10% China tariffs and the supply chain scramble

The tariffs will come as importers ramp up shipments for peak season, creating the potential to disrupt global supply chains and trade flows for the remainder of the year.

The 10% tariffs announced Thursday in a four-part series of presidential tweets sent U.S. importers into what Sue Welch described as a “scramble.”

“It’s really hard to plan for crazy,” Welch, the CEO of Bamboo Rose, told Supply Chain Dive. “And this is crazy.”

The 10% tariffs are on $300 billion worth of goods from China, also known as list four.

The announcement was not altogether out of the blue, given that such tariffs on this fourth list had been threatened before and gone through a public comment period and hearings. But the timing of the announcement was largely viewed as unexpected, after just one round of U.S.-China trade negotiations concluded.

“The swiftness with which it escalated I think is a little bit surprising,” Shehrina Kamal, product director of risk monitoring at DHL Resilience360, told Supply Chain Dive. “Now it does put in jeopardy the trade discussion that had been slated for September.”

The tariffs will also come at the start of the fourth quarter and near the beginning of peak season, creating the potential to disrupt global supply chains and trade flows for the remainder of the year.

What’s the impact of 10%?

Economic and trade impact analyses from earlier this year centered around the threat of 25% tariffs on list four goods. Some estimates predicted a 1.1% shrink in U.S. GDP with 25% tariffs on $550 billion of Chinese imports (all four lists combined), plus China’s retaliatory tariffs, in place.

While 10% may seem like a drop in the bucket compared to 25%, consultants and analysts told Supply Chain Dive the impact will still be significant, in part due to the wide range of products covered in list four.

Manufacturing sectors are particularly affected by the list four tariffs, Kamal said. In the fourth tranche, 437 product items are metals, 303 are machinery and 133 are chemicals. These three categories together amount to $77.7 billion in imports, according to Resilience360.

When tariffs impact operations and the bottom line in manufacturing, such effects ripple further down the supply chain. Chemicals listed for tariffs in the fourth round are used in the production of food products, beverages, pharmaceutical, personal care items and more.

The tranche four tariffs also garnered significant attention due to the myriad consumer products on the list, and the expectation that brands and retailers would have no choice but to push price hikes to consumers. The list includes apparel and footwear along with several types of consumer electronics.

“These additional tariffs will only threaten U.S. jobs and raise costs for American families on everyday goods,” David French, senior vice president for government relations at the National Retail Federation, said in a statement after Trump announced the 10% tariffs.

Trump: US to impose 10% tariffs on $300B in Chinese goods

UPDATE: Aug. 2, 2019: Trump told reporters outside the White House Thursday negotiators from the U.S. and China would meet again in early September. He said the reason for the Sept. 1 tariff implementation date was not to allow negotiation time, but rather because “it takes a long time for the ships to come over.”

Trump also alluded to the possibility the 10% duty rate could increase or decrease, depending on the outcome of negotiations. “It can be lifted up to well beyond 25%,” he said. “But we’re not looking to do that necessarily.”

Hua Chunying, spokesperson for the Chinese foreign ministry, said China is prepared to retaliate with “necessary countermeasures,” according to multiple news reports.

Dive Brief:

  • The U.S. will impose a 10% tariff on the remaining $300 billion worth of imports from China, known as list four, beginning Sept. 1, President Donald Trump tweeted Thursday afternoon.
  • The series of tweets came after U.S. representatives returned from trade talks with Chinese officials. Trump described the talks as “constructive,” but said China had agreed to buy agricultural products from the U.S. “in large quantities, but did not do so.”
  • Trump said the negotiations between the two nations will continue. Further details were not immediately available from the White House, the Office of the U.S. Trade Representative (USTR) nor the Chinese government.

Dive Insight:

Starting at the beginning of next month, every good coming into the U.S. from China, except those with exemptions, will have an import tax, ranging from 10% to 25%.

The tranche four tariffs on $300 billion worth of goods has been in limbo for several months, first as a repeated threat from Trump, via speeches and twitter.

The threat came closer to reality in May when USTR released a 136-page list of products to face tariffs up to 25% and held a comment period plus seven days of public hearings on the matter. In late June, Trump said he wouldn’t impose the list four tariffs “for the time being.”

Executives on earnings calls have warned about the effects of tranche four tariffs on their businesses, noting the potential for eroding margins and higher costs being passed on to consumers. Macy’s called this round “the big one.” The National Retail Federation said tariffs at 25% would be “too large” for retailers to absorb, though it did not specify at the time how 10% tariffs would affect retailers.

02 August 2019 | Shefali Kapadia | Supply Chain Dive

Trump delays tariff hike initially scheduled for March

Dive Brief:

  • Tariffs on $200 billion worth of imports from China will remain at the current level of 10% for the time being, after President Donald Trump tweeted Sunday evening he would delay the scheduled increase to 25%. He did not specify the future date until which the tariff hike might be delayed.
  • The President in a two-part tweet pointed to “substantial progress” in trade talks between the U.S. and China, and called the negotiations “very productive.”
  • “Assuming both sides make additional progress, we will be planning a Summit for President Xi and myself, at Mar-a-Lago, to conclude an agreement,” Trump tweeted. He did not say when the summit would be held.

Dive Insight:

Trump has alluded over the past several weeks to the possibility he would extend the trade deadline, originally scheduled for this upcoming Friday, March 1.

The initial deadline was set after he met with Chinese President Xi Jinping at the G-20 summit in Buenos Aires last year. Several rounds of trade talks have taken place in the U.S. and China since then. U.S. Trade Representative (USTR) Robert Lighthizer led the most recent round of high-level discussions this past Thursday in Washington.

The tweets from Trump come in contrast to Lighthizer’s repeated message that March 1 is a “hard deadline” for the U.S. and China to hammer out a deal. The USTR had not released a statement on the tariff delay as of press time.

Trump, along with several members of the administration, cited progress in a series of trade negotiations between the two countries, but no one has revealed significant details of what the progress entails. The White House also has not released a statement confirming Trump’s tweets or offering specifics on the progress of the trade talks.

Lighthizer will testify before the House Ways and Means Committee Wednesday, which may give us some specifics on the trade discussions and what progress was made related to intellectual property, technology transfer and additional issues the U.S. and China set out to resolve.

Trump said previously no trade resolution would be finalized until he and Xi met. If the two presidents meet in the near future, as Trump hinted in his tweet, it may be a sign a trade deal is in the cards.

What that means for tariffs, however, is uncertain. Trump said he would delay the tariff increase, but did not specify to what date, leaving businesses in limbo. It’s also important to note Trump said he would “delay” — but not cancel — the tariff increase.

For now, companies should still expect to see tariffs rise to 25%. The question is, when?

24 February 2019 | Shefali Kapadia | Supply Chain Dive

Trump, Xi won’t meet before March 1 tariff deadline

Dive Brief:

  • President Donald Trump told reporters at the White House Thursday he would not meet with Chinese President Xi Jinping before the March 1 deadline, after which 10% tariffs are set to rise to 25%. Trump said previously he would meet Xi in February.
  • When asked by reporters if he planned to meet with Xi next month, the President said, “Not yet. Maybe. Probably too soon. Probably too soon,” according to Reuters.
  • U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin will travel to Beijing next week for another round of trade discussions. Lighthizer and Chinese Vice Premier Liu He met last week in Washington for trade talks.

Dive Insight:

Trade discussions between the U.S. and China are far from over. Several rounds have taken place since Trump and Xi agreed to a 90-day halt on tariff increases last year at the G-20 summit, and additional discussions are scheduled for next week.

But the likelihood of reaching a deal in the near future is waning. The deadline is rapidly approaching with no plans in place for the two presidents to meet. “No final deal will be made until my friend President Xi, and I, meet in the near future,” Trump tweeted on Jan. 31.

What happens to tariff rates on March 2 remains unclear. After the 90-day “cease-fire” was announced, the Trump administration maintained tariffs on $200 billion worth of Chinese imports would rise from 10% to 25% if the two parties did not reach a deal before the deadline.

“The likely outcome is that the tariffs remain at the current 10 percent rate,” CNBC reported Thursday, citing administration officials and sources briefed by the White House.

But Reuters later cited three anonymous sources who indicated the CNBC report was incorrect.

Maine Pointe CEO Steve Bowen told Supply Chain Dive he doesn’t expect Trump to back down “one iota” from his plan to raise tariffs and negotiate trade issues with China.

He does anticipate the U.S. and China could reach a deal later this year to remove the tariffs, with the upcoming election cycle playing a role in the timing. The CEO of agricultural trader Archer Daniels Midland (ADM) made a similar prediction, expecting a trade resolution with China this year.

The March 2 tariff hike (if it happens) won’t come as a surprise to the business world. The U.S. and China sought to resolve deep-seated trade issues in just three months, and analysts largely agreed the short time frame did not provide sufficient time for matters such as intellectual property and technology transfer.

Businesses have been planning for the scenario of rising tariffs at the beginning of next month, by rushing imports and stockpiling goods — although that doesn’t mean companies are embracing increased duties.

“Retailers are doing our best to mitigate the pain, but raising tariffs on thousands of consumers products causes massive disruption to retailers in an already uncertain environment,” Hun Quach, Vice President for International Trade at the Retail Industry Leaders Association, told Supply Chain Dive in an email. She described the deadline as a “black cloud.”

study released Wednesday by Tariffs Hurt the Heartland, a campaign opposed to tariffs, said an increase to 25% would reduce employment by 934,000 jobs and GDP by 0.37%.

Until now, a good deal of optimism has surrounded the U.S.-China trade negotiations, which Bowen said lead some companies to relax a bit and back off of their contingency planning. “They’re making a mistake because they need to be prepared,” he said.

07 February 2019 | Shefali Kapadia | Supply Chain Dive

Trump warns of tariffs on another $267B imports from China

Dive Brief:

  • Donald Trump told reporters on Air Force One Friday he’s ready to impose tariffs on an additional $267 billion in imports from China, on top of an already announced but not yet implemented $200 billion and an already implemented $50 billion. The Office of the U.S. Trade Representative (USTR) as of press time has not released a list of what goods could be affected.
  • Trump’s announcement came the day after the public comment period closed on tariffs on $200 billion of Chinese imports. He said those tariffs “could take place very soon,” Reuters reported.
  • On Thursday, a coalition of 150 organizations representing retailers, manufacturers, ports and other industries wrote a letter to USTR Robert Lighthizer urging him to stop further escalation of the U.S.-China trade war.

Dive Insight:

Global businesses were on the edge of their seats Friday morning, as the comment period closed Thursday on duties on $200 billion worth of imports to the U.S. from China.

Many anticipated the Trump administration would announce the tariffs going into effect Friday morning, although no announcement came from USTR or the Trump administration. White House economic adviser Larry Kudlow said the administration would not make any decisions until officials had evaluated nearly 6,000 comments received.

That may be welcome news for companies and organizations that submitted comments or asked for exemptions. But the potential of new tariffs on an additional $267 billion worth of Chinese imports could be less welcome.

If the administration follows through with this latest round, tariffs would apply to a total of $517 billion of imports from China. Last year, the U.S. imported $505 billion in goods from China.

In other words, nearly every product arriving on U.S. soil from China would face duties.

China has responded to the tariffs on $200 billion by saying it will retaliate with tariffs on $60 billion. Due to a wide trade imbalance between the two nations, it cannot fully retaliate with tariffs on $200 billion of U.S. imports. China has not yet responded to this latest announced round of tariffs.

07 September 2018 | Shefali Kapadia | Supply Chain Dive

Trump rejects tariff offer in trans-Atlantic car trade

Donald Trump has rejected an EU offer to eliminate tariffs on cars, saying the proposal is not good enough.

Trump said that ending duties on US car imports into the EU would do little to help the automotive industry in the US because Europeans would still not buy American-made cars. “Their consumer habits are to buy their cars, not to buy our cars,” Trump said in a Bloomberg TV interview.

A day earlier EU trade commissioner Cecilia Malmström (pictured) told the European Parliament’s trade committee that Brussels was willing to scrap levies on all industrial products, including cars, from the US.

“We are willing to bring down even our car tariffs down to zero… if the US does the same,” she said, adding: “It would be good for us economically, and for them.”

The EU’s current import duty on US-made cars is 10%, while the US levies 2.5% on smaller passenger cars (but 25% on light trucks and pick-ups). President Trump has threatened to impose 25% tariffs on all cars from the EU, as part of his wider protectionist, America-first agenda.

However, following a meeting in July with EU Commission president Jean-Claude Juncker, he agreed to hold fire on those import duties while the two sides talked about cutting trade barriers in non-automotive industrial goods.

US officials have reportedly grown frustrated by the slow pace of progress and Trump’s latest remarks are seen as casting doubt on July’s agreement. Juncker is more sanguine, however. In an interview with German broadcaster ZDF he said: “As is the case with ceasefires, they’re sometimes at risk but they will be upheld.”

He added that he expected the US to adhere to the agreement to refrain from new tariffs as long as the two sides were negotiating a trade deal. But he also warned that the EU would respond in kind if Trump reneged on his pledge not to impose car tariffs, saying the EU would not let anyone determine its trade policies.

In her comments to the European Parliament’s trade committee, Malmström said the EU had profound disagreements with the US. A working group to be overseen by Malmström and United States trade representative Robert Lighthizer has yet to engage in formal negotiations.

04 September 2018 | Steve Garnsey | Automotive Logistics News

Trump announces separate U.S.-Mexico trade agreement, says Canada may join later

The Trump administration said Monday it had reached a new, 16-year trade deal with Mexico, setting in motion a rapid chain of events that could redraw the world’s largest trade agreement.

The ultimate scope of the deal could hinge on whether Canadian prime minister Justin Trudeau decides to join the agreement after months of feuding with President Trump.

White House officials said the agreement, centered largely on manufacturing, would help American workers by making it harder for countries like China to ship cheap products through Mexico and then into the United States. Harmonizing labor and environmental rules would also protect U.S. jobs and salaries, the officials said, by making it less attractive for U.S. companies to move operations to Mexico.

A senior administration official acknowledged that it was possible the changes could make certain products, such as automobiles, more expensive for American buyers because the costs that go into production were expected to increase.

A number of key factors remain unresolved in Trump’s effort to replace the North American Free Trade Agreement — with Canada’s role the biggest among them. Trump and Mexican leaders also failed to resolve whether the U.S. tariffs on metals imports will remain in place.

The next phase of negotiations will pose a major test for Trump’s unique style of diplomacy, which has shown flashes of both creativity and impulsiveness throughout the process.

“It’s a big day for trade. It’s a big day for our country,” Trump told reporters he gathered in the Oval Office where they watched him speak at length by phone with Mexican President Enrique Peña Nieto.

Trump has long told top advisers that once he was able to cut a single trade deal with another country, it would lead to a flurry of agreements. That’s because it would prove to other world leaders that he’s serious about cutting deals, and some aides are hopeful that the Mexico agreement could serve as a template for other talks. But Trump also has a tendency to tout deals before they are complete, and a rebuke from either the U.S. Congress or Canada could scuttle the talks before they are finalized.

Top White House officials appeared split on whether they would proceed at all if Canada didn’t sign on to the deal. Trump left open the possibility of cutting Canada out of the final deal, which he said would replace NAFTA. But U.S. Trade Representative Robert E. Lighthizer told reporters later that every effort would be made to include Canada, even if it took weeks or longer for them to sign on to changes. And Mexican leaders also said Canada must be included in the deal.

There were also signs of division about what the agreement means for NAFTA. Trump said that the new deal with Mexico would lead to the termination of NAFTA and that he would rename it the United States — Mexico trade agreement. Lighthizer cautioned that no decision had been made about this.

Lighthizer said the White House planned to send Congress a letter by Friday that formally starts a 90-day process for changing NAFTA. He said it was still unclear what precisely the letter might say. It could say the U.S. has reached a deal with Mexico, he said, or it could say that an agreement has been reached with Mexico in the hopes that Canada would be brought into the package at a later date.

“We are in a position where we would like to send our letter to Congress by the end of the week,” Lighthizer said.

The agreement announced Monday will run for an initial 16 years, with an option to revisit issues in six years, and extend for another 16 years.

It would increase the percentage of each car — to 75 percent from the current 62.5 percent — that must be made in the United States or Mexico to qualify for duty-free treatment.

The two sides agreed to a provision that would require a significant portion of each vehicle to be made by workers making at least $16 per hour — a significant increase for Mexico.

The White House and Mexican officials were unable to reach an agreement about the steel and aluminum tariffs Trump imposed several months ago, and those discussions are ongoing. “That’s the issue we still have to deal with. It’s not dealt with,” Lighthizer said.

And there were fundamental questions marks about the role of Canada and the future of a regional trade agreement. Peña Nieto, speaking with the president on speaker phone, mentioned several times that he wanted Canada to be involved.

Marcelo Ebrard, who has been chosen as Foreign Minister in the new Mexican administration, also said in a statement that while the agreement was a “positive step” Canada was “indispensable for being able to renew the treaty.”

But Trump said there were negative associations to the earlier trade agreement. “NAFTA has a lot of bad connotations for the United States because it was a rip-off,” Trump said.

He said that he would terminate “the existing deal” although it was unclear whether Trump has the power to do so unilaterally.

The surprising scenes of Trump and the Mexican president congratulating each other in front of news cameras on successful bilateral negotiations that left Canada out appeared designed, in part, to pressure Canada.

Peña Nieto wrote on Twitter that he has spoken with Canadian Prime Minister Justin Trudeau and expressed the “importance of rejoining the process, with the goal of concluding the trilateral negotiation this week.”

Peña Nieto’s administration wants to reach an agreement soon so that the Mexican Congress has enough time to ratify the deal before President-elect Andrés Manuel López Obrador takes office on Dec. 1.

Canadian Foreign Minister Chrystia Freeland is expected to rejoin negotiations in Washington on Tuesday.

A spokesman for Freeland said an agreement would require careful review and more discussions.

“We will only sign a new NAFTA that is good for Canada and good for the middle class,” the spokesman said. “Canada’s signature is required.”

Leading congressional Republicans cautiously welcomed Trump’s announcement, while making clear that they would not embrace a NAFTA 2.0 that leaves out Canada. “A final agreement should include Canada” in order to ensure that NAFTA continues to benefit American businesses and families, said Senate Finance Committee Chairman Orrin G. Hatch (R-Utah).

No. 2 Senate Republican John Cornyn (R-Tex.) said: “This is a positive step, and now we need to ensure the final agreement brings Canada in to the fold and has bipartisan support.”

Even if a deal does ultimately make its way to Capitol Hill, Congress is certain to struggle to pass it given divisions over trade in both parties. The difficulties would only increase if the pact is not finalized before the November midterm elections and Democrats retake control of the House.

If Canada doesn’t sign off, it is unclear what Trump might do, as he has threatened to try to cancel the entire trade pact.

López Obrador has been supportive of the negotiations but would be likely to seek changes if the treaty is not completed before he assumes the presidency. His concerns about cementing Mexico’s energy privatization in a new NAFTA were among the final sticking points in the talks.

With only five days remaining for the United States and Canada to iron out their differences, negotiators realize they have exhausted all their wiggle room. “Realistically, it’s certainly tight,” the official said.

Larry Herman, a Toronto trade lawyer and former Canadian trade negotiator, said Canada has “every right” to examine the details of what was agreed to between Mexico and the United States and will then decide how to proceed.

“I think it’s appalling that Canada has been kept at arm’s length from these talks over the past number of weeks,” Herman said.

While Herman said he would expect Canada to resume participation in the talks, “there’s no way a NAFTA agreement can be ready for signature by the end of this month. It’s not going to happen.”

Trump has made renegotiating NAFTA a centerpiece of his economic and foreign policy agenda, arguing that the aging trade deal disadvantages American workers by luring U.S. jobs and companies overseas.

This approach has alarmed many Republicans, who support NAFTA’s free trade roots and worried about how Trump’s approach would impact farmers. But Democrats have mostly been split, as some agreed with Trump’s focus on manufacturing jobs but others worried about Trump’s take-it-or-leave-it negotiating style.

Having resolved some major sticking points with Mexico, the Trump administration is now expected to press Canada to accept quickly the consensus terms. But Trudeau, whom Trump criticized in harsh terms following the Group of Seven summit in Quebec in June, does not want to be viewed at home as conceding to the unpopular American president.

The NAFTA renegotiation has been a rocky one. The president over the past year repeatedly lambasted the original 1994 treaty, calling it a “bad joke” and blaming it for the loss of millions of American factory jobs.

One year ago, Lighthizer kicked off the negotiations by calling for a major overhaul of trade rules to take account of nearly a quarter-century of economic changes and to rectify the imbalance in trade between the United States and its southern neighbor.

Trump, he said, was “not interested in a mere tweaking of a few provisions.”

Jared Kushner, the president’s son-in-law and a senior White House adviser, has quietly worked with Mexico’s foreign minister and other officials to keep trade talks active, even amid the ups and downs of Trump’s combative relationship with Peña Nieto

Although trade deals are complex affairs that typically require years of glacial bargaining, administration officials initially hoped to finish the job by the end of 2017. They failed to meet that ambitious timetable and also blew through revised deadlines for the end of March and late May.

This time, the deadline may be real, given a congressional requirement for 90 days notice of an impending trade deal. If the administration doesn’t formally notify Congress that it has reached agreement with both Canada and Mexico by the end of August, Peña Nieto, the outgoing Mexican president, will not be able to sign it.

Negotiators want to get a deal wrapped up before López Obrador, who might demand additional changes, takes office.

27 August 2018 | Damian Paletta, Erica Werner, & David J. Lynch | Washington Post

Trump Tariffs May Cost Carmakers at Least 1 Million Annual Sales

The projection by researcher LMC Automotive assumes automakers would absorb at least half the cost of a tax on imported vehicles.

If President Donald Trump slaps a 25% tariff on imported vehicles, it may cost the U.S. auto industry 1 million annual vehicle sales — and that’s just the low end of the estimated damage.

The projection by researcher LMC Automotive assumes automakers would absorb at least half the cost of a tax on imported vehicles, said Jeff Schuster, senior vice president of forecasting. If companies pass the full 25% cost on to consumers, it could snuff out about 2 million sales, or more than 10% of annual U.S. deliveries, he said.

President Trump’s order last month to investigate auto imports for potential trade penalties on national security grounds came as a surprise and quickly drew criticism from automakers, dealers and Republican lawmakers. While some analysts discounted it as a negotiating tactic to pressure Canada, Mexico and the European Union on trade, Trump has since attacked Canadian Prime Minister Justin Trudeau following the G-7 summit in Quebec.

Trump’s statements may merely be “chest thumping,” Schuster said. But after the U.S. imposed tariffs on imports of steel and aluminum from countries including Canada and Mexico, the threat of new levies must be taken seriously. “The escalation is starting to happen,” he said.

If Trump follows through with the 25% tariff, Schuster said U.S. consumers would likely react in three ways. Some would look to the used car market, especially lightly used cars coming off lease. Others would shift to domestically produced vehicles with cheaper price tags. And a third group might just postpone buying a new car, under the assumption that the tariffs are the result of a temporary political spat.

Trump ordered the investigation into auto imports under Section 232 of the Trade Expansion Act of 1962, the same power he used to impose global tariffs on imported steel and aluminum.

While U.S. metal producers have been ravaged by global overproduction and depressed prices, the car market is much healthier. Sales have been slipping from a record of almost 17.6 million units in 2016, but LMC predicts a still-strong 17.1 million deliveries this year, and vehicles sold at record average prices approaching $33,000 last month.

12 June 2018 | Gabrielle Coppola & Kristine Owram | Bloomberg

Trump, tariffs, trade wars and tech: What you need to know

The problem of intellectual property theft is a long-standing issue, especially in the technology community, and few would argue against American-Chinese trade relations benefiting from more protections. But are the recently proposed tariffs the answer?

The tariffs could bring China to the negotiating table and incentivize strengthened IP protections and modification of practices for foreign companies operating on Chinese soil.

But fears around what appears to be an uncoordinated strategy from the Trump administration could push the U.S. and China into a trade war, hurting the very industries the tariffs are meant to help.

Technology supply chains are anticipating some heat, and unless things cool between President Trump and General Secretary Xi Jinping the situation may take a greater toll on tech.

China has ruled the low-cost manufacturing market for decades, but that’s no longer enough for the superpower — and hasn’t been for many years.

Established in 2015, the “Made in China 2025” national plan made commitments to usher in the next generation of Chinese manufacturing across industries, with a focus on innovation and technology-driven manufacturing aided by state and market forces.

“China’s strategy is to become globally competitive, if not dominant across virtually all advanced technology industries,” according to Stephen Ezell, VP of global innovation policy at the Information Technology and Innovation Foundation.

China has emerged as a global leader in advanced technology research in fields such as artificial intelligence and quantum computing. And its tech hubs — like Beijing, Shanghai and Shenzhen — are steadily drawing more native talent back home from the U.S. Across the Pacific, Silicon Valley is feeling the pressure.

But in its climb toward the top, China has stepped on some toes.

Through its “predatory” and oftentimes “mercantilist” practices, China “poses a direct threat to the viability of America’s advanced technology industries, which are key drivers of innovation and R&D and wealth in our economy,” said Ezell. This threat is often manifested in intellectual property and technology transfers.

The Chinese market has high barriers to entry, and companies looking to conduct business within its borders or partner with Chinese firms often have to obtain licenses from the government or disclose IP as a condition of market access, according to Ezell.

Chinese companies are playing the long game, consolidating talent and technology to create innovation powerhouses. “Going on underneath for years has been a coordinated strategy to identify promising young high-tech startups, especially those in the pre-IPO phase, and either acquire them or their technology or intellectual property in an earlier phase,” Ezell said.

While IP may still be catching up in the country, assembly and production is heavily centered there with Chinese manufacturing embedded into global technology supply chains. Impacts to trade — such as those resulting from multibillion dollar tariffs — could take a hit on tech supply chains around the world.

“Parts and components kind of fly back and forth across borders all the time, and you could have small companies, medium sized companies in Silicon Valley and other places who are affected if the Chinese start cutting off parts of electronic supply chains,” said Claude Barfield, a resident scholar at AEI and former consultant to USTR.

Why the sudden fuss about IP?

Intellectual property is a pillar of the modern U.S. economy, and strong IP protections are important for companies for more than economic protections. They solidify a company’s role as an innovator, boost its reputation and are important for investors, said Henry Su, partner at Constantine Cannon LLP.

Companies have to coordinate a clear patent strategy, deciding how much to spend on IP, what’s worth protecting and what’s not. Patent applications can easily run in the $10,000 to $50,000 range, and even tech giants like Apple have a finite budget to protect IP and get a good return on investment, according to Su.

In 2017, the Commission on the Theft of American Intellectual Property estimated that the annual economic costs of IP theft to the U.S. fall somewhere between $225 billion and $600 billion.

These costs are spread across counterfeit goods, trade secret theft and pirated software but do not include the full costs of patent infringement — which the commission estimates also run into the billions of dollars. The proportion of these costs incurred by China are unknown but estimated to be high.

Pirated software alone is conservatively estimated to cost U.S. firms $18 billion, even though the shadow market shrank 17% from 2013 to 2015, according the report. And trade secret theft is estimated as high as 1% to 3% of U.S. GDP — or anywhere from $180 billion to $540 billion in 2015 alone.

Cyber theft is much cheaper and faster than R&D, and foreign firms can turn a large profit off of stolen American IP.

The commission charged China as the “world’s principal IP infringer,” obtaining American IP through various cyber and conventional means, including state actions “designed to force outright IP transfer or give Chinese entities a better position from which to acquire or steal American IP.”

Former President Barack Obama and Congress addressed some of the Commission’s recommendations from its 2013 report, but many problems prevail and are exceedingly difficult to resolve. And in industries like technology, where the core is frequent innovation, intellectual property is paramount.

“From a trade balance and a competitiveness perspective, we wouldn’t go into another country and take their factories,” said Ezell. “But what we have is an organized system of a competitor nation going into our economy and taking the factory of our knowledge. And that situation is not sustainable.”

On the surface, China may appear to be a burgeoning “IP powerhouse.”

The country accounted for more than one-third of all patents filed in 2015 — almost double that of the United States, according to the World Intellectual Property Organization. Technology applications took the lion’s share with computer technology, electrical machinery and digital communication patent applications.

But the IP Commission contends that most of China’s patents were “petty” or “utility,” granted without question of innovation levels.

Despite some improvements in IP protections in China over the last several years, much work remains to be done. In November, China made commitments to step up property and operational rights for businesses, and while recognition is an important early step, systemic issues of inadequate IP protections are no quick fix.

Yet even last week, China’s vice commerce minister denied American accusations of forced technology transfer from foreign firms to China.

What are these tariffs supposed to do?

While an improvement in IP protections in China is generally desirable across the board, reactions to the tariffs and fears of escalation to a trade war have rippled through industries as both sides threaten additional tariffs.

“We’re still in the opening stages of both sides staking out positions to negotiate from — and negotiations are certainly the preferred outcome — but the potential for escalation to an all-out trade war is real,” Ezell said. “Policymakers must remember that the goal is to get China to roll back its innovation mercantilist policies so that trade may proceed on a more equitable and sustainable basis between the two countries.”

The USTR’s 45 pages of products facing additional tariffs target many products and industries related to China’s 2025 plan and are valued at approximately $50 billion.

“It was positive that the list mostly excluded productivity-enhancing final ICT goods such as routers and servers as well as consumer-oriented final ICT goods such as mobile phones,” Ezell said. “The tariffs hit more on intermediate components and inputs, mostly stuff like printers, display components, cables, coaxial connectors, etc.”

The tariffs serve to even the playing field for American companies competing with China and as a message to China to improve its IP protections, according to Su. Ideally, they will push China to the negotiating table, though continued tit-for-tat between leaders of the countries and a Chinese WTO challenge to the U.S. tariffs has left many experts fearing the worst.

On Monday, the council appealed to Treasury Secretary Steven Mnuchin and the Trump administration to mitigate Chinese trade practices through an international coalition instead of tariffs.

“If history is any indication, these proposed tariffs will not work and will be entirely counterproductive,” according to a statement from the Information Technology Industry Council.

09 April 2018 | Alex Hickey | Supply Chain Dive

Trump to Release Infrastructure Plan in January, Official Says

President Donald Trump plans to keep pushing his legislative agenda in 2018 by releasing his long-promised infrastructure proposal in early January, a senior administration official said.

Infrastructure advocates question whether a Republican-led Congress will be able to pass a spending plan with enough federal funding if it’s already approved a tax measure that official estimates say would bloat the budget deficit. Some say the administration missed its best opportunity to deliver a meaningful public works initiative by not incorporating it into the tax bill, which is nearing approval.

RELATED: Infrastructure funding talks expected to gain momentum after tax reform concludes

“If they’d taken up infrastructure, we’d have a bill today and have the money to fund it,” said Ray LaHood, a Republican and former transportation secretary under President Barack Obama. “Nothing happened this year, so the prospects of anything happening next year I think are pretty slim,” said LaHood, who is a co-chairman of Building America’s Future, a bipartisan coalition that promotes infrastructure.

The Russell 3000 Building Materials Index gained as much as 2.2% on the news and closed up 1.8%, as companies including Summit Materials Inc., Vulcan Materials Co. and Martin Marietta Inc. spiked sharply higher.

Trump Promised

Trump promised during his campaign to introduce a $1 trillion proposal within his first 100 days in office, then the administration said there’d be a plan by the third quarter. That didn’t happen after the failed attempt to overhaul health care and the ongoing tax effort.

The president aims to release a detailed document of principles, rather than a drafted bill, for upgrading roads, bridges, airports and other public works before the Jan. 30 State of the Union address, said the administration official, who spoke on condition of anonymity because the details aren’t public. Naysayers should wait until they see the details and how the legislative process unfolds, the official said.

RELATED: Caucus created to keep focus on infrastructure investment

The White House plan is essentially complete and Trump recently reviewed it, the official said. It calls for allocating at least $200 billion in federal funds over 10 years to spur at least $800 billion in spending by states, localities and the private sector.

The plan would put the federal dollars in four areas: cash for states and localities, with preference for entities that generate their own funding as well; formula block grants for rural areas; federal lending programs; and money for “transformational” work such as plans to build high-speed trains in tunnels by Boring Co., which was founded by Elon Musk.

Shift Responsibility

The guiding principle of the plan is to shift responsibility for funding from the federal government to states and localities — which own or control most assets — by providing incentives for them to generate their own sustainable funding sources and work with the private sector.

Still, some governors and mayors have already balked, saying they’re doing their fair share and that much more federal funding is needed to meet what the American Society of Civil Engineers has estimated to be a $2 trillion funding gap for infrastructure by 2025. Some advocates say the best chance was to include measures such as a higher gas tax or levies on corporate profits returned from overseas in the tax overhaul.

“We need to be honest with the American people: failure to find the revenue for an infrastructure initiative now, as part of tax reform, will make passage of such a package nearly impossible in the future,” Bud Wright, executive director of the American Association of State Highway and Transportation Officials, said in a letter last month to Senate leaders.

Too Difficult

The White House official said it would have been too difficult to combine infrastructure with the tax bill. The plan now is to give Congress a blueprint for a bill and allow the details — including funding — to be negotiated in a bipartisan way, the official said.

The U.S. Chamber of Commerce sees the $200 billion amount as “a floor, not the ceiling,” said Ed Mortimer, the chamber’s executive director for transportation infrastructure.

“While we’re all for leveraging limited federal dollars, the federal government can start by increasing its own investment,” Mortimer said.

The chamber has advocated raising the federal gas tax, which hasn’t been increased since 1993 as the easiest and fairest way to generate money. The administration hasn’t endorsed the idea but hasn’t taken it off the table, either.

‘Cautiously Optimistic’

Michael Burke, chairman and chief executive of AECOM, the world’s biggest engineering firm, said he’s “cautiously optimistic” about Congress enacting an infrastructure bill in 2018 but is disappointed that it didn’t happen this year.

“No doubt in my mind, it is a missed opportunity,” Burke said.

Despite the “headwinds and political turmoil,” Macquarie Infrastructure and Real Assets remains hopeful a proposal will emerge in 2018 because there is political constituency for it from across the political spectrum, Managing Director David Agnew said in a statement.

Incentives in the plan “would unlock hundreds of billions of dollars of state, local, and private capital,” Agnew said.

One problem is how to treat states and localities that have already raised money for projects so they’re not disadvantaged in the competition for federal funding, said Jim Tymon, chief operating officer of the American Association of State Highway and Transportation Officials in Washington.

Gas Taxes

Twenty-six states have raised or adjusted their motor-fuel tax rates and other fees during the past five years, and voters in 20 states approved $4.2 billion in new and continued funding for infrastructure in Nov. 7 ballot issues alone, according to the American Road & Transportation Builders Association.

The White House official said entities that raised revenues over time would get credit in the process, as will those that take action in 2018 instead of waiting for a federal bill.

The Trump administration has also said a major element of its plan will be streamlining environmental reviews and permitting for projects, vowing to reduce the time it takes to get approvals to about two years.

But there have been previous streamlining initiatives that have not yet been implemented, and it would be a mistake to focus on streamlining when more funding is needed, said Peter DeFazio of Oregon, the top Democrat on the House Transportation and Infrastructure Committee. He said the initiative is already at risk because it has been delayed so long.

Still, infrastructure has always been a bipartisan issue, and there has not been this type of discussion about infrastructure at the federal level in decades, said Dave Bauer of the American Road & Transportation Builders Association.

“We’ll have a much better sense of the potential when we see how Congress responds to what the administration puts forward,” he said.

08 December 2017 | Mark Niquette & Esha Dey | Bloomberg News