Trade war with China would be ‘devastating’ for American families: US Chamber of Commerce

Robert Delaney and Jodi Xu Klein
President Donald Trump and China's President Xi Jinping (not shown) make a joint statement at the Great Hall of the People on November 9, 2017 in Beijing, China.
Getty Images

A day after President Donald Trump slammed South Korea last week for benefiting unevenly from its trade relationship with the US, the largest American business association shot back.

Embedded in an article the US Chamber of Commerce published to commemorate the sixth anniversary of the US-Korea Free Trade Agreement, also known as KORUS, was a video that slammed anyone calling for the pact's demise.

KORUS "represents a rules-based economic order that goes hand in glove with the mutual defence treaty that has supported regional stability in the Asia-Pacific since the end of the Korean war," the chamber said.

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"Despite these gains, there have been calls for ripping up the agreement because of the US trade deficit with Korea. Not only does this metric ignore some basic economic principles, but it also ignores the fact that the deficit is narrowing substantially."

The chamber, which includes among its 3 million members manufacturing giants such as Ford Motor Company and tech industry leader IBM, also warned last week that punitive trade measures aimed at China could have a "devastating" effect on the incomes of American families.

Traditionally aligned with Trump's Republican Party, the industry association's stance highlights the political war brewing in Washington over a trade war that the US president appears intent on sparking. The chamber is one of many companies and organisations stepping up their resistance to Trump's foreign trade and investment initiatives.

These moves include punitive tariffs on steel and aluminium, announced earlier this month, and expectations that Trump will target China specifically with new import taxes on its products. The latter is the likely result of a Section 301 investigation into Beijing's foreign investment rules, which demand the transfer of intellectual property to local companies.

"Tariffs are a hidden tax on Americans – plain and simple. More than 41 per cent of clothing, 72 per cent of footwear, and 84 per cent of travel goods sold in the US are made in China," the Washington-based Retail Industry Leaders Association, said in a public letter to Trump. "A tariff on these products would be a tax on every American."

RILA's members include Nike, Gap, Ikea, Abercrombie & Fitch and Whole Foods.

Meanwhile, Wal-Mart, Target, Best Buy and Macy's are among the large US retailers that separately sent Trump a letter urging him not to impose punishing tariffs on goods imported from China, Reuters reported.

Trump will announce by Friday the imposition of a package of US$60 billion worth of annual tariffs against China, The Washington Post reported, citing four senior administration officials, who declined to be identified.

The package could be applied to more than 100 products, which Trump argues were developed by using trade secrets the Chinese stole from US companies or technologies US companies were forced to hand over in exchange for market access, the report said.

"I'm getting calls from companies asking if they can petition for exemptions [from the metal tariffs]," said Doreen Edelman, a Washington-based trade lawyer with law firm Baker Donelson, told the South China Morning Post in an interview.

"Executives have thrown their hands up in the air because they can't plan and they can't predict. Companies are wondering whether they should invest in the US," she said.

Also looming is legislation that would widen the scope of government reviews of foreign investments on national security grounds, possibly stymieing plans by foreign companies to start or expand operations in the US.

The Foreign Investment Risk Review Modernisation Act (FIRRMA), was co-authored by senior Senators John Cornyn, a Republican from Texas, and Dianne Feinstein, a Democrat from California. Cornyn has tried to cajole lawmakers to support the act to stop China using its "tentacles" to undermine American security through the acquisition of advanced technologies.

If enacted, the legislation would expand foreign investment review procedures overseen by the Committee on Foreign Investment in the United States (CFIUS), which is chaired by the treasury secretary and seeks input from the departments of defence and homeland security, among other federal bodies.

The Washington-based Organisation for International Investment (OFII), which represents the North American operations of HSBC and other global companies with US operations, is resisting the CFIUS legislation by lobbying lawmakers, according to people with knowledge of the matter.

"Mergers and acquisitions with overseas partners continue to be vitally important in the US," said Chris Griner, chair of the CFIUS practice at law firm Stroock & Stroock & Lavan. "Open investment policy has been the hallmark of US government policy over many years."

The importance of these transactions might be why Cornyn and Feinstein have not yet been able to push their FIRRMA legislation through.

"If we are going to have legislation that says a Chinese paper company can't buy a US paper company because that's a national security issue, what wouldn't be a national security issue then?" Edelman said.

"If we do it, can you imagine if the rest of the world puts in similar legislation that US companies cannot invest?"

Lawmakers might be hesitant to get behind FIRRMA because "then you're on the record and your opposition can use that in an attack ad, portraying you as someone who wants to shut down global trade", she said.

While concerns about China's acquisition of dual-use technologies, or those that can be used for military applications, sparked the push to strengthen the CFIUS review process, proposed investments from other countries could be slowed down if FIRRMA becomes law.

FIRRMA would give CFIUS the authority to review all "non-passive" investments by foreign entities. Currently CFIUS reviews only transactions that give foreign parties majority control of a US company that develops, sells or licenses advanced technologies with potential military applications.

CFIUS would also be able to suspend pending transactions and impose new conditions, retroactively, on completed transactions.

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