Congress warned against China trade “kill shot”

Presented by PhRMA: Delivered every Monday by 10 a.m., Weekly Trade examines the latest news in global trade politics and policy.

May 22, 2023 View in browser   By Doug Palmer Presented by With help from Steven Overly Quick Fix — Former U.S. Trade Representative Robert Lighthizer’s endorsement of legislation to end “permanent normal trade relations” with China has focused attention on the issue, with another former Trump aide warning it would be a “catastrophic” mistake. — The world’s wealthiest democracies laid out their strongest stance yet toward China’s coercive economic practices while accelerating a broader shift toward industrial policies focused on reducing their dependence on Beijing. — President Joe Biden and Australian Prime Minister Anthony Albanese signed a deal to forge stronger ties on clean energy and critical minerals by making it easier for companies to invest and do business in both countries. It’s Monday, May 22. Welcome to Morning Trade. It’s a good day to replenish your stock of mail order catalogs to have some on hand as reference guides, according to my 1974 Popular Science Homeowners Almanac. For example, suppose a neighbor mentioned he wanted to buy a molding-head guard for a radial-arm saw and you didn’t know what he was talking about. You might be able to find a picture in one of your catalogs, the book said. Makes so much sense! But sadly this year is the 30th anniversary of Sears ceasing publication of its big book. So, we may have to think of another solution. Send us your trade news: gbade@politico.com, dpalmer@politico.com and soverly@politico.com. You can also follow us on Twitter: @gavinbade, @tradereporter and @stevenoverly.   A message from PhRMA: May is World Trade Month – an opportunity to remind the Biden Administration of the importance of international trade. America’s biopharmaceutical manufacturers fuel the U.S. economy and support American workers through international trade. We employ a highly-skilled American workforce, maintain strong global supply chains and export lifesaving medicines for people around the world. Learn more.   Driving The Day EXPERTS WARN AGAINST REVOKING CHINA PNTR: Legislation under consideration in Congress that would further increase tariffs on Chinese goods by revoking permanent normal trade relations would have a “catastrophic” effect on U.S.-China relations if it becomes law, a former Trump White House trade official warned Friday. “Everyone listening needs to recognize that this is a legitimate policy threat,” Clete Willems, who now is a partner at the Akin Gump law firm, said during a discussion hosted by the Washington International Trade Association. “Second point: I think we have to realize how catastrophic it actually would be … This is a kill shot in the relationship.” Anti-China sentiment is so strong in Congress that it is hard to rule out the possibility of lawmakers passing some version of a PNTR-repeal bill, Willems said. Last year, Congress revoked PNTR for Russia after it invaded Ukraine. Both Sen. Josh Hawley (R-Mo.) and Sen. Tom Cotton (R-Ark.) have put forward bills that would revoke PNTR for China, although they differ in details. Members of the House Select Committee on China also explored the possibility of revoking PNTR during a hearing last week with Robert Lighthizer, who was Trump’s trade representative. “Should we take back permanent normal trade relations? Absolutely,” Lighthizer told the panel, “It was a mistake. Of course, we should take it back.” Congress approved PNTR for China in 2000 in exchange for Beijing agreeing to make a number of reforms to join the World Trade Organization. Before that, Congress could vote each year on whether to provide goods from China with the same “most-favored nation” tariff that the United States provides to all but a handful of countries. The part you may need to read twice: Revoking PNTR would make Chinese goods subject to the tariffs listed in column two of the U.S. Harmonized Tariff Schedule. Those are generally higher than the MFN tariffs in column one, but not uniformly so. Lighthizer told the House Select Committee that the United States would have to modify some of the column two tariffs, such as for autos, which he said are not high enough on China. Still, Willems warned revoking PNTR would have a bigger impact than former President Donald Trump’s decision to impose tariffs of 7.5 percent and 25 percent on more than $300 billion worth of Chinese goods using Section 301 of the 1974 Trade Act. For example, there are no 301 tariffs currently on seven of the top ten U.S. imports from China. But all ten of those items would face tariffs of 35 percent to 40 percent if PNTR were revoked, Willems said. The largest category of U.S. imports from China last year was cell phones and related household goods, which totaled about $78 billion. Willems said routers were another top ten item that would face higher tariffs. Beware of backfire effects: Claire Reade, who served as assistant U.S. trade representative for China affairs during the Obama administration, warned the United States would be going it alone, with negative consequences for its trade, if it revoked PNTR. “The other key economies are not going to follow us,” Reade said at the WITA event. “That means big players like Japan, South Korea, the EU, et cetera. They're going to step in and take the profits and take the economic advantages.” In that situation, the U.S. will suffer from a loss in living standards and become a less attractive place for companies to invest because of higher costs, Reade projected. “So I don't think removing PNTR is a good idea,” she said.   GET READY FOR GLOBAL TECH DAY: Join POLITICO Live as we launch our first Global Tech Day alongside London Tech Week on Thursday, June 15. Register now for continuing updates and to be a part of this momentous and program-packed day! From the blockchain, to AI, and autonomous vehicles, technology is changing how power is exercised around the world, so who will write the rules? REGISTER HERE.     Want to receive this newsletter every weekday? Subscribe to POLITICO Pro. You’ll also receive daily policy news and other intelligence you need to act on the day’s biggest stories. G-7 PLEDGE TO RESIST CHINA COERCION: The G-7’s joint actions on supply chains, semiconductors and infrastructure funding are a response “to the three C’s that have upended the world: Covid, conflict and coercion,” U.S. Ambassador to Japan Rahm Emanuel said at the summit of the world’s leading democracies, held in Hiroshima over the weekend. “There is no going back. This is an inflection point for a new and more relevant G-7.” De-risk, not decouple: President Joe Biden, in a press conference before returning to Washington, chose his words carefully to describe the G-7 stance toward Beijing. “We’re not looking to decouple from China. We’re looking to de-risk and diversify our relationship with China,” Biden said, echoing a term that European Commission President Ursula von der Leyen has used to describe the EU’s strategy. “That means taking steps to diversify our supply chains … so we’re not dependent on any one country for necessary product,” Biden said “It means resisting economic coercion together and countering harmful practices that hurt our workers. It means protecting a narrow set of advanced technologies critical for our national security.” More specifically, the leaders agreed in a joint statement to launch the “Coordination Platform on Economic Coercion” with the aim of increasing the group’s “collective assessment, preparedness, deterrence and response to economic coercion” and to further promote cooperation with partners beyond the G-7. They also touched on the issue in the separate G-7 leaders communique, where they directed their trade ministers to explore coordinated action against economic coercion, both within the G-7 and with other countries. Turning to other trade topics, the leaders: — Committed to having a “fully and well-functioning” World Trade Organization dispute settlement system by 2024, reiterating a goal that WTO members made last year. — Called for a plurilateral agreement on e-commerce rules by the end of this year and the permanent extension of a decades-old moratorium on collecting duties on e-commerce transmissions. — Urged WTO members to ratify a new agreement to curb fisheries subsidies so it can enter into force and to finish negotiations on a more comprehensive pact. — Promised continued collaboration to facilitate and promote trade in environmental goods, services and technologies. — Reaffirmed shared concerns with non-market policies and practices that distort global competition, trade and investment. U.S. DEEPENS CRITICAL MINERALS TIES WITH AUSTRALIA: Australia is already one of the world’s major producers of the critical minerals used in electric vehicle batteries and solar panels — raw materials the U.S. will increasingly need in the coming decades. And the EV tax credits in the Inflation Reduction Act that Congress passed last year gave the U.S.-Australia relationship a boost (even as it left other allies like Japan and the European Union out in the cold). Now, the U.S. and Australia are forging even stronger ties on clean energy and critical minerals after Biden and Australian Prime Minister Anthony Albanese signed a deal late last week that aims to make it easier for companies to invest and do business in both countries. The Climate, Critical Minerals and Clean Energy Transformation Compact includes commitments to create a bilateral task force on critical minerals, helmed by the National Security Council in the U.S., and to align emissions standards with the goal of forming a more seamless supply chain. Biden also plans to ask Congress to dub Australia a “domestic source” under Title III of the Defense Production Act, which could spur U.S. investment in Australia’s minerals industry. The U.S. is already the largest foreign investor in Australia, though China has become a more active player in its critical minerals sector. Quad squad: Biden and Albanese announced their agreement as Quad leaders gathered for a summit in Japan. The group, which also includes India, launched a network for investors looking to funnel money into critical technologies and announced plans to pursue a memorandum of cooperation that aims to foster trade opportunities through export credit agencies. FORMER BIDEN AIDE QUESTIONS WHITE HOUSE STRATEGY: A lot of trade experts doubt the Biden administration can persuade countries in the Indo-Pacific Economic Framework talks to open their markets to more U.S. exports if the United States does not make similar openings. Now a former Biden House official has added his voice to that choir. “I think what what is hard to do when you're not prepared to put U.S. market access on the table, or other major incentives from the United States, is to get these countries to change their domestic laws to make market access to their markets easier,” Peter Harrell, former senior director for international economics and competitiveness on the White House National Security Council, said at the above-mentioned discussion hosted by WITA. Harrell said he did believe the Biden administration could have “strategic” trade conversations with other countries, even if it is unwilling to negotiate traditional free trade agreements. “But I don't think you're gonna see a lot of foreign market liberalization without the U.S. also putting something on the table,” he said.   A message from PhRMA:   NG: STILL WORKING WITH U.S. ON AUTO DISPUTE: Canadian trade minister Mary Ng did not have much news to share about discussions to resolve the USMCA auto dispute when she was in town Friday for a North American semiconductor summit. “We are working with the United States, together with Mexico," Ng told reporters, when asked if she thought the three countries could reach a deal without Canada and Mexico threatening to retaliate against the United States, which is on the defensive after losing a USMCA panel ruling. "We know how important it is for the auto sector,” she added. Energy case: Ng seemed somewhat hopeful that talks the United States and Canada are pursuing with Mexico over that country’s energy policies would have a good result. Ng said the Mexican government seems to be interested in working with Canadian companies on their concerns, but she promised to keep a "close, watchful eye" on the matter. “It was really important for us that the Mexican government and leadership meet with Canadian companies and investors who are investing in Mexico, particularly in the energy space,” Ng said at a briefing for reporters. U.S. REMINDS WORLD IT’S A WTO MEMBER: The U.S. mission in Geneva has begun publishing a weekly summary of U.S. Ambassador to the WTO Maria Pagan’s activities in an apparent effort to counter the perception the United States is disengaged. “The United States maintained an active presence on trade in Geneva during the three-day workweek of May 15, 2023,” the latest edition of the report began. “Ambassador Maria Pagán spoke on a panel organized by the Women in Trade Network and U.S. delegates in Geneva and U.S. officials in Washington participated in a number of formal and informal events.” The report goes on to say the United States participated in “over 30” meetings on issues such as dispute settlement reform, agriculture, ecommerce, government procurement and food safety and plant health rules. The tally also includes WTO administrative meetings on topics such as pension reform for WTO employees.   DON’T MISS POLITICO’S HEALTH CARE SUMMIT: The Covid-19 pandemic helped spur innovation in health care, from the wide adoption of telemedicine, health apps and online pharmacies to mRNA vaccines. But what will the next health care innovations look like? Join POLITICO on Wednesday June 7 for our Health Care Summit to explore how tech and innovation are transforming care and the challenges ahead for access and delivery in the United States. REGISTER NOW.     International Overnight — China says it "deplores" trade pact between U.S. and Taiwan, POLITICO reports. — An Ohio steelmaker is using the Biden administration's clean energy agenda to push for more tarifs, POLITICO reports. — EU chief nudges Biden on subsidies at G-7 summit, POLITICO reports. — Commerce Secretary Gina Raimondo discussed semiconductor supply chains in separate meetings with Mexican Secretary of Economy Raquel Buenrostro and two top Canadian officials. The second meeting also touched on electric vehicles and batteries. — The United States and Nepal held their first meeting of their bilateral Trade and Investment Framework Agreement in three years. USTR said they discussed a range of issues including investment, digital economy, intellectual property, customs and trade facilitation, agricultural trade, market access and technical barriers to trade, Nepal’s graduation from the LDC status, labor rights, and utilization of the Nepal Trade Preference Program. — The leaders of official export credit agencies of the G-7 countries discussed topics ranging from critical minerals to Ukraine reconstruction at a meeting in Rome last week. — From sunglasses to milking machines, the U.S. halts more exports to Russia, Reuters reports. — India and Britain are struggling to make progress in free trade talks, Reuters reports. THAT’S ALL FOR MORNING TRADE! See you again soon! In the meantime, drop the team a line: dpalmer@politico.com, gbade@politico.com and soverly@politico.com. Follow us @POLITICOPro and @Morning_Trade.   A message from PhRMA: The U.S. biopharmaceutical industry and the more than 900,000 Americans that it employs depend on an open and rules-based global trading system to develop, manufacture and distribute innovative medicines around the world. As the Biden Administration hosts IPEF trade ministers this week, America’s biopharmaceutical researchers and manufacturers encourage USTR to recommit to an ambitious trade agenda, strong global intellectual property protection and more meaningful commercial engagement in the Indo-Pacific region. This course correction could drive medical innovation and patient access. Read more.     Follow us on Twitter John Yearwood @john_yearwood Doug Palmer @tradereporter Gavin Bade @GavinBade Steven Overly @StevenOverly   Follow us

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