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Biden administration faces midnight court deadline to defend $350 billion of Trump’s China tariffs

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WASHINGTON — The Biden administration faces a legal deadline at midnight to defend former President Donald Trump’s China tariffs, even as the White House considers scaling them back to lower consumer prices and ease inflation. 

Scores of companies sued the Trump administration in September 2020, arguing the process of implementing a third and fourth tranche of tariffs on roughly $350 billion in goods was overly broad and hastily implemented. If the Biden administration, having inherited the suit, cannot prove the legitimacy of the tariffs or the process, it may be forced to reevaluate tens of thousands of public comments on the tax penalties, or reimburse the parties for what they’ve paid.

“The stakes are significant,” says Alex Schaefer, international trade partner at Crowell, who represents some of the importers. Schaefer says the government lacks the manpower to process the volume of  comments, and refunding importers could cost $80 billion. 

The U.S. Trade Representative’s office declined to comment. The Department of Justice, which represents the administration in legal cases, declined to comment on the government’s position but said it could be awhile before there’s a final outcome.

The deadline puts the White House in an awkward position: potentially defending its predecessor’s program, while studying ways potentially to alter it. John Kirby, the National Security Council’s spokesman, recently called the tariffs “poorly designed,” “a shoddy deal” that “increased costs for American families.”   

President Joe Biden has yet to make a decision on the options his advisors have presented on the tariffs, according to senior administration officials. The officials and people familiar with the matter have suggested certain fault lines forming in the policy debate, with political aides advising Biden to keep the levies in place to avoid attacks across the aisle.

Ambassador Katherine Tai, who as U.S. Trade Representative holds the leading role on the tariffs, has suggested the Trump tariffs have strategic value in maintaining leverage in negotiations with China. The economic team, led by Treasury Secretary Janet Yellen, has been advocating to roll back at least a some of the tariffs that directly hit consumers to alleviate inflation, according to administration officials who asked not to be identified because the discussions are private. 

The economic impact on inflation is difficult to estimate since not all imports affected by tariffs are consumer goods, and not all cost savings incurred by importers at the ports of entry would be felt by consumers at the checkout counter. Analysts at JP Morgan Chase estimated that, if retailers left prices relatively unchanged, removing all tariffs would lower inflation by at most 0.4%. 

In mid-June, White House aides confirmed they asked retail executives, which have long lobbied for relief on items like bicycles, furniture and air-conditioning units, whether tariff relief would be passed through to consumers. According to three people briefed on the meetings, retailers told the administration the calculus wasn’t so straightforward because their companies’ own transportation and labor costs had risen significantly, too.

The National Security Council has backed a third option in the tariff discussion — rolling back a subset of tariffs while launching a new investigation into China’s industrial subsidies, an idea that appears to be gaining traction, according to administration officials.  

“There’s no question that as we reorient our policy with China that we are going to need to ratchet up our suite of trade tools in sectors and in areas where you see the clearest threat from Chinese state-run practices,” another senior administration official tells CNBC, while noting all options remain on the table. 

It remains unclear when Biden will make a decision, and whether China would be prepared to respond in kind if the U.S. removed a portion of tariffs. Foreign policy experts have suggested coupling tariff relief with an intensifying investigation could anger Beijing as the two countries work toward an in-person meeting between Biden and Xi Jinping, the Chinese president. 

Frosty relations and rhetoric between the two countries amid recent tensions may require some distance. 

“Modest tariff relief is still likely,” says Clete Willems, a partner at Akin Gump who served as deputy National Economic Council director for Trump during the tariff rollout. “But the administration may want some distance from the Xi call and (House Speaker Nancy) Pelosi’s trip to Taiwan for domestic and international political reasons.” 

But if the U.S. government loses in the Court of International Trade, those political winds may push the Biden administration toward strengthening its hand against China. 

“If all of a sudden the tariffs are functionally chopped back by half,” Schaefer says, “that may amplify the need to do that new case as quickly as they can.” 

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‘Golden era’ for Britain and China’s relationship is over, UK PM Rishi Sunak says

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Sunak’s comments come shortly after groups of people across China held public demonstrations to protest the country’s stringent zero-Covid policy.

Daniel Leal | Afp | Getty Images

U.K. Prime Minister Rishi Sunak said the so-called “golden era” of relations with China was over, warning that Beijing’s move toward even greater authoritarianism posed a systemic challenge to Britain’s values and interests.

“Let’s be clear, the so-called ‘golden era’ is over,” Sunak said Monday in his first major foreign policy speech.

His reference to the “golden era” for the U.K.-China relationship echoed comments made by former U.K. Finance Minister George Osborne in 2015, who had claimed Britain could be China’s “best partner in the West.”

Sunak said it had been “naïve” to believe that closer economic ties over the previous decade could lead to social and political reform and accused Beijing of “conspicuously competing for global influence using all of the levers of state power.”

He warned, however, that Britain could not rely on “simplistic Cold War rhetoric.”

China’s embassy in London was not immediately available to respond to a request for comment.

Sunak has faced pressure from Conservative backbenchers to toughen his stance on China since he took over as party leader and prime minister last month.

“We recognize China poses a systemic challenge to our values and interests — a challenge that grows more acute as it moves towards even greater authoritarianism,” Sunak said in his speech at the Lord Mayor’s Banquet in London.

His comments come shortly after public demonstrations were held across China to protest the country’s stringent zero-Covid policy. A BBC journalist on Sunday was beaten and briefly detained by police while covering an anti-government protest in Shanghai.

“Instead of listening to their people’s protests, the Chinese government has chosen to crack down further, including by assaulting a BBC journalist,” Sunak said.

“The media and our parliamentarians must be able to highlight these issues without sanction, including calling out abuses in Xinjiang and the curtailment of freedom in Hong Kong.”

Sunak said the pace of geopolitical change was intensifying and “short-termism or wishful thinking will not suffice” in the face of challenges posed by Russia and China.

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Global stocks brush off China protest concerns

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Global stocks rebounded on Tuesday following a sharp fall, after protests in China against the government’s strict zero-Covid policies spooked investors and added to uncertainty about the outlook for the world’s second-biggest economy.

Hong Kong’s Hang Seng index soared 5.2 per cent following a 1.6 per cent slump in the previous session, while China’s CSI 300 added 3.1 per cent.

The moves came despite the imposition of a fresh round of business closures and quarantines of close coronavirus contacts in Shanghai, and as the country reels from widespread demonstrations against President Xi Jinping’s stringent lockdown measures.

Europe’s regional Stoxx 600 added 0.3 per cent in early trading having lost 0.6 per cent on Monday, while London’s FTSE 100 rose 0.6 per cent. Contracts tracking Wall Street’s benchmark S&P 500 gained 0.4 per cent while those tracking the tech-heavy Nasdaq 100 traded 0.6 per cent higher.

US equities have rallied this month but sold off on Monday on what Neal Shearing, chief economist at Capital Economics, described as a “risk-off” session for investors.

The protests in China created “enormous” uncertainties about the speed at which the country might reopen next year, Hudson added, with any relaxation of zero-Covid policies likely to lead to a further surge in cases and a hit to the supply side of China’s economy.

Investors were also alert to hawkish comments from John Williams, president of the Federal Reserve Bank of New York, who warned on Monday that US unemployment could rise from its current level of 3.7 per cent to between 4.5 per cent and 5 per cent by the end of next year.

The Fed funds futures market now assigns a 63 per cent probability to the central bank raising rates by 0.5 percentage points in December — potentially ending a run of four consecutive 0.75 percentage-point increases — but Williams stressed that officials had plenty of work to do in their battle to bring inflation back down to 2 per cent.

“Inflation is far too high, and persistently high inflation undermines the ability of our economy to perform at its full potential,” he said in a statement. Those concerns were echoed by James Bullard, president of the St Louis branch of the Federal Reserve, who said on Monday that the central bank’s aggressive monetary tightening was not yet finished.

Even so, the decline in US stocks on Monday was “a slow and steady ride”, said Mike Zigmont, head of trading and research at Harvest Volatility Management.

“The absence of emotion in [the] sell-off suggests that it was partially expected and doesn’t change the sentiment of the market,” Zigmont added. “There was no sharp drop to scare investors off their bids.”

Oil prices, meanwhile, rose on Tuesday, with international benchmark Brent crude oil up 2 per cent at $84.84 a barrel, after declining 0.5 per cent in the previous session.

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China Protests Over ‘Zero Covid’ Follow Months of Economic Pain

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The toll of China’s unwavering approach to fighting Covid has rippled through the world’s second-largest economy for months: Youth unemployment reached a record 20 percent, corporate profits sagged, and economic growth fell well below Beijing’s own projections.

The economic pain has intensified the pressure to ease pandemic restrictions to salvage the flagging economy and restore some semblance of normal life. Frustration with the government’s zero-tolerance Covid strategy, which has failed to prevent a big jump in cases, escalated over the weekend as a population tired of unpredictable lockdowns, extended quarantines and mass testing erupted into protests.

The current Covid outbreak, the most widespread since the start of the pandemic in 2020, has painted Xi Jinping, China’s president, into a corner. He has refused to budge on the government’s strict Covid approach. If he loosens restrictions and infections skyrocket, there is the risk of mass casualties and an overwhelmed health care system. But keeping the current policies in place and limiting infections with widespread lockdowns would inflict further damage to an already slowing economy.

“The government has no good options at this point,” said Mark Williams, chief Asia economist for Capital Economics, a research firm. “Whatever they do, it’s hard to see how there won’t be significant restrictions imposed across large parts of the country, which is going to have a huge impact on weakening the economy.”

More than 80 cities in China are now battling infections compared with 50 cities in the spring, when a smaller surge of infections prompted an eight-week lockdown in Shanghai and set the economy on its slowest pace of annual growth in decades. These cities account for half of China’s economic activity and ship 90 percent of its exports, according to Capital Economics.

Earlier this month, China announced plans to ease some pandemic policies, fueling speculation that it was the beginning of a transition to phase out its “zero-Covid” policy, much to the delight of investors who sent shares of Chinese companies soaring. But as the number of infections rose, the government reverted to a familiar playbook and held firm to what it has said all along: China is trying to eradicate Covid, not learning to live with it.

In a series of editorials in state media starting on Sunday, Beijing said that China still needed to “maintain strategic focus” in combating Covid, but it urged officials around the country to avoid extreme measures such as blocking fire exits or barricading communal doors during quarantine. It stressed the need for local officials to adhere to policy tweaks meant to “optimize” existing Covid policies and limit disruptions to people and businesses.

Even so, the authorities on Monday night deployed additional security to discourage another night of protests.

The growing unrest has threatened to jeopardize China’s hard-earned reputation as the world’s factory floor. Last week, workers upset about unpaid Covid bonuses and poor quarantine protocols rioted and clashed with police at a Chinese factory where Taiwanese contract manufacturer Foxconn produces more than half of the world’s iPhones.

Andrew Fennell, an analyst who oversees China’s government credit ratings for Fitch, said the country’s uncompromising approach has “weighed heavily on the economy and elevated social tensions.” He said that he expects Beijing to relax the most restrictive measures under its zero-tolerance approach, such as citywide lockdowns, in 2023, but that many restrictions will remain in place because of relatively low vaccination rates among the elderly in China.

In a note on Monday, Goldman Sachs estimated that there is a 30 percent chance that China will abandon “zero Covid” before April as the central government is forced to “choose between more lockdowns and more Covid outbreaks.”

After the initial outbreak of Covid in 2020, China’s economy bounced back quickly. While the rest of the world remained in lockdown, China’s hard-line approach to keeping the coronavirus in check worked well and its economy roared to life. In particular, exports were a bright spot as Chinese factories manufactured many of the products that the rest of the world bought online during isolation. Last year, China’s economy grew by an impressive 8 percent.

Currently, many of China’s biggest trading partners are staring at a possible recession from runaway inflation, rising interest rates, and the war in Ukraine. Domestically, the usually reliable pillars of real estate and high technology have fallen on hard times, and making more credit available to businesses has not jumpstarted the economy.

For small businesses, the recent outbreak is already sapping demand.

Cai Zhikang, a cake shop owner in Shenzhen, said corporate customers, the main source of his business, are starting to cancel orders more frequently. He said that a customer had scrapped a large corporate catering order exceeding $500 on Monday, a day after residents in the city in southeastern China staged a protest there over some of the latest restrictions.

Mr. Cai, 28, said that each wave of infections had brought more austerity from corporate customers who cut back on spending for employee treats to preserve their budgets. He said that he was also forced to close his shop for a month when Shenzhen imposed restrictions on the park where he operates his store. There is no point, he added, in planning ahead anymore because everything is dependent on whether Covid is spreading or not.

“If there is no Covid, I can definitely earn. When there is Covid, I cannot,” Mr. Cai said.

The impact has also spread to larger companies. A decline in overall profits at China’s industrial firms accelerated in October, according to the National Bureau of Statistics. Profit in China’s 41 industrial sectors fell by 3 percent in the January to October period, a steeper decline compared with a 2.3 percent slide in January to September, numbers released on Sunday indicate.

China’s initial success in containing Covid started to crumble this year with the spread of the more infectious Omicron variant. The government projected a modest 5.5 percent growth for 2022 in March, several weeks before a sharp rise in infections pushed Shanghai into lockdown and brought the economy to a grinding halt. A series of smaller subsequent outbreaks has continued to test the limits of China’s zero-tolerance strategy, putting the government’s economic growth target out of reach.

On Monday, Nomura, a Japanese brokerage, cut its forecast for fourth-quarter economic growth to 2.4 percent from an earlier estimate of 2.8 percent, citing “a slow, painful and bumpy road to reopening.” It also lowered its gross domestic product prediction for 2023 to a 4 percent increase from a previous estimate of 4.3 percent.

A slowdown in the economy is already apparent to Emma Wang, 39, who owns a store selling handbags and suitcases in a shopping mall in Langzhong, a city in Sichuan Province where there are a handful of infections.

When she opened her store two years ago, business was steady and profitable. But more recently, people have started avoiding malls even though the city is not under lockdown. She is considering moving her business online to sell off her inventory.

“In the pandemic, there are no customers,” said Ms. Wang. “It’s difficult to sell even one bag.”

Compounding the problems for the mother of two is that her husband, who works for a food manufacturer whose business also has been disrupted, has not been paid by his employer for a few months.

“We have a mortgage and credit card loans,” she said. “The situation is not improving and it really upsets me.”

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