Trump amps up the tariff threat once again
With help from Megan Cassella, Zachary Warmbrodt and Sabrina Rodriguez
TRUMP AMPS UP THE TARIFFS THREAT ONCE AGAIN: President Donald Trump escalated the trade war with China once again by asking his administration to increase a proposed tariff on $200 billion worth of Chinese goods from 10 percent to 25 percent. The move sent shockwaves through business and retail groups already looking at the possibility of new duties on hundreds of consumer goods.
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“Ten percent was bad, 25 percent is even worse,” Christin Fernandez, vice president at the Retail Industry Leaders Association, told POLITICO. “This new tranche hits so many consumer products, many of which have no sourcing alternative other than China.”
A currency connection? Some analysts said they believed a roughly 8 percent drop in the value of China’s currency since April had prompted Trump’s more hawkish trade advisers to argue in favor of raising the duty on the third tranche of goods to 25 percent, from 10 percent. A lower-value renminbi would decrease the cost of Chinese exports and offset the price impact of U.S. tariffs.
“China has engaged in a whole range of things that make clear that they’re not interested in dealing with the issues that we’ve raised. And so I would hesitate to attribute it to any one specific action,” a senior administration official said, downplaying any one cause for the tariff increase.
No plan for talks: A senior administration official said they were communicating with Beijing about the potential for a negotiated settlement, but don’t have any dates for a meeting to announce.
Trump “remains open to those conversations and, you know, we are in contact with our Chinese counterparts. We have been throughout this process,” a senior administration official told reporters during a briefing, adding that “there are conversations about whether or not we’re going to be able to have a fruitful negotiation.” Doug has more here.
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GUAJARDO RETURNS TO WASHINGTON: Mexican Economy Secretary Ildefonso Guajardo is set to return to the Winder Building this afternoon for another round of NAFTA meetings with U.S. Trade Representative Robert Lighthizer. The visit comes as the two sides are nearing the final stages of an agreement on automotive rules of origin, as Morning Trade reported on Monday, and are working through other chapters that have yet to close.
But autos dominated the discussions last week and are likely to do so again. Talks ground to a halt in May after Mexico presented a rules of origin proposal that the United States rejected, but the two sides have now returned to it potentially as a baseline for what a final agreement might look like, sources close to the talks said. Technical discussions, which have been taking place in Washington since Tuesday, are focusing on issues like what percentage of the steel and aluminum used in NAFTA-produced cars must come from the NAFTA region and what percentage of each car must be produced by workers earning at least $16 an hour.
If all goes well between Guajardo and Lighthizer today, the Mexican economy minister is expected to return to USTR for a second meeting Friday morning, a source close to the talks told Morning Trade.
Canada on the sidelines: Today’s meeting will be the third meeting in an eight-day span between the U.S. and Mexican leaders, with Canadian Foreign Minister Chrystia Freeland nowhere to be seen in Washington. (She’s been in Singapore for the ASEAN foreign ministers meeting, a spokesman said earlier this week.)
Amid reports that Ottawa has been relegated to the sidelines, Canadian officials are privately saying they are perfectly happy to let the U.S. and Mexico hold bilateral meetings because they have a number of issues to discuss that Canada does not need to sit in on, a source close to the talks said. The root of the disagreement on automotive rules, for one, lies between Washington and Mexico City — and on that subject, Mexico is making a point to ensure Canada’s views are included in the discussions, another source said.
The reasoning behind that move is that “a Canada-friendly framework in this process will speed things up,” the source said.
More than just autos: While the news this week that Mexico and the U.S. are nearing a deal on autos has generated a fair amount of optimism surrounding NAFTA, those close to the talks warn that there are far more issues on the negotiating table than just rules of origin. And it remains as unclear as ever what progress is being made on the other so-called poison pill proposals — like government procurement contracts and dispute settlement mechanisms — and whether anyone is willing to compromise.
“It’s not as if you reach an auto rules of origin agreement and suddenly it’s mission accomplished,” one of the sources said, casting doubt on the idea that there could be a wide-ranging agreement reached by the end of the month. “There are still many issues left to handle.”
HISTORIC CHINA CRACKDOWN NEARS FINISH LINE: Congress has just wrapped up work on a sweeping overhaul of the way the government polices foreign investment in U.S. companies, as part of an escalating effort to fend off national security and economic threats posed by China.
Defense legislation that the Senate passed Wednesday would expand the jurisdiction of the Committee on Foreign Investment in the United States, a Treasury-led government panel that reviews international acquisitions of U.S. firms.
The bill, according to Hudson Institute visiting senior fellow Mario Mancuso, is “the most fundamental reform of CFIUS in its history.” President Donald Trump is expected to sign it in the coming days.
What’s in it: The legislation would try to close gaps in the CFIUS review process that lawmakers and administration officials warned were leaving important U.S. technologies vulnerable to foreign competitors, mainly China.
The bill would expand CFIUS by giving it the power to intervene in minority, non-controlling investments in U.S. companies, real estate deals near sensitive government facilities and other transactions such as takeovers during bankruptcy. In addition, the legislation would try to beef up export controls to address the transfer of technology abroad through joint ventures.
What’s next? Sen. John Cornyn, who with Rep. Robert Pittenger drove the CFIUS overhaul, says there remains a great deal of concern on the Senate Intelligence Committee and in the national security space about how state-owned Chinese telecommunications companies are used for espionage and cyber theft.
It’s a problem he said senators will keep working on, even after axing a bipartisan measure in the defense bill that would have reinstated sanctions on ZTE.
“That’s sort of a unifying issue: China and its abuse of intellectual property and its willingness to do anything and everything to try to compete with us economically and militarily,” Cornyn said.
SENATE OFFERS NEW LEGISLATIVE REBUKE TO TRUMP’S TARIFF POWER: Sens. Rob Portman (R-Ohio), Doug Jones (D-Ala.) and Joni Ernst (R-Iowa) introduced legislation Wednesday that would give the Defense Department authority in making national security determinations under Section 232. It would also give Congress the power to jointly disapprove of any tariff action on any type of import. The law currently allows a joint resolution of disapproval only for trade restrictions on oil imports.