In the international trade world at least, last week was a bit on the quiet side news-wise as attention was on the impeachment trial and other non-trade issues. I’ve included a few more analytical articles and links in this week’s newsletter, as there were some good analyses on US-China relations and on the use of trade sanctions more generally. We also continue to wait for new Biden Administration appointments below the Cabinet level, with the Commerce Undersecretary for Industry and Security job battles ongoing in the press.
Oh, and Merry Presidents Day to everyone — see you all at the traditional Presidents Day Mattress Sale party.
China Relationship: Deep Dive Into Pressures on Biden Administration to Communicate Its Policies, and First Biden-Xi Telephone Call
For those interested in a deep dive into challenges in the US-China relationship, take a look at this Politico article from early last week. The analytical article reviews the pressures on the Biden Administration to start getting its act together on China, while the Administration resists those pressures in favor of first consulting with allies and trying to inventory all the different things the prior administration had done with respect to China. It has been overtaken by events slightly, in that Biden and Chinese President Xi Jinping have spoken since the article was published, but the overall analysis remains strong.
Politico also published this article on the call itself, on which Biden discussed economic issues, Hong Kong, human rights, and Taiwan. Getting this initial call out of the way is certainly helpful, but the broader administration review of China issues goes on.
I doubt Biden was pumping out some reps while talking to Xi, but this photo from 2015 amuses me so I’m including it here:
It seems to me that the Biden team is taking the right approach, although political patience is not likely to last long once everyone shakes off the impeachment trial and gets back to work. For people who remember the ancient history of the George H.W. Bush Administration, it reminds me a little of the initial review of US-Soviet relations that team undertook while they fought internally as to whether Soviet leader Gorbachev was “for real.” Gorbachev’s frustration with the slow pace of the US review cast a shadow over the early months of that administration.
Trade Sanctions Analyses: Unintended Impacts of Sanctions on Individuals and Pandemic Relief Efforts
There were a couple of articles and news items I saw worth highlighting because they take direct aim at using trade sanctions as an instrument of foreign policy, particularly when they have deep and (at least somewhat) unintended consequences on foreign populations.
Today in the New York Times, a journalism and political science professor published a thoughtful op-ed on how US sanctions are effectively a form of modern siege warfare and “forever war.” Focusing on secondary sanctions, he argues that by threatening third-country companies and individuals if they deal with US-sanctioned countries, the US government effectively harms not only the sanctioned governments but also their populations quite directly. He also ably points out that the effectiveness of US sanctions generally depends on the US idea that it is at the center of the world economy – an idea whose time is ending or has already done so:
But by deluding themselves about the extent of America’s might, [America’s leaders] are depleting it. A key source of America’s power is the dollar, which serves as the reserve currency for much of the globe. It’s because so many foreign banks and businesses conduct their international transactions in dollars that America’s secondary sanctions scare them so much. But the more Washington wields the dollar to bully non-Americans into participating in our sieges, the greater their incentive to find an alternative to the dollar. The search for a substitute is already accelerating. And the fewer dollars non-Americans want, the harder Americans will find it to keep living beyond their means.
With respect to human health issues, sanctions practitioners have known for years that although some medical-related equipment and materials are formally exempt from many US sanctions programs, as a practical matter the difficulty in navigating sanctions restrictions deters companies and especially banks from supporting exempt medical transactions. Some Members of Congress this week sent a letter to President Biden urging him to keep sanctions issues in mind while reviewing efforts to support global efforts related to the pandemic:
Existing protocols and licenses have proved woefully insufficient to meet the enormity of the challenges shared by people around the world in the face of the pandemic. Even when licenses and humanitarian exemptions are available, moreover, there is a persistent problem of overcompliance, particularly from the financial sector. This has led to catastrophic humanitarian consequences in various parts of the world.
Alongside the pandemic-specific requests, the legislators also point out what has become a more frequent recent critique of US reliance on sanctions:
We are also hopeful that this review indicates a willingness on the part of your Administration to consider the humanitarian impacts of sanctions more broadly. Far too often and for far too long, sanctions have been imposed as a knee-jerk reaction without a measured and considered assessment of their impacts. Sanctions are easy to put in place, but notoriously difficult to lift.
Myanmar: New Executive Order and Sanctions
Surprising no one, the Biden Administration issued a new executive order authorizing sanctions on the individuals and entities involved in the recent coup in Myanmar. The US then sanctioned the six current and former military officers who led the coup, four members of the newly-imposed governing council, and three military-related business entities. The Commerce Department also imposed new restrictions on certain exports of controlled items to security-related elements of the Myanmar government
At least for now the sanctions remain targeted on these individuals and entities, and there does not appear to be significant appetite for expanding sanctions on the government or economy more generally. The Administration is also consulting with both Democratic and Republican congressional leaders on these efforts, showing at least some early attempts to turn down the partisan temperature around foreign policy.
The Wall Street Journal has a good article on the overall situation and the challenges foreign countries face in trying to balance not harming the people of Myanmar against not openly or tacitly accepting the results of the coup.
Commerce Department: Still Wondering Who Will Lead BIS
Two weeks ago it was the Financial Times, and last week the Wall Street Journal started participating in the ongoing guessing game as to who will become Undersecretary of Commerce for Industry and Security. Once again Kevin Wolf leads the betting, but the WSJ also highlights the potential candidacy of James Mulvenon, a China analyst at a defense contractor. Mulvenon apparently has a reputation of being quite hawkish on China, although as I mentioned in last week’s newsletter I think Wolf is also on the hawkish or at least China-skeptical side of the spectrum.
The Journal reports that the appointment will get a higher level of attention than is typical for this job, with National Security Adviser Jake Sullivan weighing in on candidates. It will likely be a while before anyone is named, however, because Secretary-designate Gina Raimondo herself still hasn’t been confirmed. My money remains on Wolf as superbly qualified, close to the Biden team, and ready to implement effectively whatever policy comes from the White House, rather than try to direct one himself from the Commerce post.
China Sanctions: Tik Tok Sale to Oracle on Hold Pending Biden Review of China Relationship
Early last week the Wall Street Journal reported that the Oracle/Tik Tok sale is on hold for now based on the apparent Biden Administration interest in pulling back on the restrictions the prior administration imposed on the Chinese video sharing app. Just this morning the Chinese press reported that the entire deal is off, although US news sources don’t appear to have confirmed this yet.
At any rate, the Administration has already told a federal court that it wants to rethink its appeal of a district court’s injunction against the underlying executive order; Tik Tok challenged the order as, among other things, arbitrary and capricious and an overextension of presidential power. The court was inclined to agree, and the Administration is in my view wisely backing off rather than get a potential appellate court ruling curbing presidential authority generally under the International Economic Emergency Powers Act, which underpins basically every US sanctions program.
For legally-minded readers, two DC trade lawyers published a brief review of the IEEPA-related issues around the Tik Tok litigation and their relationship to the “IEEPA-free zone” that has always existed around informational materials. One wouldn’t have thought that crazy Tik Tok videos were going to raise fundamental First Amendment issues, but that’s sanctions law for you.
Reminder/Disclaimer: This newsletter is not intended as and should not be considered legal advice. It may also be considered attorney advertising in certain jurisdictions.
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