US-China Trade War: Trump Just Blinked - Global Trade Magazine
  June 29th, 2018 | Written by

US-China Trade War: Trump Just Blinked

[shareaholic app="share_buttons" id="13106399"]

Sharelines

  • President backed away from a program to restrict all Chinese investments in the US.
  • Bipartisan legislation would enhance powers under the current system of reviewing foreign investment.
  • Currently, CFIUS reviews foreign investments for threats to US national security.
  • Pending legislation would expand the criteria for reviewing foreign investments to ensure they don’t give away US IP.

President Donald Trump issued a statement earlier this week in which he endorsed legislation currently pending in Congress called the Foreign Investment Risk Review Modernization Act. With that, the president backed away from an earlier announced program to restrict by executive order all Chinese investments in the United States.

The bipartisan legislation would enhance powers under the current system of reviewing foreign investment. Currently, the Committee on Foreign Investment in the United States (CFIUS) in the Treasury Department reviews foreign investments for threats to US national security. The pending bill would expand the criteria for reviewing foreign investments to ensure they don’t give away US-owned intellectual property.

This approach is much less aggressive toward China than the one originally proposed by the White House and it doesn’t single out China specifically.

Behind the scenes, the policy switch reflected an ongoing policy dispute within the administration, between trade advisor Peter Navarro, an economic nationalist who advocates for tariffs and restricted trade and who wants to hit China hard, and Secretary of Treasury Steven Mnuchin, who wants to take a more measured approach.

The fact that Mnuchin now has the other hand is good news for trade. Tariffs and other restrictions already imposed by Trump are already cutting back on throughput of steel and aluminum at US ports and are pushing prices of those products higher for US manufacturers. Retaliatory tariffs by the European Union that would have adversely affected Harley-Davidson motivated that iconic US manufacturer to announce that it would be shifting some of its production overseas so that it could still successfully sell into the European market.

So the latest development represents a moderation of one aspect of Trump trade policy, turning down the heat slightly and decreasing the chances somewhat for disruption and volatility in the global economy. The problem is: that is today’s policy. Given the president’s track record, what will happen tomorrow is anyone’s guess.