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Weekly CFIUS news roundup: June 15

June 15, 2018 by in News

During an extremely busy week for one solo practitioner, that there is a single story that overshadows all the rest of the news:

The U.S. has made good on its previously-announced plans to impose tariffs on Chinese products. President Trump announced Friday that he was following through on his commitment to place tariffs of 25% on $50 billion of Chinese goods that involve “industrially significant” technologies. In the days leading up to the announcement, China had engaged in a last-ditch scramble to convince the administration not to move forward. Furthermore, the administration announced that if China retaliated, it had a plan in reserve to impose tariffs on significantly more Chinese goods. Facing hardline pressure internally, China almost immediately responded by imposing $50 billion of tariffs on U.S. goods—primarily targeting U.S. agricultural exports to China. At the time of this posting, the U.S. had not officially imposed its second round of tariffs on additional Chinese goods, but there is every reason to believe the administration will in fact do so. As we discussed at the outset of the trade war in April, this administration sincerely believes that the U.S. has gotten its trade policy with China wrong for the better part of 30 years. While there was some hope of avoiding a trade war when Treasury Secretary Steven Mnuchin announced that it was “on hold” a few weeks ago (only to be undercut days later), we are in a very different situation now that both sides have followed through on their promises to impose tariffs on one another. It is unlikely that this administration will back down absent significant changes in policy from China. And, again as we have discussed, President Trump will need to convince Chinese President Xi Jinping to relent on trade policies that have been central to China’s transformation from an extremely poor, agrarian society to the second-largest economy in the world and a technological leader in a mere 30 years—and further to relent on a highly ambitious plan to become the world leader in high technology industries by 2025. Because the Trump administration adopted such an aggressive tone towards China, President Xi’s internal mandate is not to give in to America but rather to stand up to it. And President Xi does not face elections ever again.

It would be great to be wrong, but the view here is that this will escalate, and a resolution is not soon in coming. The guess here is that President Xi will wait out the midterm elections in America, during which Trump’s base of support in Midwestern agricultural states will feel significant pain from the Chinese tariffs on their products. This could turn out to be a colossal miscalculation: President Trump excels in rallying his base against enemies, and China may now serve as Public Enemy Number 1 to that constituency. It is possible that President Trump emerges from the midterm elections with a strengthened hand to pursue the trade war against China.

Stay tuned. 

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