Washington Weekly: US-China Trade

U.S. Office of Public Policy, 20 Sept 2019

This Week:

The House passed a continuing resolution extending current levels of government spending to November 21. The Senate confirmed several Trump administration nominees.

Next Week:

The House will consider a marijuana banking bill and election security legislation. The Senate may consider the continuing resolution passed by the House this week.

Financial Services Issues

Marijuana Banking Movement.

With many states having legalized marijuana in some form, there is growing bipartisan interest in Congress in helping marijuana businesses access banking services, something they have had trouble doing because of conflicts between federal and state laws. The House Financial Services Committee in March passed a bill (called the SAFE Banking Act) that would provide a safe harbor to banks and other financial institutions to serve covered businesses. The House intends to take up the bill next week under an expedited procedure that would require it to meet a two-thirds threshold (rather than a simple majority). To help it get over this threshold, the bill's supporters have added provisions designed to bring Republican support, including one that would seek to ensure that the government doesn't encourage banks to shun business with gun manufacturers or other politically-disfavored industries. The purpose of this procedural maneuver is to avoid votes on hot-button amendments from members that would like to go further on this issue by legalizing marijuana on a federal level and by implementing broader criminal justice reforms. In the Senate, the Banking Committee held a hearing on the marijuana banking issue in July and Chairman Mike Crapo (R-ID) recently signaled his intent to have a vote on the SAFE Banking Act or some similar bill later this year. While this is an important breakthrough, efforts to advance this banking fix in the Senate could be complicated by continued attempts by some Democrats to add on broader social justice measures.

Other Issues in Play

US-China Trade.

There is growing support among White House officials for a limited agreement with China that would temporarily halt some of the tariff increases as a means of providing breathing room for broader negotiations over unresolved issues. However, it is important to note that this is not yet an official position, since it hasn't yet received the blessing of President Trump. Under an agreement, the US likely would suspend tariff increases that have not yet gone into effect, although those already in place likely would remain. In return, China might acquiesce to new purchases of US agricultural products and export restrictions on fentanyl. The agreement would be cheered by markets and US exporters who have lost market share in China. It also would provide both countries with some short-term relief from the adverse economic effects of the trade conflict. However, it is unclear whether the US and China would then remain committed to continuing to negotiate a more comprehensive deal focused on more difficult structural issues. The possibility that an interim agreement may reduce the chances of a more comprehensive deal will weigh on President Trump as he determines his next move.

US and Hong Kong.

A growing bipartisan coalition of lawmakers plans to advance legislation soon in both the House and Senate to potentially deny Hong Kong its special trade and investment status with the US. Under current law, the US treats China and Hong Kong as separate entities on a wide range of trade, investment and customs issues due to the latter's autonomy and open economy. The new legislation would make an annual certification by the State Department of Hong Kong's continued autonomy a condition of providing favorable trade status. President Trump already has the authority to revoke this status without congressional approval but he hasn't yet shown any desire to do so. The momentum for the legislation is primarily due to the lack of a supportive US response to the Hong Kong protesters to date. President Trump will oppose this legislation since he believes it will reduce his flexibility in trying to negotiate a broader trade agreement with China. He has not substantively commented on the protests, now in their 15th week, because he doesn't want to offend Chinese leaders while in the middle of the trade negotiations. The situation in Hong Kong seems to evolve every day, and the progress of this legislation will depend in large part on the changing situation on the ground in Hong Kong. While President Trump likely would veto the legislation if it did pass, the measure would still have some symbolic importance in showing US support for the Hong Kong protest movement.

Arbitration Battle.

After just passing the House Judiciary Committee on a largely party-line vote last week, the House quickly took up and passed, again on a largely party-line vote, a bill that would ban mandatory arbitration of employment, consumer, antitrust or civil rights disputes. The legislation, called the Forced Arbitration Injustice Repeal (FAIR) Act, would make it easier for class action lawsuits to proceed. Critics argue that the bill ultimately would harm consumers by effectively removing arbitration as an efficient and cost-effective means of resolving disputes. Mandatory arbitration has long been a contentious issue. In 2017, a Republican-controlled Congress passed legislation overturning a rule by the Consumer Financial Protection Bureau that would have banned mandatory arbitration clauses in a range of consumer financial products. While there was bipartisan interest in exploring potential improvements to the arbitration system at a Senate Judiciary Committee in April, the blanket ban proposed in the FAIR Act won't gain any traction in a Republican-controlled Senate. 

Financial Transaction Tax.

Many Democrats seeking the presidential nomination are touting a variety of tax proposals, including one that would target Wall Street and investors. The proposed Financial Transaction Tax (FTT) would impose a levy on trades of stocks, bonds and other financial instruments. These proposals are not new ideas and have received scorn and praise from different groups over the years. A Georgetown University finance professor noted this week that the FTT, which has been proposed by Senator Bernie Sanders (I-VT), would reduce the retirement savings of a typical investor by 8.5%. We will all hear more about this and related proposals that will affect investors as the presidential election evolves, but it's important to note that no proposal like this will move forward in Congress this or next year. Even in the event of a Democrat winning the presidential race next year, passage of such a measure would be very difficult. 

Tech on the Hot Seat.

A glaring spotlight remains on technology companies in Washington. Concern over the business practices and various indiscretions of the largest tech companies has been both unanimous and bipartisan in Congress and the Trump administration. This week, it was the turn of the House Judiciary Committee to request documents from Amazon, Apple, Google and Facebook in an effort to uncover "whether tech companies have unfairly stifled competition." Other committees also have ongoing probes. All of this scrutiny has put the big tech companies on the defensive in Washington. Yet, we don't expect Congress to advance any specific legislation to meaningfully curtail the business practices of these companies. Congress will continue to hold hearings to educate lawmakers and the general public, but there is not yet sufficient consensus (and at times even understanding) to develop clear solutions on such complicated issues as data privacy and protection. While Congress will occasionally highlight the shortcomings of the tech industry, most of the meaningful action against the sector will come from the regulators (in particular, the Federal Trade Commission, the Department of Justice and the states) and their ongoing investigations.

Robocalls.

While bipartisanship is not the norm on most issues in Congress, one issue that has received support from lawmakers of both parties is how to deal with unwanted robocalls. The volume of robocalls in the US is at an all-time high with Americans receiving over 4 billion robocalls per month. It is estimated that over half of the calls Americans received this year are fraudulent, with phone scams costing Americans $10.5 billion in 2018. Both the House and Senate have passed legislation aimed at eliminating most robocalls, and a final compromise is now being worked out. A final bill will likely require the Federal Communications Commission (FCC) to fine violators up to $10,000 for intentional robocalls and promote call authentication and blocking. Separately, the FCC and the states have been implementing their own initiatives to stop excessive robocalls. Relief should be on the way soon for those who are deluged with unwanted robocalls.

The Final Word

Congressional Retirements.

Earlier this week, Congressman Paul Cook (R-CA) became the 27th member of Congress to announce he is not seeking re-election, an unusually high number of declared retirements this early in the current political cycle. Ten of these House members announced their intention not to seek re-election over the past six weeks, a period in which the House has mostly been in recess. The timing is not a coincidence since the time back in the district allows members a chance to reflect on their futures in Washington and to talk to their families. This year, 21 of the 27 retirements are from Republicans, although most of these districts are strongly Republican and likely will not flip to Democratic control. A majority of the House retirements on the Republican side are members who have never served in the minority before this cycle, and it is safe to say they are not enjoying it. We expect House retirements to continue at a higher than normal rate, especially if many Republicans do not believe they will win the House back as the election approaches.