interpreted as a sign of progress.

On Thursday, however, National Economic Council Director Larry Kudlow painted a slightly different picture of the Washington trade talks. Kudlow advanced a largely positive message, noting that negotiators made “great headway” and that the Chinese expressed willingness to introduce key structural reforms to their economy. Kudlow also revealed, however, that the talks had collapsed at one point and that the second day of negotiations was “canceled” due to a lack of progress. That two-day extension, Kudlow continued, came only after U.S. Trade Representative Robert Lighthizer “read [the Chinese representatives] the riot act.”

In recent weeks and months, it has become clear that Lighthizer and Trump don’t see eye-to-eye on the U.S.-China trade war. Treasury Secretary Steven Mnuchin, largely hewing to positive rhetoric, has said that the administration is “completely united” on the trade file. Yet the New York Times has reported that Lighthizer “has been frustrated by the president’s superficial understanding of the trading relationship with China.” On Feb. 24, Lighthizer and Trump argued in front of Vice Premier Liu He in the Oval Office. In the exchange, caught on camera, Lighthizer maintained that the memoranda of understanding (MOUs) that Chinese and American negotiators are preparing are binding agreements. Trump disagreed. Three days later, Lighthizer testified before the House Ways and Means Committee. While praising “President Trump’s leadership,” Lighthizer adopted a cautious tone, stating that “much still needs to be done before an agreement is reached and, more importantly after it is reached, if one is reached.”

Lighthizer has focused not only on the much-discussed need for Chinese officials to implement structural changes to the economy, but has also stressed the need for proper enforcement of any deal struck between Beijing and Washington. The administration, Lighthizer testified, wants a “triple-tiered enforcement mechanism” that would allow the U.S. to unilaterally impose tariffs if Beijing does not abide by the terms of the deal. Lighthizer is not alone in pushing for robust enforcement provisions: a variety of trade specialists have stressed that a deal would be meaningless without proper verification.

Despite Lighthizer’s concerns, it seems that the two sides are close to a deal. The New York Times reported on Sunday that Beijing will “make big purchases of American … goods” and lower non-tariff barriers that American firms face in China in return for the U.S. dropping tariffs on “at least $200 billion” worth of Chinese goods. Beijing has already agreed to Trump’s proposed Mar-a-Lago summit, which means that Trump and Xi could well reach a deal by the end of the month. How far that deal will go in addressing Lighthizer’s concerns, however, remains an unresolved question. 

State Council Releases Draft Regulations on Gene-editing 

On Feb. 26, 2019, the National Health Commission, an executive agency responsible for health policy under China’s State Council, released draft regulations covering gene editing and other biomedical technologies. The regulations follow a November 2018 scandal in which Chinese scientist He Jiankui announced that he had used the gene editing technology CRISPR-Cas9 to modify the genomes of two twin girls before birth to make them immune to HIV/AIDS. He’s work was quickly condemned by many in the Chinese and international scientific communities, and he was fired from his position at the Southern University of Science and Technology in Shenzhen.

Under the new regulations, clinical trials that use techniques such as gene transfer, regulation, and editing will be designated based on their risk and must receive approval from government officials. Low- and medium-risk trials will be reviewed by health departments at the provincial level, while high-risk technologies will be reviewed by the National Health Commission. The draft regulations also place a greater burden on the directors of hospitals and research organizations to supervise clinical trials at their institutions. Researchers who violate these regulations may face sanctions, including having business licenses revoked, criminal investigation, or bans from conducting research, according to Bloomberg.

The biotechnology industry, including genetics research, is a source of both competition and collaboration between the United States and China. A report released last month by the U.S.-China Economic and Security Review Commission, titled “China’s Biotechnology Development: The Role of U.S. and Other Foreign Engagement,” highlights the trade and investment relationships linking biotech firms in the two countries. The report, which was written by the Rhodium Group and Gryphon Scientific, notes that the health and biotechnology sector was the leading recipient of Chinese investment in the United States in 2018. However, greater investment could exacerbate privacy worries surrounding Chinese companies’ access to sensitive health and genetic information of U.S. citizens. Indeed, Chinese investment in U.S. biotechnology companies is likely to come under increased scrutiny following revisions to the Committee on Foreign Investment in the United States (CFIUS) process to allow for review of acquisitions of minority stakes in firms working with critical technologies. Those revisions were made as part of the Foreign Investment Risk Review Modernization Act, which was fully implemented earlier this year.

The draft State Council regulations reflect the Chinese government’s renewed attention to possible dangers surrounding gene-editing. However, as China’s biotechnology sector grows, concerns in the United States about national security risks relating to health data, access to sensitive research, and differing regulatory regimes and ethical standards surrounding technologies like CRISPR-Cas9 may continue to grow.

In Other News…

The U.S.-China tech rivalry was very much apparent at the Mobile World Congress (MWC), held last week in Barcelona. MWC is one of the world’s most diverse tech conferences, where industry giants like Apple and Samsung display new technology to attendees from around the globe. Huawei made a defiant stand at this year’s conference. Addressing the Congress, Huawei chairman Guo Ping argued that “we don’t do bad things” and called for “aligned responsibility, unified standards, and clear regulations.” The United States sent a delegation to MWC to “protest [Huawei’s] involvement in providing infrastructure for 5G.” Huawei, meanwhile, used the conference to showcase new gadgets, including its widely heralded foldable phone, the Mate X.

The United States and various analysts have warned that the Chinese government might compel Huawei to turn over data under China’s 2017 National Intelligence Law. A spokesperson for the Chinese government, said on March 4 that,

According to China’s National Intelligence Law, organizations and citizens have the obligation to support, assist and cooperate with national intelligence work. At the same time it also explicitly stipulates that intelligence work should be conducted according to law and in a way that respects and protects human rights and the lawful rights of individuals and organizations.

Huawei founder Ren Zhengfei has been adamant in interviews with foreign media that “We never participate in espionage … And we absolutely never install backdoors. Even if we were required by Chinese law, we would firmly reject that.” Zhou Hanhua, the vice president of the Law Institute at the Chinese Academy of Social Sciences, also argued in Wired that no part of Chinese law requires Huawei to install backdoors. That assessment has been called into doubt by a number of other legal experts.

In tandem with Huawei’s broader PR effort to make the case that it is not a security threat, the New York Times reports that Huawei is about to file a lawsuit in the Eastern District of Texas challenging the U.S. government's restriction preventing federal agencies from using the company’s products. Russia-based Kaspersky Labs unsuccessfully filed a similar suit last year, with the D.C. Circuit Court of Appeals ultimately ruling against the company’s argument that legislation prohibiting federal agencies from using Kaspersky products was an unconstitutional bill of attainder.

On March 1, Canada’s Department of Justice issued an “authority to proceed” with the extradition process of Huawei CFO Meng Wanzhou, who has been indicted in the United States for subverting Iran sanctions. The Chinese Embassy in Ottawa issued a sharp rebuke, casting the decision as an example of “obvious political interference” and calling for Meng’s immediate release “in accordance with the relevant provisions of the Extradition Act.” Meng’s defense team maintained that Meng is “innocent of any wrongdoing” and that the extradition “constitutes an abuse of the processes of law.” Meng has a variety of legal tools available, including the right of appeal, meaning that it could be years before she is extradited to the United States.

According to the Washington Post, China has delayed the publication of a World Bank report that calls on China to implement structural economic reforms. The World Bank teamed up with the Development Research Center, “an influential think tank under China’s state council,” to suggest solutions for sustainable economic growth. The report, the Post reports, is designed to follow up on a previous World Bank-Development Research Center publication, entitled “China 2030.” That report concluded that Chinese growth in the coming years would depend on the Chinese leadership’s ability to achieve reforms.

The latest report from the China Internet Network Information Center indicates the sheer scale of internet usage in China. China News Service shared several statistics from that report, including that the national internet availability rate has increased to 59.6 percent. As of December 2018, China had some 829 million internet users. Sinocism’s Bill Bishop noted that these statistics are “just another reminder of why many U.S. internet firms are willing to work with Beijing” and to cooperate with Chinese censorship demands.

On March 1, Paul Grewal, Facebook deputy general counsel, revealed that Facebook and Instagram have filed a federal lawsuit against four firms and three individuals in China. The lawsuit, filed in the Northern District of California, alleges that defendants “operated a series of websites promoting the sale of fake … and inauthentic accounts.” Facebook is seeking a permanent injunction against the defendants’ actions as well as damages for “trademark and service mark infringement.”

Commentary

In Foreign Policy, Michèle Flournoy and Gabrielle Chefitz describe what the United States must do to promote innovation domestically as China’s technology sector continues to develop. For the Brookings TechTank blog, Daniel Araya looks at why the United States and China have chosen such different paths to pursue AI dominance. On the Council on Foreign Relations Net Politics blog, Robert Knake discusses the relatively slow breakout times for intrusions by Chinese hackers revealed in recent data from the cybersecurity firm Crowdstrike. Tom Braithwaite, writing in the Financial Times, considers what U.S.-China tech relations might look like today had Motorola’s acquisition of Huawei succeeded in 2003, observing the dearth of U.S. companies in international telecommunications infrastructure. Melanie Hart and Blaine Johnson explore China’s global governance ambitions, including the relationships between digital surveillance and Chinese technology infrastructure, in a new report for the Center for American Progress.

For the Center for Strategic and International Studies, Mark Sobel considers provisions to require a stable Chinese currency as part of trade deal between China and the United States. Meanwhile in Caixin magazine, Yu Yongding argues “that China must think twice” before agreeing to a deal on the renminbi. A new report from Joshua P. Meltzer and Neena Shenal of Brookings and the American Enterprise Institute respectively examines how the United States and China could work to address long-term challenges in a trade deal.

On Lawfare, former FCC chairman Tom Wheeler and Robert D. Williams (Disclosure: Williams edits this column) argue that a U.S. ban on using Huawei hardware in 5G infrastructure will not be enough to ensure the security of domestic 5G networks. Ben Buchanan analyzes U.S. Cyber Command’s offensive cyber operation against Russia’s Internet Research Agency in advance of the 2018 midterm elections. Finally, Jim Baker offers his assessment of the Trump administration’s recent executive order on artificial intelligence. On the Lawfare Podcast, Bastian Giegerich of IIISS and Benjamin Wittes discuss IISS’ recently released Military Balance report, including Chinese military modernization (at 18:17) and the cyber-military balance (at 39:18). On the Cyberlaw Podcast, Stewart Baker interviews Crowdstrike’s Dmitri Alperovitch on the firm’s 2019 Global Threat Report, including the threats posed by nation-state actors such as China, Russia, and North Korea (at 31:45).