COMMERCE TAKES AIM AT SPY BALLOON BACKERS: The Commerce Department added six Chinese aerospace companies to a trade blacklist due to their support of Beijing’s surveillance programs, a move that comes after the Biden administration shot down a balloon allegedly being used by China to spy on the U.S. “The PRC’s use of high-altitude balloons violates our sovereignty and threatens U.S. national security,” Bureau of Industry and Security chief Alan Estevez said in a statement. “Today’s action makes clear that entities that seek to harm U.S. national security and sovereignty will be cut off from accessing U.S. technologies.” The firms added to the “entity list” are Beijing Nanjiang Aerospace Technology Co., the China Electronics Technology Group Corporation 48th Research Institute, Dongguan Lingkong Remote Sensing Technology Co., Eagles Men Aviation Science and Technology Group Co., the Guangzhou Tian-Hai-Xiang Aviation Technology Co., and Shanxi Eagles Men Aviation Science and Technology Group Co. New trade irritant: Balloon-gate is the latest incident to upend efforts to reset the U.S.-China relationship, and the new export controls are yet another sign that trade relations will remain tense. The Biden administration has made frequent use of trade restrictions to target Chinese companies tied to Beijing military and technological ambitions, drawing the ire of the Xi Jinping’s government in the process. “While no one is anticipating a major improvement in U.S.-China trade relations anytime soon, the two countries have to start somewhere. And they can’t even start at the bottom if incidents like this impede their ability to meet in person and to talk,” said Chad Bown, a senior fellow at the Peterson Institute for International Economics. Scott Kennedy, senior adviser at the Center for Strategic and International Studies, praised Biden’s handling of the spy balloon. But he criticized other corners of Washington for “exaggerating the significance of this incident” and Beijing for an “overwrought” response and “unpersuasive blanket denials.” “The incident is creating a lot of hot air and in danger of blowing U.S. foreign policy off-course,” Kennedy said, with perfect pun execution. TAI SOUNDS RESOLUTE ON CHINA TARIFFS: During her visit to an eyewear factory near Chicago on Friday, U.S. Trade Representative Katherine Tai heard a direct plea to ease tariffs on Chinese imports. Her office is conducting a required review of those tariffs, which were implemented by former President Donald Trump more than four years ago. Scott Shapiro, CEO of Europa, a Chicagoland company that owns the American Optical brand, told Tai he would love to rely exclusively on American suppliers. But many of the key materials, such as the acetate used to make frames, are only available from China and now carry a 25 percent tariff, he said. “Even though we're doing everything we can to produce the product in the United States, we're paying a tariff on our raw goods, when there's really no other place that we can [get it],” Shapiro told the trade representative. Before Shapiro finished his sentence, Tai had a reply: “But the fundamental problem is that we don't make it. And there's only one place in the world where we can get it. There's not even a diversified set of suppliers. It's just one place, which is an incredible vulnerability.” Giving no ground: Tai’s tariff review may be ongoing, but her position appeared set. The United States used to make acetate and many other raw materials it now has to import but it moved away from that, she told POLITICO after the factory tour. “I think what you see right now is we're on a path, working together to try to bring us back to a new model,” Tai said, aided by the China tariffs and the big investments Congress and the Biden administration are making in domestic manufacturing. Durbin open to “fair” FTAs: In recent weeks, Tai has stood by her position of refusing to negotiate traditional free trade agreements that involve tariffs cuts, despite pressure from the business community, farm groups and leading Republican members of Congress. However, Sen. Dick Durbin (D-Ill.), who joined Tai at one of her stops in Chicago, seemed at least theoretically open to new tariff-cutting agreements when asked by POLITICO if the era of U.S. free trade agreements had ended. “I think they are not a thing of the past. But the ambassador would know this better than myself — we've got to make sure that they are fair trade agreements. I have voted for some in the past with great promises that didn't deliver,” Durbin said. “Our first obligation is to the American worker and the American family. And I think we can have fair trade agreements and do it in that fashion,” he said. TAI TRACKER: The U.S. trade representative has now embarked on a weeklong tour overseas. She will first stop in Hanoi, Vietnam, for meetings at the Ministry of Investment and Trade and Ministry of Foreign Affairs, according to her office. Her visit comes nearly 10 years since the formation of the U.S.-Vietnam Comprehensive Partnership, a pact intended to deepen economic ties, battle climate change, promote human rights and bolster maritime capacity. “This is an opportunity to take stock of the relationship and identify ways we can continue to work together, particularly through potential meetings under our bilateral Trade and Investment Framework Agreement,” a USTR spokesperson told Morning Trade. Meanwhile, the Biden administration is also seeking to broker the Indo-Pacific Economic Framework, with Vietnam being one of the 13 nations invited to the negotiating table. Tai will “continue encouraging Vietnam’s participation,” the spokesperson said. “Even as talks continue at the senior staff level, we believe it is important to remain engaged on a bilateral basis with IPEF partners at the ministerial-level,” Speaking of IPEF: The Commerce Department concluded a “special” negotiating round over the weekend focused on the three pillars of the Indo-Pacific Economic Framework that are within its purview. The latest talks, which were held in India, included “in-depth text-based discussions,”the department stated. Details on the next round of talks are forthcoming. AU REVOIR, AMBASSADOR: The French ambassador to the U.S., Philippe Étienne, officially stepped down Friday after more than three years as a key conduit between Washington and Paris. Étienne arrived in 2019 just ahead of the Covid-19 pandemic and as the Trump administration came to a close. But his tenure has included more recent tests of the U.S.-France alliance. There was the kerfuffle over the Australia-U.K.-U.S. security partnership that threatened to derail the U.S.-EU Trade and Technology Council. And in recent months, he’s been a key player grappling with fallout over tax credits in the Inflation Reduction Act, which have rankled a number of European partners, perhaps France most of all. Étienne’s successor will be Laurent Bili, who is expected to arrive in Washington in the coming weeks, according to the embassy. Bili is currently the French ambassador to China, a background that should prove helpful as European nations continue to navigate the competing demands of the world’s largest powers.
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