Japan chose a “dangerous and destructive mode of retaliation” in its trade dispute with South Korea, “one that is likely to greatly disrupt global electronic supply chains and bolster China’s push for dominance of 5G wireless," blogged American Enterprise Institute trade scholar Claude Barfield. Japan controls about 90 percent of the markets for two of the three chemicals, and 70 percent of the third, necessary to make semiconductors and flexible display panels, said the former consultant to the Office of the U.S. Trade Representative. It’s threatening to remove South Korea from the white list of countries with privileged security status, he said Tuesday. “This would force Korean companies to go through a time-consuming procurement process in the future," causing disruption to the global supply chain that would “ripple outward,” he said. South Korea asked the secretariat of the Wassenaar Arrangement to mediate the dispute with Japan, since both countries signed the 1996 agreement on curbing export of sensitive dual-use goods to rogue states. Japan claims South Korean manufacturers are allowing the chemicals to go to North Korea. "The secretariat responded that it has no mechanism to intervene in bilateral issues that may arise between member states," Korean press reported.
Members of Congress continue introducing or working on bills targeting national security concerns with Chinese telecom equipment manufacturer Huawei, including a pending bill from House Commerce Committee Chairman Frank Pallone, D-N.J., lawmakers and lobbyists told us. Some on Capitol Hill said they're holding out hope that a conference committee to marry the disparate House and Senate versions of the FY 2020 National Defense Authorization Act will agree to include a trio of House-passed amendments that target Huawei and ZTE. But they and others said legislative vehicles and these recent stand-alone bills should be considered as an alternative if the conference process fails to bear fruit.
The Office of the U.S. Trade Representative set deadlines and a hearing for its Trade Act Section 301 investigation into France's digital services tax (see 1907110033). Request to appear by noon Aug. 12 for the Aug. 19 hearing that starts at 9:30 a.m. that day, USTR said. The regulations.gov docket is USTR-2019-0009. Aug. 26 is when post-hearing submissions are due.
The Office of the U.S. Trade Representative will begin a Section 301 investigation of France’s new digital services tax, which just passed the French parliament, USTR said: The 3 percent tax’s structure “as well as statements by officials suggest that France is unfairly targeting the tax at certain U.S.-based technology companies." A Federal Register notice will follow with instructions on how to comment on or testify, USTR said Wednesday. Senate Finance Committee Chairman Chuck Grassley, R-Iowa, and ranking member Ron Wyden, D-Ore., praised the investigation’s launch. “The United States would not need to pursue this path if other countries would abandon these unilateral actions and focus their energies on the multilateral process that is underway at the Organization for Economic Cooperation and Development,” they said. The U.S. Chamber of Commerce, Information Technology and Innovation Foundation, Information Technology Industry Council and Computer and Communications Industry Association welcomed the investigation, in statements through Thursday. French President Emmanuel Macron hadn't yet signed the bill, also passed Thursday.
With 90 percent of U.S. laptops and more than 75 percent of smartphones sourced from China, “there is simply insufficient capacity in the rest of the world to absorb production shifts of these high-demand devices in the short term,” commented the Software & Information Industry Association, posted Tuesday in docket USTR-2019-0004. If the List 4 Section 301 tariffs on those products are implemented, “U.S. producers would have to either sacrifice profits on U.S. sales or pass increased costs on to consumers by raising prices,” said SIIA. “In the low-margin and high-risk consumer hardware business, few if any U.S. firms would be able to absorb a 25% surcharge on products without losing significant market share to foreign competitors who are not burdened by such additional costs.” SIIA fears “many smaller U.S. firms in these sectors would simply go out of business, while larger firms would become less competitive globally." And "raising prices at this time of year further risks missing production goals for the critical holiday season.” That can “damage annual sales targets” and risk compromising the “the long-term viability of a product,” the group said. Post-hearing rebuttals were due Tuesday, ending the List 4 rulemaking proceeding. President Donald Trump put the List 4 tariffs on hold after agreeing to resume trade negotiations with China (see 1907010070 or 1907010015).
Tech and business groups hailed President Donald Trump’s decision postponing the fourth installment of tariffs as his administration tries to negotiate a comprehensive trade deal with China, though three existing rounds of tariffs stay as is. Bipartisan 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).
Q1 global smartphone display shipments plunged 20 percent sequentially and are poised to decline again in the Q2 and Q3, “as the U.S.-China trade war worsens the wireless market’s woes,” reported IHS Markit Monday. Q1 shipments declined 9 percent year-over-year, said IHS. With the smartphone business “already facing a number of headwinds” in Q1, the anticipated declines reflect “mounting concerns about the impact of the trade dispute on global wireless demand,” it said. The display business "serves as an early indicator of smartphone market trends” because it falls at the beginning of the supply chain, said IHS. “Right now, that indicator is flashing warning signs as smartphone OEMs and ODMs [Original Design Manufacturers] reduce their display orders. Although other factors are negatively affecting smartphone demand, supply-chain participants now are expressing specific concerns about the repercussions of the trade war.” Prices for smartphones would “rise across the board” if the administration makes good its threat to impose 25 percent List 4 tariffs on products shipped to the U.S. from China under the 8517.12.00 import subheading, said a CTA-commissioned study posted last week by the U.S. Trade Representative Office (see 1906180055).
The “same concerns” that led the Trump administration to remove smartwatches and fitness trackers from the List 3 Section 301 tariffs on Chinese imports in September “continue to apply” with the proposed fourth tranche, commented Fitbit in docket USTR-2019-0004. Imposing 25 percent tariffs would cause Fitbit “significant and unavoidable economic harm," it commented, dated Monday and posted Thursday.
The proposed List 4 Section 301 tariffs cover “all of Apple’s major products,” and would harm the company’s “global competitiveness,” said the iPhone maker in heavily redacted comments posted Thursday in docket USTR-2019-0004. “The Chinese producers we compete with in global markets do not have a significant presence in the U.S. market, and so would not be impacted by U.S. tariffs,” said Apple. “A U.S. tariff would, therefore, tilt the playing field in favor of our global competitors.” Tariffs also would reduce Apple’s “U.S. economic contribution,” it said. It vowed last year “to make a total direct contribution to the U.S. economy of over $350 billion over 5 years and we are pleased to report that we are on track to achieve this contribution,” the company said now.
About three of four smartphones imported to the U.S. come from China, and those would rise in cost by 22 percent under U.S.-proposed fourth tranche 25 percent duties, said a study for CTA, posted Tuesday in docket USTR-2019-0004. Tariffs would generate a 14 percent cost increase in phones shipped to the U.S. from all countries, it told the U.S. trade representative. The average phone retail price would rise about $70, it said. U.S. consumers will be “forced to reduce overall purchases by 28 percent,” it said. Tariffs on Chinese laptops and tablets imported to the U.S. under Harmonized Tariff Schedule’s 8471.30.01 subheading would raise pricing by 19 percent, said the study. It estimates the retail price of the average laptop would rise $120. Tariffs on videogame consoles imported from China would seriously harm U.S. consumers, said Microsoft, Nintendo and Sony Interactive Entertainment in rare joint comments by the rivals for the removing HTS 9504.50.00 goods from List 4. In 2018, more than 96 percent of the consoles imported to the U.S. came from China, they said. “It would cause significant supply chain disruption to shift sourcing entirely to the United States or a third country, and it would increase costs -- even beyond the cost of the proposed tariffs -- on products that are already manufactured under tight margin conditions.” Proposed penalties on semiconductors and the IT industry “will harm America’s tech companies, and are an ill-equipped tool” to curb China’s “problematic” trade practices, said the Semiconductor Industry Association. The administration’s previous tariffs “encompass nearly the entire semiconductor supply chain,” said SIA. The proposed List 4 tariffs “now threaten virtually all information technology products -- and purchasers of semiconductors -- including key consumer products,” it said. Also, Tuesday was Day II of USTR hearings on proposed List 4 duties, which will stretch to June 25 (see 1906180030).