Bill Schmick | The Retired Investor: Tensions with China may heat up

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On Aug. 15, U.S. Trade Representative Robert Lighthizer and Chinese Premier Vice President Liu He will be facing off once again, this time to review the Phase One trade deal inked Feb. 15. Neither side is especially happy with progress so far.

From the U.S. point of view, China has not lived up to its agreement to buy $200 billion worth of U.S. goods over their 2017 purchasing level. Chinese imports of agricultural products are actually lower than the 2017 level, which is about half the level needed to meet their promised target of $36.5 billion. The energy purchases they promised have also fallen woefully short of their commitment. Only 5 percent of their $25.3 billion in promised purchases has actually happened.

From the Chinese point of view, the level of China-bashing that is going on as part of the election campaign from both parties is an ongoing deterrent from honoring their agreement. In addition, the Chinese will argue that the world has changed since the February agreement. The collapse and rebound in oil prices, combined with the onset of the coronavirus pandemic, has thoroughly upended trade relations not just between the U.S. and China, but throughout the world.

The Chinese have a point, but my suspicion is that U.S. negotiators will be in no mood to forgive and forget (at least not publicly). Besides, we have bigger fish to fry at the moment. The Trump administration continues to blame the coronavirus outbreak on the Chinese government, hinting that the outbreak might have been on purpose. While it is true that the virus originated in Wuhan, China, there is no evidence that the government was involved in its origination or spread. But, facts have never stopped your president from voicing his opinions.

The security crackdown and new legislation by China on limiting Honk Kong democratic freedoms has also earned China condemnation and sanctions from both sides of the political aisle here at home. There has also been a tit-for-tat shutting of consulates in both countries as a result of U.S. accusations that the Chinese consulate in Houston was a hotbed of spying.

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But, the latest flare-up involves TikTok, a Chinese-owned video platform loved by more than 50 percent of America's teens. ByteDance, the app's parent company, has been notified by the White House that it has 45 days to reach a deal to sell its U.S. business. This follows on the heels of a growing list of Chinese tech companies that have been blacklisted by the Trump administration. These actions have created a furor across Asia and within China.

The Chinese accuse the United States of forcing a fire sale of TikTok by slapping on this a time limit, while arguing that America's growing tech war with China is violating international rules of trade. To make matters worse for the Chinese, Secretary of State Mike Pompeo warned that "countless Chinese apps" may be in for similar treatment in the coming days.

I believe that while the Chinese have been willing to negotiate trade imbalances with the U.S. over the last four years, they have dug in their heels when it came to modifying intellectual property rights and technology transfers. America's willingness to wait and negotiate in good faith appears, at this juncture, to have been an unworkable strategy.

I suspect that our newfound willingness to wage a tech war as a way of bringing China to the table, where serious discussions can begin in these areas, will not be taken lightly. While necessary, we should not expect the Chinese to simply lie down and take it. I expect a strong response in the immediate future, and so should you. Be prepared.

Bill Schmick is registered as an investment adviser representative of Onota Partners Inc. in the Berkshires. He can be reached at 413-347-2401, or e-mail him at billiams1948@gmail.com.


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