In One Sentence

• President Biden has signed an Executive Order on Ensuring Robust Consideration of Evolving National Security Risks by the Committee on Foreign Investment in the United States. 
• U.S. Trade Representative Katherine Tai observed that the Section 301 tariffs on Chinese goods will remain in place as the office continues its review of the tariffs. 
• Analysts say that tariff reduction has a limited effect on controlling inflation. 
• USTR Katherine Tai said a new model of globalization and trade will also benefit U.S. partners and allies. 
• U.S. lawmakers called for stronger economic and trade ties between the U.S. and Taiwan.

Mark the Essentials

• As per the September 15 CFIUS-related Executive Order, it is the policy of the United States to ensure that the foreign investment review process remains responsive to evolving national economic security risks arising from investments that fall outside the defense industrial base and involve “a country of special concern.”
• According to the USTR, a subset of U.S. industry representatives reported that the Section 301 tariffs have created “leverage” to “induce” China to eliminate “harmful policies and practices that are the target of the tariff action.” The representatives also said that the tariffs helped them to compete against Chinese imports and address unfair competition practices. 
• According to some analysts, reducing or eliminating the tariffs would have some effect on inflation, but the effect is neither long-term nor substantial. Instead, adjustment of interest rates and taxation are much more effective and would constitute “real” responses to inflation.
• Listing initiatives such as IPEF and the “green” steel negotiation between the U.S. and EU, USTR Tai advocated for a more resilient version of globalization where the U.S. and its allies and partners jointly figure out ways to address climate change and ensure high labor standards.
• At a recent hearing on “the future of U.S.-Taiwan trade,” House Ways & Means Committee members supported stronger trade ties between the two, potentially through a trade agreement. Meanwhile, the Senate Foreign Relations Committee approved the Taiwan Policy Act, which contains “sense of Congress” provisions that advocate for resumed meetings under the U.S-Taiwan Trade and Investment Framework Agreement leading to a bilateral free trade agreement.

Keeping an Eye On…

• The Biden administration is getting its trade and technology policies on China both right and wrong. Exactly 40 months to the day that the Trump administration had issued a shockingly broad executive order (EO) on securing the U.S. information and telecommunications supply chain (and thereupon initiated the process of kneecapping Huawei), the Biden administration, on September 15, issued a more precisely-crafted executive order. This EO provides a bird’s-eye view of the key national economic security risk factors, sectors, technologies, and types of data that are to effectively be kept beyond the acquisitory reach of Chinese entities. It amounts to an enumeration of sectors, materials and technologies that are shortlisted for ‘selective decoupling’ including microelectronics, artificial intelligence, biotechnology and biomanufacturing, quantum computing, advanced clean energy (such as battery storage and hydrogen), climate adaptation technologies, critical materials (such as lithium and rare earth elements), and elements of the agriculture industrial base that have implications for food security. Whatever one’s view may be regarding the merits of ‘selective decoupling,’ there is merit in the EO’s conciseness and clarity, especially when compared to the haphazard issuance of sector-by-sector EOs with their laundry list of accompanying risk factors. On the other hand, United States Trade Representative (USTR) Katherine Tai continues to indulge her delusion that the Section 301 tariffs create leverage to induce China to eliminate its harmful policies and practices. Her predecessor, Robert Lighthizer, had in fact leveraged the tariffs to induce China to root out its coercive technology transfer practices, both in law and fact, and qualitatively enhance its intellectual property protections. Both were memorialized in the U.S.-China Phase One agreement and, in exchange, the U.S. dropped its Section 301-based case against Beijing at the World Trade Organization. At this time, the tariffs no longer instill fear or pressure at the Chinese end; rather, they elicit a mix of anger and disgust. They also hurt American consumers and businesses, except those of the protectionist inclination that USTR Tai appears to share. And a WTO panel has found them to be illegal, too. Hopefully, USTR Tai’s views on the Section 301 tariffs will evolve once the midterms are done and dusted. 

Expanded Reading

• Executive Order on Ensuring Robust Consideration of Evolving National Security Risks by the Committee on Foreign Investment in the United States – The White House, Presidential Actions, The White House, September 15, 2022
• The Future of U.S.-Taiwan Trade, Hearing by the House Ways and Means Committee, September 14, 2022
• U.S.-Taiwan bill sails through Senate panel despite White House misgivings, Politico, September 14, 2022
• S.4428 – Taiwan Policy Act of 2022
• Carnegie Connects: The Biden Administration and Trade With Katherine Tai, Event by the Carnegie Endowment for International Peace, September 7, 2022
• USTR Receives Requests for Continuation of China 301 Tariffs, Office of the United States Trade Representative, September 1, 2022
• What is Priority Number 1? Inflation, Jobs, or Trade Policy – a Look at Tariff and Trade Policy, Event by Washington International Trade Association, September 1, 2022