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'Complicated Situation' in Huawei

Tech Relieved List 4 Tariffs Are on Hold, Urges US-China Pact That Lifts Duties for Good

Tech and business groups hailed President Donald Trump’s decision postponing the List 4 Section 301 tariffs as his administration tries to negotiate a comprehensive trade deal with China, though three existing rounds of tariffs stay as is, and the threat remains that List 4 could be imposed any time if the talks go awry, as they did in May (see 1905060015). Bipartisan Capitol Hill condemnation greeted Trump’s surprise announcement he will let U.S. companies resume shipments to Huawei, though the tech-equipment giant remains subject to Commerce Department export administration regulations and entity list restrictions (see 1905160081).

We’re going to work with China on where we left off, to see if we can make a deal,” Trump told an Osaka, Japan, news conference Saturday as the G20 summit wrapped up. Trump “promised” Chinese President Xi Jinping “that, for at least the time being, we’re not going to be lifting tariffs on China,” he said. “We agreed that I would not be putting tariffs on the $325 billion that I would have the ability to put on,” he said of List 4.

Trump “wisely decided against imposing more tariffs on China, but we still need a trade deal that removes all tariffs,” said CTA President Gary Shapiro Saturday. “Tariffs on Chinese imports already cost the American tech sector an additional $1 billion per month, and new tariffs would crush many small businesses and startups.”

CTA supports legislation in the House (HR-3477) to boost congressional oversight of Office of the U.S. Trade Representative decisions to impose or hike import tariffs, said Shapiro Monday. The bill “makes it clear that Congress has exclusive Constitutional authority to impose tariffs and has only delegated such power to the Executive branch in limited circumstances,” he said.

The National Retail Federation, which endorsed the legislation last week (see 1906260019), thinks “pulling back from the brink of further tariff escalation is a good sign for retailers and their customers,” said Senior Vice President-Government Relations David French Saturday. “We look forward to continued progress in the talks with China so that further tariffs can be avoided and existing ones lifted.”

The Information Technology Industry Council is “encouraged” the U.S. and China “agreed to continue negotiations without further escalation of the mutually damaging trade war,” said CEO Jason Oxman. “We are also relieved that President Trump has reconsidered his threat to impose additional tariffs, which would have accelerated harm to all American consumers, workers, and businesses of all sizes.”

The U.S. Chamber of Commerce hopes the U.S. and China are “now prepared to go the last mile to achieve a high-standard, comprehensive, enforceable agreement,” said Myron Brilliant, executive vice president-international affairs. “If China makes the necessary commitments, the administration should take the necessary steps to lift tariffs that are harming U.S. manufacturers, farmers and consumers.”

Tuesday’s deadline for filing post-hearing rebuttals is the last milestone in the List 4 rulemaking proceeding. With Trump putting the List 4 tariffs on hold, it’s unclear whether USTR would still publish a final List 4 notice delineating which product lines make the cut for tariff exposure after thousands filed written comments and hundreds testified at seven days of public hearings. USTR didn’t comment Monday.

I highly doubt they will issue anything,” emailed CTA Vice President-International Trade Sage Chandler Monday. “They would have to publish the final ‘list 4' if and when tariffs are set to go in to effect, but are under no time frame by when that must happen.”

All that Chandler communicated to CTA members Monday "re list 4 is that we are in a holding pattern," she told us. She also told members that "the 'delay' on list 4 tariffs does not signify that a 'deal' has been reached, and that it has no impact on any of the other tariffs they are paying on lists 1, 2,+ 3," she said.

David Cohen, a trade expert with Sandler Travis, thinks USTR “will continue down the path that has been set in motion and complete their due diligence on the List 4 exclusion process albeit at a more relaxed pace,” he emailed us Monday. “There is no longer a sense of urgency now that the President has hit the pause button on this particular process. We have seen trade policy erupt seemingly out of nowhere so I suspect that the USTR will be pressed internally to be in a position to implement the tariffs with short notice.”

U.S. importers would “serve themselves well” to use the List 4 delay “to continue to explore duty mitigation strategies for China-sourced goods,” said Cohen. Importers should continue “evaluating non-China sourcing options,” including shifting “a portion of their manufacturing process to confer origin outside of China,” he said. They also should consider “use of first sale to reduce their duty liability for goods that must be sourced from China,” he said.

The “good news” in the weekend’s developments “is that the two sides will resume negotiations,” blogged customs expert Ted Murphy with Baker & McKenzie Monday. “The bad news is that meaningful differences remain and negotiations to resolve these issues will not be quick or easy.” Murphy is counseling companies to plan for the threat of additional tariffs “remaining in place for the foreseeable future,” he said: “Companies impacted by List 4 should be taking advantage of this delay in the imposition of additional duties to further alternative sourcing plans.”

Trump and Xi agreed in Osaka to delay discussion of U.S. sanctions against Huawei “until the end” of the trade negotiations, said Trump at the news conference. “Huawei is a complicated situation,” he said. U.S. companies nevertheless can now “sell their equipment to Huawei,” he said. “I’m talking about equipment where there is no great national emergency problem with it.”

American tech companies were “very upset” with the decision putting Huawei on the entity list, said Trump. “I like our companies selling things to other people. So I allowed that to happen.” Micron Technology, which said last week it faces a possible $200 million revenue hit from lost sales to Huawei (see 1906260002), didn’t respond to emails Monday seeking comment. Huawei also didn't comment.

The two leaders “did discuss Huawei” in Osaka, but not the “situation” of Chief Financial Officer Meng Wanzhou, said Trump. Meng is facing possible extradition to the U.S. from Canadian detention on DOJ ’s 13-count indictment against her and Huawei on bank fraud, obstruction of justice and other allegations (see 1901280052).

Trump’s easing of the Huawei restrictions got bipartisan condemnation. Huawei is one of the few "potent levers we have to make China play fair on trade,” tweeted Senate Minority Leader Chuck Schumer, D-N.Y. If Trump "backs off" Huawei, "as it appears he is doing, it will dramatically undercut our ability to change" China’s unfair trade practices, he said. Schumer blasted Trump last year for orchestrating the lifting of a Commerce-imposed ban on U.S. companies selling telecom software and equipment to Chinese company ZTE (see 1806070040).

House Intelligence Committee Chairman Adam Schiff, D-Calif., tweeted Trump’s decision to “cave” to China on the Huawei restrictions was just one foreign policy point in the administration’s overall foreign policy “doctrine.” 2020 Democratic presidential contender Tim Ryan of Ohio called Huawei a “national security threat” and tweeted Trump “is turning his back on the safety and security of the American people. It’s flat-out wrong and dangerous.”

Congress will need to put the Huawei measures "back in place through legislation" if Trump “has in fact bargained away the recent restrictions," tweeted Sen. Marco Rubio, R-Fla. “And it will pass with a large veto proof majority.” Trump “made a catastrophic mistake” if he agreed to ease the restrictions, Rubio said. “It will destroy the credibility of his [administration’s] warnings about the threat posed by” Huawei and “no one will ever again take them seriously.” Rubio and two other Republican senators -- Ted Cruz of Texas and Mitt Romney of Utah -- unsuccessfully attempted (see 1906270051) to attach anti-Huawei language to the FY 2020 National Defense Authorization Act (S-1790).

We need less Huawei, not more Huawei,” tweeted Sen. Marsha Blackburn, R-Tenn., a member of the Commerce Committee. “They want their equipment and networks to be the future of spying. It’s time to stop them in their tracks.” House Armed Services Committee member Rep. Jim Banks, R-Tenn., questioned why Trump is “surrendering one of the United States’ key pieces of leverage before beginning new trade negotiations with China? Why not keep #Huawei on our blacklist until China demonstrates a change in behavior?”