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US-China Market Watch: More Tariffs, 5G Network, Goodbye SAPPRFT

April 02, 2018
An ariel view of container harbor and cranes
(Photo credit): sirivisansuwan

Your monthly roundup of the latest U.S.-China business and industry news.

China raises tariffs in response to U.S. tariffs of $60 billion on Chinese goods

After signing the steel and aluminum tariffs, the Trump White House is reportedly looking to reduce the United States’ $375 billion trade deficit with China by $100 billion. Trump announced that the U.S. is planning to levy about $60 billion in tariffs on Chinese imports and restrict Chinese acquisitions and technology transfers of U.S. companies. According to U.S. officials, the number is roughly equivalent to earnings lost by American companies to Chinese businesses because of forced joint ventures and technology transfers. The United States trade representative has selected 1,300 categories that could be covered by the tariffs but will allow industry representatives to give input on which specific product categories. The U.S. is also expected to sue China at the World Trade Organization (WTO) for China’s alleged trade violations. Trump did grant allies, including the European Union, Brazil and South Korea, exemptions to the steel tariffs he imposed earlier this year.

Leading up to the announcement, the tariffs have been repeatedly decried by both the Chinese government and American retailers, who say they will only raise the prices of goods for American consumers. In fact, 45 trade associations have written and signed a letter urging Trump to rethink trade tariffs, saying that they will harm “companies, workers, farmers, ranchers, consumers, and investors.” According to Reuters, China is preparing a “range of responses” to Trump’s tariffs, including a WTO complaint against the tariffs, and has outlined a plan to tax $3 billion worth of U.S. goods, such as pork, fruit and wine.

The stock markets dropped considerably after Trump’s tariff announcement, but have since climbed back up after word got out that the United States and China are in tariff negotiations. The U.S. is urging China to lower tariffs on car imports, as well as open up its financial sector more. In an effort to ease tensions, China’s Premier Li Keqiang reiterated plans to continue opening up market access to foreign firms.

However, China announced that it was “suspending its obligations to the World Trade Organization” to reduce tariffs and will raise tariffs on 128 U.S. goods by an additional 15 or 25 percent (15 percent on items such as fruits, nuts, and wine; 25 percent on pork and recycled aluminum). Trump is expected to unveil what Chinese goods will be subject to U.S. tariffs early in April.

Trump blocks Broadcom’s takeover of Qualcomm

Trump has blocked Broadcom Ltd.’s $177 billion takeover bid of rival telecommunications company Qualcomm. Why? Because of national security concerns stemming from Broadcom’s ties to Chinese telecom company Huawei Technologies.

Bloomberg reports that Huawei had no direct role in the acquisition, but Huawei does use Broadcom chips and works with Qualcomm—In February, Huawei and Qualcomm had said they had successfully completed testing on technology that would advance 5G mobile services. Although Huawei is not a state-owned enterprise, it’s purported to have close ties with the Chinese government and was blacklisted by the U.S. in 2012.

Bloomberg states that the Committee on Foreign Investment in the United States (CFIUS) is worried that Broadcom will acquire Qualcomm, cut down funding for the company, and thus give Huawei greater influence and market share in the telecoms industry—which CFIUS cites as a national security interest. Best Buy recently announced that it plans to stop carrying Huawei phones, due to Huawei’s difficulty finding U.S. carrier partnerships after the 2012 congressional warning.

Xi ends term limits, enacts reforms of government departments

In what is seen as a consolidation of power, President Xi Jinping has officially abolished presidential term limits in China, ending the policy Deng Xiaoping had implemented in 1980 after Chairman Mao’s decades-long rule. Following that, the Chinese government announced the formation of several new agencies, from insurance and banking regulation, to a new anti-corruption agency.

One of them is an “international development cooperation” agency that was formed to promote Xi’s “Belt and Road” initiative and will be responsible for foreign aid policies. State Councilor Wang Yong said that the agency’s duties will combine the ministry of commerce and foreign affairs.

China’s Communist Party propaganda department now to regulate film industry

Along with many other oversight agencies, China abolished its State Administration of Press, Publication, Radio, Film and Television (SAPPRFT), which supervised China’s state-owned media and also handled distribution of foreign films. In its place, China has established a new State Council agency to oversee radio and television management, while the Communist Party’s Propaganda Department will handle films.

The move signals that the government wants to take a firmer hand in developing China’s film industry, and perhaps there will be an increase in censorship and promotion of domestically produced pro-China content, such last year’s blockbuster “Wolf Warrior 2.” It remains unclear how these new changes will affect future Hollywood and China deals.

China soon to adopt 5G services

China will likely issue 5G licenses to telecommunications carriers as early as 2019, reports China Daily, and could become the world’s biggest 5G network. Although China was slower to give out 3G and 4G licenses, the country has “raced ahead” when it comes to researching and developing 5G. Thanks to its incredibly fast speed, 5G can enable more precise autonomous driving, allow smartphones to send 4K-resolution video within seconds, and provide a seamless AR/VR gaming experience.

Huawei, which has faced many restrictions in the United States, is poised to become a global leader in 5G networks, thanks to the company’s ties with carriers in Europe and Asia. The company has invested over $800 million in 5G research and development, and its rival ZTE (which has also been blacklisted by the U.S.) has invested over $3 billion in a 5G product base in Nanjing, China.

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