WEEK OF 2021.07.13

News, Views & Items of Interest Relevant to the Carolina Region
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Much has been written about the shortages of microchips from China and how manufacturers around the globe are so dependent upon them for their new and advanced products. In this issue of the CWTA International Trade & Commerce Advocacy Newsletter, we take a look at a critical microchip manufacturing machine produced by ASML Holding in Veldhoven, Netherlands. We also look at competition with China and examine different strategies for keeping up with the competition and making advances of our own. We also learn that President Biden will lose some of his authority while he focuses on the enforcement of existing trade deals. The briefs below with related links and videos will help you understand more about our changing world and the opportunities for your business activity.

Chip-making Tool from Dutch Company Is Lever in U.S.-China Struggle

ASML Chip Making Machine
President Biden and many lawmakers in Washington are worried these days about computer chips and China’s ambitions with the foundational technology. But a massive machine sold by a Dutch company has emerged as a key lever for policymakers — and illustrates how any country’s hopes of building a completely self-sufficient supply chain in semiconductor technology are unrealistic.

The machine is made by ASML Holding, based in Veldhoven. Its system uses a different kind of light to define ultrasmall circuitry on chips, packing more performance into the small slices of silicon. The tool, which took decades to develop and was introduced for high-volume manufacturing in 2017, costs more than $150 million. Shipping it to customers requires 40 shipping containers, 20 trucks and three Boeing 747s.

The complex machine is widely acknowledged as necessary for making the most advanced chips, an ability with geopolitical implications. The Trump administration successfully lobbied the Dutch government to block shipments of such a machine to China in 2019, and the Biden administration has shown no signs of reversing that stance.

Manufacturers can’t produce leading-edge chips without the system, and “it is only made by the Dutch firm ASML,” said Will Hunt, a research analyst at Georgetown University’s Center for Security and Emerging Technology, which has concluded that it would take China at least a decade to build its own similar equipment. “From China’s perspective, that is a frustrating thing.”

ASML’s machine has effectively turned into a choke point in the supply chain for chips, which act as the brains of computers and other digital devices. The tool’s three-continent development and production — using expertise and parts from Japan, the United States and Germany — is also a reminder of just how global that supply chain is, providing a reality check for any country that wants to leap ahead in semiconductors by itself.

The situation underscores the crucial role played by ASML, a once obscure company whose market value now exceeds $285 billion. It is “the most important company you never heard of,” said C.J. Muse, an analyst at Evercore ISI. [The New York Times and Bloomberg Technology]

When Will China Rule the World? Maybe Never.

China Rule the World
The Communist Party wants the world to see China’s continued rise as inevitable. In reality, it’s anything but. When will China overtake the U.S. to become the world’s biggest economy?

Few questions are more consequential, whether it’s for executives wondering where long-term profits will come from, investors weighing the dollar’s status as global reserve currency, or generals strategizing over geopolitical flashpoints.

In Beijing, where they’ve just been celebrating the 100th anniversary of the Chinese Communist Party, leaders are doing their best to present the baton-change as imminent and inevitable. “The Chinese nation,” President Xi Jinping said last week, “is marching towards a great rejuvenation at an unstoppable pace.”

Early in the Covid-19 crisis, when China managed to control infections and maintain growth even as the U.S. suffered hundreds of thousands of deaths and a crunching recession, many were inclined to agree. More recently, an unexpectedly fast U.S. recovery has illustrated just how much uncertainty remains around the timing of the transition—and even whether it will happen at all. [Bloomberg]

Confronting China on Trade

Confronting China
China is on a roll but not in a good way. It has largely recovered from COVID-19, and its growth rate has been substantial. But in Hong Kong, China’s stated commitment to the “one country, two systems” principle has morphed into one country, one system, with democracy erased and the independent press shut down. In Xinjiang, whether the Chinese operating camps for Uyghurs conforms to the legal definition of genocide or not, large-scale human rights abuses are clearly taking place. China continues to expand in the South China Sea and threatens to invade Taiwan.

The Trump administration turned our attention to China’s trade policies. But its attempts to address these issues were unproductive. Its main target, the total U.S. trade deficit, expanded, and U.S. exports of services, which had been on an upward trajectory, declined. Unilateral actions and bilateral deals did not work. The Biden administration must be more effective in confronting China on trade.

Importantly, there is still significant scope to address some of the China trade issues within the current structure of the World Trade Organization (WTO). For example, the United States has been able to bring dispute cases against China and win. Further, it is widely noted among trade policy professionals that, in each instance in which China has suffered a loss in the dispute settlement process, it has mended its ways.

For this reason, the U.S. under the Biden administration needs to recommit itself to the WTO dispute settlement system. The Trump administration’s goal was to sabotage it, but this worked to America’s disadvantage. Reengaging the dispute settlement system is the first step to confronting China on trade. [The Hill and Newsweek]

The President's Trade Authority Ends!

President's Trade Authority
President Joe Biden has lost what’s called the trade promotion authority. And he’s not putting up a fight about it.

The TPA is the ability to negotiate a trade deal and submit it to Congress without risk of Congress rewriting it. Most recently granted in 2015, it’s a power that has come and gone in U.S. history.

Picture it: 1828, John Quincy Adams is president, and Congress passes something called the Tariff of Abominations. Congress was fighting over whether tariffs should be high or low. “The opponents of the high tariffs kept adding to the tariffs in hopes it would become so bad that other members of Congress would vote it down, but instead other members said, ‘Hey, this is actually pretty good,’ so that’s why they called it an abomination afterward,” he said.

It is an example of how Congress can mess up trade policy. In 1974, as trade deals became more complex, Congress agreed to temporarily give the president authority to negotiate with other countries over trade.

It’s a take it or leave it kind of thing, said Mary Lovely with the Peterson Institute for International Economics. “Basically means that once an agreement is reached by the president, Congress needs to vote it up or down,” Lovely said.

Antonio Ortiz-Mena of the Albright Stonebridge Group helped negotiate the original North American Free Trade Agreement on the Mexican side.

Without trade promotion authority, he said, “you would never end up concluding the negotiations you would be negotiating with the executive branch, and then you would be negotiating with dozens of House members and senators.”

Too many cooks in the kitchen. Biden is letting that power lapse mostly because the trade deal kitchen is closed. He wants to focus on the enforcement of existing trade deals before going through the ordeal of creating new ones. [CalChamber Alert and Marketplace]

America Now Has a 'One China, One Taiwan' Policy

One China One Taiwan
TIFA and TIPA are the best answers to Beijing’s menacing rhetoric and actions. President Biden should announce his support for both.
The Biden administration continues to build on the Trump team’s unprecedented efforts to deepen U.S relations with Taiwan.

Without either administration explicitly declaring it, their combined policies have effectively transformed Washington’s ritualistic “One China” formula while paying it deferential lip service. The Trump and Biden teams have instituted policies that de facto nullify one of the “three nos” Bill Clinton affirmed during his 1998 visit to Beijing: no Taiwan independence; no two Chinas; no one China, one Taiwan; no participation in most international organizations (actually four nos).

Last week, Washington opened a new front in the campaign to elevate Taiwan’s status as the two countries revived a Trade and Investment Framework Agreement (TIFA), signed in 1994 but essentially moribund since then.

One of the main obstacles to negotiating a trade agreement under TIFA had been Taiwan’s unwillingness to purchase American pork and beef treated with additives. Taiwan’s President Tsai Ing-wen broke the logjam in 2020 over strong domestic opposition and announced that Taiwan would lift the ban.

It is now up to the Biden administration to start the TIFA process without having to please Beijing. Preliminary negotiations are underway and the prospect for deeper U.S.-Taiwan economic relations is good.

But the Biden team so far has left unattended a critical security matter on Taiwan that also languished during the Trump administration: the congressional initiative known as the Taiwan Invasion Prevention Act (TIPA), introduced in 2020 “to authorize the President to use military force for the purpose of securing and defending Taiwan against armed attack.” It was reintroduced in this Congress and is awaiting action.

TIPA envisions a wider range of Chinese military threats against Taiwan than the massive invasion of the main island recently deemed “highly unlikely” by Joint Chiefs Chairman Mark Milley. TIPA is intended not only to prevent “a direct armed attack by the military forces of the People’s Republic of China,” but also to deter “the taking of [any island] territory under the effective jurisdiction of Taiwan” and China’s “endangering of the lives of members of the military forces of Taiwan or civilians within the effective jurisdiction of Taiwan.”

If passed by Congress, TIPA would directly repudiate Washington’s policy of strategic ambiguity as first enunciated by the Clinton administration when it told Chinese officials “we don’t know” what we would do if China attacked Taiwan; “it would depend on the circumstances.” [The Hill]

Carolina World Trade Association

Founded in 1964, CWTA is a chapter of the North Carolina World Trade Association (NCWTA), which promotes growth of trade between North Carolina and the world by providing education and networking opportunities for our global ecosystem.

As a business-driven non-profit organization, CWTA’s mission is to promote, foster and encourage international commerce success and expand economic growth in the Carolinas region. We do this by:
  • Advocating the interests of businesses engaged in international trade on local, regional, state, and federal levels;
  • Educating businesses and their employees to the resources, issues, policies, and practices within international trade;
  • Promoting regional assets and opportunities for expanding inbound and outbound international commerce; and
  • Celebrating the successes of international trade in the region.
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