The markets are responding positive to news that Trump is backing away from the rumored harsh measure on curbing Chinese investments in US technology companies. Instead, his administration will revert to existing laws, with an upgrade. Trump himself told reports that “it’s not just Chinese”. Treasury Secretary Steven Mnuchin also said that “we are not singling out China, but we will protect technology transfer to China as we will to other important areas.” Mnuchin also pledged that “we will have the necessary tools to protect investments, whether it’s China or anybody else.”
The administration will relay on the newly strengthened Committee on Foreign Investment in the United States (CFIUS) to deal with the issue. The legislation to be used is called the Foreign Investment Risk Review Modernization Act. Trump said the upgraded CFIUS”will enhance our ability to protect the United States from new and evolving threats posed by foreign investment while also sustaining the strong, open investment environment to which our country is committed and which benefits our economy and our people.” And, “I have concluded that such legislation will provide additional tools to combat the predatory investment practices that threaten our critical technology leadership, national security, and future economic prosperity.”
Trump originally considered invoking executive authority to impose and much tougher crackdown on Chinese investments. And there have been conflicting messages from White House trade adviser Peter Navarro and Mnuchin. But such an idea appeared to have drawn severe complaints from US businesses and Republicans, on the potential economic fallout.
US stocks futures reversed initial losses and now point to flat open. In particular, NASDAQ will be an index to watch today for its tech compositions. Dollar also jumps on the news, ignoring mixed economic data.
Two auto groups blast Trump’s auto tariffs
The Association of Global Automakers issued a statement titled “International Automakers Are Not A National Security Threat” today in objection to Trump’s intention to impose tariffs on import cars. The group warned that “these tariffs will harm today’s U.S. auto industry, which is comprised of fourteen auto manufacturers, all of which are global and 10 of which are international automakers.” And, “each of these companies employ American workers to produce cars in the United States, and tariffs will substantially increase prices for consumers.”
Further it criticized that “there is no national security justification for taxing imports of vehicles and parts or discriminating between global companies headquartered here or in allied countries.” The group noted that “every U.S. production facility in the industry could be made available in a national emergency, and the 130,000 Americans who work directly for international automakers are no less patriotic or willing to serve their country in a time of crisis than any other American.”
Finally, it warned that “if this investigation leads to tariffs, retaliation against U.S. exports is inevitable.” And, “substantial tariffs against major US auto exports have in fact already been announced, placing American auto workers on the front lines of this trade conflict.”
Full statement here.
Another group Alliance of Automobile Manufacturers also object to the tariff. It said in a statement that “tariffs are not the right approach” to achieve a level playing field. And, it urge reduction in trade barriers across the board and achieve “fairness” through “facilitating rather than inhibiting trade.” And, economic security of the auto industry and country would be strengthened through modernizing NAFTA and concluding a U.S.-EU Trade Pact.
The statement also listed the bad effects of auto tariffs. There will be USD 45B in additional tax for consumers. a 25% tariffs would result in 1.5% decline in production and cause USD 195k works to lose jobs over 1-3 years or possibly longer. Job losses could surge further to 624k on retaliation by other countries. Auto sales will fall 1-2m units. It will cancel out tax reform benefits, reduce auto exports and harm other vital sectors of the economy. Besides, it will cede US leadership on future vehicle technologies.
Full statement here.