Policy

US-China trade talks are a big deal for startups

Business owners are watching this week as a U.S. delegation negotiates with Chinese officials

Congress has remained largely on the sidelines as President Donald Trump and Beijing wage their tariff battle. A U.S. delegation is in China this week. (Win McNamee/Getty Images file photo)

Vicki Mayo helps run an Arizona company that makes a watch-like device it boasts eases stress. Now the future of her company could hinge on the outcome of talks this week to resolve the tariffs standoff between the United States and China.

As owner and co-founder of Scottsdale-based tech startup The TouchPoint Solution, Mayo said she had high hopes of expanding the business. But she put those plans on hold after the Trump administration imposed 10 percent tariffs on Chinese imports last year, with a threat to increase those duties to 25 percent.

Mayo says she was relieved when the administration and Beijing declared a ceasefire in December and put the tariff rate increase on hold until March 1 to give the two countries time to possibly broker a broader and more permanent trade agreement.

She will be watching, she said, for signs of progress between the two economic giants this week as a U.S. delegation led by Jeffrey Gerrish, deputy U.S. trade representative, negotiates with Chinese officials. The U.S. delegation arrived in Beijing on Sunday for an expected two days of talks, which experts say are unlikely to produce an immediate breakthrough.

But Commerce Secretary Wilbur Ross told CNBC Monday that “there’s a very good chance that we will get a reasonable settlement that China can live with, that we can live with and that addresses all of the key issues.” Ross didn’t provide details.

“I am cautiously optimistic,” said Mayo, who started TouchPoint Solution in December 2016. She has a 10-person team in Scottsdale and manufacturing contracts with Arizona and Chinese firms to produce the device, which the company describes as “neuroscientific wearables that were designed to provide fast relief from stress at the push of a button.”

Adds Mayo: “We’ve grown because our technology takes away stress.” To meet demand, Mayo said she was considering moving all of her production to China, which she says has a larger manufacturing base for the kind of technology her company needs.

For now, however, she said the 10 percent tariff that TouchPoint Solution pays on the Chinese-made hardware is a cost the company can absorb, but the prospect of a 25 percent tariff gives her pause.

“We are keeping a very close eye on these tariffs,” Mayo said.

Mayo’s company is not alone. Several industries, including agriculture, technology and bicycle helmet makers, have testified before Congress and other agencies about the detrimental affects of the tariff standoff. For example, USDA projects $9 billion in agricultural exports to China in 2019, a decrease of $3 billion from its earlier forecast and the lowest level of exports to China since 2007, according to a department outlook report. USDA cited trade tensions and other factors for the decline.

Sage Chandler, international trade vice president for the Consumer Technology Association, said if there is no resolution of the U.S.-China dispute the impact of higher tariffs “will become more real and noticeable” to consumers.

CTA, whose membership includes TouchPoint, says tech companies paid $800 million more in tariffs in 2018 than in 2017, with 70 percent of those higher duties resulting from the last round of U.S. tariffs on imported Chinese goods.

Still, President Donald Trump and administration officials credit three waves of U.S. tariffs in 2018 for Beijing’s nod to more talks, and to agreeing to discuss policies the United States finds troublesome: restrictions on U.S. companies’ investment in China, theft of U.S. intellectual property and ongoing cybertheft from American firms.

The United States last year imposed tariffs under Section 301 of the Trade Act of 1974 on $250 billion of imported Chinese goods. Beijing retaliated with tariffs on U.S. goods, targeting agricultural products such as soybeans with a 25 percent tariff, to pressure Trump’s farm constituents who helped put him in the White House. Beijing’s tactics pushed the administration to back more than $9 billion in trade aid payments to farmers to offset their losses from declining exports. The aid is being implemented by the Agriculture Department.

The president has also railed against the U.S. trade deficit with China. The October trade deficit for goods with China increased to an all-time monthly high of $43.1 billion, according to Census Bureau data. The Commerce Department is scheduled to release November trade data on Jan. 8, but the partial government shutdown could affect that report.

Speaking about the talks Friday, Trump said the United States has the advantage. “China is not doing well now, and it puts us in a very strong position. ... I hope we’re going to make a deal with China. And if we don’t, they’re paying us tens of billions of dollars’ worth of tariffs. It’s not the worst thing in the world.” Those duties, however, are paid by companies such as TouchPoint.

Economists say the Trump administration’s tax stimulus and a growing U.S. economy have accounted for the increased imports despite the tariffs. Some industry groups say companies continue to import from China because it is difficult to change suppliers and that some firms may have increased their imports to stockpile products or components because they worry tariffs on those goods could rise.

Congress, meanwhile, has remained largely on the sidelines as the White House and Beijing wage their tariff battle. Members of both parties share Trump’s concerns about China’s trade and business policies.

However, House Ways and Means Democrats Earl Blumenauer of Oregon and Bill Pascrell Jr. of New Jersey say U.S. Trade Representative Robert Lighthizer must brief their committee about the China talks. The panel along with the Senate Finance Committee oversees key trade issues.

“We cannot cede the strength of this debate to the executive branch, period,” Pascrell said recently. “The Congress cannot have an involvement if it is not informed on what is going on in these negotiations. Tariffs are tools. They should not be weapons of war,” he added.

Managing trade talk expectations

Brad Setser, a senior fellow for international economics at the Council on Foreign Relations, said the U.S.-China talks this week could produce an agreement in principle with Beijing to make structural changes to its policies, but “it would be impossible for China to fully implement major changes” within the remaining 60 days or so in the tariff ceasefire.

“You can imagine a deal with a set of Chinese commitments to change and a process for verifying that China is living up to its commitments,” he said, adding that “then you’d have to sequence U.S. concessions or the rollback of U.S. tariffs along with measures of Chinese progress.”

He said there might be enough progress “to lead to an agreement to allow more time to negotiate.”

Setser said the United States may have to prioritize the policy changes it considers most important for China to make and accept that China will continue other policies the Trump administration dislikes.

For example, Setser said, Beijing has signaled that it is willing to allow foreign firms to invest in more Chinese industries without requiring that those firms have Chinese partners in joint ventures. The administration and U.S. industries say companies are forced to share sensitive technology and intellectual property that allows Chinese competitors to gain a competitive edge.

However, Setser said Beijing has shown no willingness to cut back on government subsidies and other support designed to make Chinese firms dominant domestically and internationally.

He said China is unlikely to make major concessions solely because of its slowing economy.

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