Monday, May 21, 2018

Fair Trade -The Good War That Wasn’t

In a vocal response to President Trump’s trade diplomacy media outlets have been rife with fears of trade war with China and other global markets. In spite of the doom and gloom forecast by media mavens, the market’s tech sector rallied this morning (May 21, 2018) rising 300 points to put the DOW at 25,000 [1]. The trade war predicted by major media outlets has been put on hold as cooler heads prevail among both Chinese and US negotiators. Agreements have been reached on US agricultural products (and other sectors). President Trump was correct in observing the gross imbalance of trade with China conceding the fault was US based. Prior US administrations have failed to effectively represent US trade interests in the past. The tough Chinese negotiating position was anticipated but was surprisingly tempered when President Trump acknowledged the difficult situation facing Chinese based telecom giant ZTE.  ZTE has been in the news for violating trade sanctions by shipping technology products to Iran and North Korea. The violation of sanctions resulted in a $1.3B fine for ZTE but the alleged theft of US intellectual property was also exacerbated by potential network/back door security concerns. 

In a surprise negotiating position, President Trump conceded that the punitive moves placed an extraordinary financial hardship on ZTE, jeopardized the employment of thousands there and threatened ZTE’s viability as a major player in the Chinese technology landscape. Perhaps the Chinese negotiators recognized President Trump’s position; that threats to large scale employment for either the US or China should be avoided. President Trump and Chinese President Xi Jinping agreed to a change in ZTE management and restored access to critical US components with provisions safeguarding US intellectual property and network security concerns. The ZTE scenario exemplifies the challenges our semiconductor and semi equipment industry will face as Chinese ambitions expand to include a larger scale semiconductor manufacturing economy.

In spite of the constructive overture to ZTE and the Chinese, an unrelenting discussion of President Trump’s trade tactics consumed the weekend.  In a recent discussion on CNBC, many traders expressed their objection to a Trump imposed trade war encompassing a spectrum of consumer and industrial products. Most predicted conflict in the world markets as tariffs are discussed during trade negotiations. I cheered and waved a thumbs up at my TV screen as veteran CNBC commentator Rick Santelli [2] correctly defended President Trump’s position by noting that previous administrations had conceded the trade war years ago and had lost. President Trump is now picking up the pieces, negotiating from the ground up and creating a viable trade platform from which we might establish a fair and equitable balance of international trade.

Comprehensive trade negotiations with China (and the rest of the world) will take time. Preconditioned to operate from an IP Free trade zone (no Intellectual Property protection) without concerns for trade inequities, kleptocrats the world over must accept the new reality of US trade policies. US based corporations and politicians might defer trade discussions as President Trump and his administration do the heavy lifting and negotiate for our economic well being.

In a new world of balanced trade policy US companies should be bolstered by effective new standards protecting intellectual property and best business practices.

Best regards,
Thomas D. Jay

Semiconductor Industry Consultant
Thomas D. Jay YouTube Channel

Thomas D. Jay is a member of the IEEE.

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References and acknowledgements:
Note: This article was updated May 27, 2018 to reflect a recently negotiated agreement on ZTE by President Trump and Chinese President Xi Jinping.

[1] CNBC News

[2] CNBC News Rick Santelli comments (paraphrased)

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Your comments are welcome. I'd like to hear your thoughts and opinions. Many thanks for your readership. - Thomas D. Jay