Trump softens trade stance toward China and raises optimism

Arturo Kim
June 30, 2018

While Beijing is able to retaliate over import tariffs, it would be more hard to do so if the White House were to restrict Chinese investments in America because it is still eager to woo foreign investors, including from the US.

The Trump administration will rely on Congress to produce legislation that would restrict new Chinese investments in USA technology companies, backing away from a earlier threat to issue specific restrictions on such investments in "industrially significant" areas of the US economy.

It's also a win for proponents of conciliatory tone in negotiations with China such as Treasury Secretary Steven Mnuchin, who told reporters on Wednesday that moves to strengthen CFIUS aren't meant to single out Beijing.

In a statement, Trump said, "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".

United States stock futures surged on the news. When Gary Cohn, the White House's top economic adviser, resigned earlier this year, Trump increasingly solicited advice from Navarro, a staunch protectionist.

Since January, market volatility has become more commonplace, in part because of Trump's aggressive trade moves and the responses they elicit from major trading partners.

Instead of immediate bans on Chinese investment created to protect sensitive USA technology industries, the administration said it would work with Congress to pass a bill that will provide "enhancements" to the foreign investment reviews under the existing Committee on Foreign Investment in the United States. The list of restrictions and controls will be announced by June 30, 2018. He said if this measure does not ultimately make it through Congress, the administration would return to a review of the powers at its disposal to protect sensitive USA technology. The idea was to prevent state-owned or politically connected Chinese companies from buying advanced US technology.

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"We have a lot of things that we can do it through and we're working that out", Trump said.

The administration's more conciliatory stance raised at least the possibility that the two sides could work toward a negotiated end to the punishing tariffs they're set to impose on each other's goods beginning July 6.

CFIUS legislation passed in the House would expand investigations by the panel to include minority investments in "critical technology" or "critical infrastructure" and joint ventures where technology companies contribute intellectual property.

"I don't think this is a question of weaker or stronger".

"I welcome the president's tough action to prevent any country from stealing our vital technology through investing in or acquiring USA companies", Rep. Kevin Brady, the House Ways and Means Committee chair, said in a statement. "It avoids use of emergency powers, which would have created a new ad hoc and highly uncertain framework", said Robert Kahn, a professor at American University who previously worked at the World Bank and International Monetary Fund.

A Commerce Department spokesman did not respond to Reuters' requests for comment on the study.

The new legislation, called the "Foreign Investment Risk Review Modernization Act" (FIRRMA), would require the CFIUS to evaluate entire sectors, rather than individual proposed deals, for potential security threats.

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