Background

Pivot to Asia

Barack Obama Presidency

Hillary Clinton, Secretary of State

Authored America’s Pacific Century, in Foreign Policy
Link

Also known as ‘Pivot to Asia’, the American military and diplomatic ‘pivot,’ or ‘re-balance’ toward Asia became a popular buzzword after Hillary Clinton authored America’s Pacific Century, in Foreign Policy.

Clinton’s article emphasizes the importance of the Asia-Pacific, noting that nearly half of the world’s population resides there, making its development vital to American economic and strategic interests.

She states that “open markets in Asia provide the United States with unprecedented opportunities for investment, trade, and access to cutting-edge technology.

Our economic recovery at home will depend on exports and the ability of American firms to tap into the vast and growing consumer base of Asia.

Strategically, maintaining peace and security across the Asia-Pacific is increasingly crucial to global progress, whether through defending freedom of navigation in the South China Sea, countering the nuclear proliferation efforts of North Korea, or ensuring transparency in the military activities of the region’s key players.”

The ‘pivot’ strategy, according to Clinton, will proceed along six courses of action: strengthening bilateral security alliances; deepening America’s relationships with rising powers, including China; engaging with regional multilateral institutions; expanding trade and investment; forging a broad-based military presence; and advancing democracy and human rights.

 

Public Fillings

In public filings commenting on the proposal, Apple (AAPL), Dell Technologies (DELL), HP (HPQ), Intel (INTC), Microsoft (MSFT), Sony (SNE) and Nintendo (NTDOY) asked that their products be excluded from the list of goods the tariff would apply to.

The Consumer Technology Association also submitted a letter asking the government to develop a process for companies to request that their goods be excluded from the tariff, arguing that increasing tariffs is the wrong way to improve the US-China trade relationship.

“No one wins in a trade war, and an escalating tariff fight will inflict immense damage on American businesses, workers and consumers,” the Association wrote.

Beyond China

The trade dispute has forced some tech companies to look beyond China for new locations, mostly in Southeast Asia, to produce their goods.

But leaving China is a slow and costly process, because the country has for decades amassed the infrastructure, talent and suppliers needed for manufacturing.

 

Companies

Apple

In its letter, Apple highlighted its contribution to the US economy, saying it is the largest US corporate tax payer and is responsible for more than 2 million jobs across the country.

The company said additional tariffs would reduce this contribution, and could also threaten Apple’s ability to compete with foreign technology companies.

“The Chinese producers we compete with in global markets do not have a significant presence in the US market, and so would not be impacted by US tariffs,” Apple wrote.

“Neither would our other major non-US competitors. A US tariff would, therefore tilt the playing field in favor of our global competitors.”

Apple attached a list of nearly 20 products including iPhones, MacBooks and AppleTVs⁠ — that it wants excluded from the tariff.

 

Dell, HP, Intel, and Microsoft

Laptops & Tablets

A joint letter from Dell, HP, Intel and Microsoft asked the government to leave laptops and tablets out of the list of goods covered by the tariff.

The companies said the tariff could raise the average retail price of a laptop by $120, citing a study from the Consumer Technology Association.

Video Game Consoles

Another letter from Sony, Nintendo and Microsoft asked that video game consoles be excluded.

 

Kenneth Cole Productions

Mark Schneider, CEO of the clothing line Kenneth Cole Productions, told administration officials at a hearing in Washington that he has tried finding alternative sources of supply, such as Mexico, for the company’s shoes and other products.

But Trump’s unpredictable trade policy — such as a recent threat to slap tariffs on Mexico over migration issues — has made it hard to know where to make sourcing decisions.

“I started looking in Mexico, but I got scared off,” Schneider said Monday. “Some sort of stability with this type of discussion would be really helpful. There’s no preparation for anything.”

Element Electronics

David Baer testified that his company, Element Electronics, is the only domestic manufacturer of TVs left in the U.S. The additional duties, however, would have the opposite effect of what the president wants in preserving domestic jobs. “We will be forced to shut down the South Carolina factory and move our production offshore,” Baer said.

“We’re doing exactly what the administration is asking of American companies”  by manufacturing in the U.S. but the tariffs would make costs for components too high to import, he said.

Leading Lady

“The net result of this is we lose, with the very real prospect that we go out of business,” said Mark Corrado, president of Leading Lady, which sells women’s intimate apparel. He showed the panel one of his company’s bras to demonstrate how labor intensive and intricate production can be.

Trump has argued the tariffs are bringing jobs back to the United States. But Corrado, a third-generation owner of a Ohio-based company started by his grandfather in the 1930s, countered: “People don’t sew in the U.S. anymore.”

Associations

Manufacturing – Raw materials, intermediate goods, and capital equipment

 

National Council of Textile Organizations

The National Council of Textile Organizations, for one, is urging the administration to go through with tariffs on clothing and textile products from China, which they said would increase U.S. leverage in the negotiations in Beijing.

But a number of items used by textile manufacturers — such as certain chemicals, dyes, machinery and rayon staple fiber, that were previously excluded from duties — should stay off the list to make sure American producers remain competitive, the council said.

 

National Association of Manufacturers

The National Association of Manufacturers, which has benefited from Trump’s tax cut and regulatory reforms and has been reluctant to criticize the president, warned the existing tariffs are already making U.S. companies less competitive in world markets.

“Increased tariffs on these inputs make it more expensive and less competitive to manufacture in the United States, undermining production, capital and R.&D. investment and jobs here at home while also forcing manufacturers to cede ground to their competitors overseas,” NAM said in its public comments.

 

Intellectual Property

Among the reasons cited by the Trump Administration for the tariffs is a concern about Chinese theft of US companies’ intellectual property.

 

Dell

In the Dell letter, the companies acknowledged this as a legitimate concern, but argued that continued tariff hikes would do little to stop it.

“Imposing additional tariffs on laptops will in practice undermine the Administration’s policy priorities in this China investigation,” the companies wrote in the letter before going on to say the policy would force them to divert time and money away from developing new products and could also threaten their positions as tech industry leaders.

 

Quick Take

It is heartening to see the position that these Industry Stalwarts are taken not just in private company communique, not just through lobbying, but through public statements.

They are saying, yes, we think there is a problem.

But, we do not want you to do the following :-

1. Throw your hands up and walk away
2. Be haphazard in terms of processes
   • Do you have a way of seeking exceptions
   • What is the timetable for placing exceptions and having them adjudicated
3. Take your eye off the big picture

 

References

1. CNN
   • Apple, Microsoft and other tech companies ask to be excluded from the China tariffs
     Link
2. Consumer Technology Association
   • China Tariffs Are Taxes on Consumers’ Favorite Tech, Says CTA
     Link
3. Politico
   • Companies plead with Trump against new China tariffs
     Link
4. Wikipedia
   • East Asian foreign policy of the Barack Obama administration
     Link