That Was the Week that Was
July 2, 2018
Some of you may remember the old television show, That Was the Week that Was, which satirized and commented on events of the preceding week. I have not intended that this column become that, but sometimes events are simply too good to pass up. Such were two from last week—the White House announcement on Chinese investment restrictions, and the Harley-Davidson announcement about moving some production to Europe.
Let’s take the smaller of the two first. Harley-Davidson made what most everybody would consider a rational business decision, albeit one the president did not want to hear. That precipitated a tweet storm that culminated in the president making clear he was personally hurt by the decision after all he had done for them and saying the company should stay here in America. He also alluded, erroneously, to the trade abuses the company suffered in the 1980s that led to the tariffs President Reagan imposed. I worked on that case. It was not about abuse of the trade rules; it was a safeguard case; the tariffs were temporary and removed early after Harley-Davidson got back on its feet.
Currently, the company does not import motorcycles into the United States, and the planned production shift is to meet European demand and avoid the EU’s retaliatory tariffs (because of our steel and aluminum tariffs) that would increase the average cost of a motorcycle shipped to the EU from the United States by $2200. Under the circumstances, anyone of sound mind would look for a way to retain European market share despite the tariffs. The president’s response—Harley-Davidson should stay in America—is asking the company to commit suicide. As I have said numerous times, the United States is a mature, slow growth economy, and with 95 percent of the world’s consumers outside our borders, if we want to grow we have to trade, and expecting a company to export successfully with a $2200 concrete block tied to its rear wheel is unrealistic to say the least.
Equally peculiar are the comments of Ambassador Lighthizer about the hypocrisy of our trading partners in imposing retaliatory tariffs. This is doublespeak right out of 1984. We took the first step and hit them with tariffs of questionable legality, and now it’s their fault for responding in kind—also with questionable legality? Our contempt for the system encourages others’ contempt for the system. This would be funny if there weren’t so many people that are going to lose their jobs as a result of the president’s action.
On a slightly brighter note, the president’s decision on Chinese investment injected a moment of rationality—perhaps a very brief one since tariffs are coming July 6—into a debate where it has been lacking. In brief, the president chose to rely on the legislation making its way through Congress, the Foreign Investment Risk Review Modernization Act (FIRRMA), to deal with the problem of Chinese investment in the United States that involves transfers of sensitive technology. That legislation tweaks the existing process for reviewing investments, most significantly expanding the universe of transactions subject to review by including non-passive investments that are not acquisitions, along with some other additions.
So far, the bill has been a model of how the legislative process used to work—extensive hearings, consultations with stakeholders, committee consideration and approval of a product with bipartisan support, and overwhelming passage in both the House and Senate. Conferees must now work out remaining differences between the two versions. The result, again so far, has been a prudent product that patches holes in the current system and raises awareness of the problems related to inward foreign investment, but leaves the executive with flexibility to make case-by-case decisions. The president’s decision to eschew a more aggressive and arbitrary China-specific approach in favor of the bill was a wise one.
At the same time, our trade war—or dispute, take your choice—with China is a five act Shakespearean play, not short attention span theatre. Whether it turns out to be comedy or tragedy remains to be seen. The next shoes to drop will be expanded export controls on technology transfers in an effort to block joint ventures with Chinese companies and restrictions on Chinese students and highly-skilled workers seeking to come here.
Our export control system already does a decent job of controlling militarily critical technologies. It appears the administration may seek to expand the scope of controls beyond the current national security focus into preserving economic competitiveness and the industrial base. That would be a major disruption for our economy, bringing under government control items that have long been exported freely and over the long term dooming our companies by keeping them out of the markets they need to grow and shielding them from the competition that makes them stronger.
The visa issue has been the subject of prior rants in this column, and I will save the next rant for when the administration actually does something. Suffice it to say that immigrants have been the source of our strength for over 200 years, and limiting them makes us a smaller and weaker country—both literally and morally. And that would be a real tragedy, not comedy.
William Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C.
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