June 17, 2019

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LETTER: TechNet’s Comments for the U.S. Trade Representative’s Section 301 Investigation of China's Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation

TechNet’s Official Comments for the U.S. Trade Representative’s Section 301 Investigation of China's Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation
Docket No. USTR-2019-0004


Introduction

TechNet welcomes this opportunity to share our industry’s perspective as part of this Section 301 investigation focusing on China’s trade practices.

Our diverse membership includes 82 dynamic American companies ranging from startups to the most iconic companies on the planet and represents over three million employees and countless customers in the fields of information technology, e-commerce, the sharing and gig economies, advanced energy, cybersecurity, venture capital, and finance.

China Must Be Held Accountable For Its Trade Practices

We believe that China must be held accountable for its anti-competitive practices —including intellectual property theft, forced technology transfer, cyberattacks, and cyber espionage.

It is why, early on during the current administration, TechNet was part of an international coalition of business groups pressing the Chinese government about concerns related to its Cybersecurity Law and their failure to comply with World Trade Organization (WTO) commitments. It is also an important reason we have partnered over the past year with the Senate Intelligence Committee, the U.S. intelligence community, and the Trump Administration on efforts to bolster public private collaboration that increases awareness within the U.S. tech sector of the commercial threats companies doing business with China face.

We share the Trump Administration’s goal of securing lasting and enforceable changes from the Chinese government that will protect American innovators and their ideas, allow U.S. companies a chance to compete on a more level playing field, and improve market access.

Tariffs, however, are not the solution.

From the beginning of this administration, we have advocated for policies that unite the U.S. with other like-minded allies and partners facing the same challenges related to China. For example, instead of abandoning the Trans-Pacific Partnership, we should have ratified it in order to boost U.S. economic growth and job creation while also strengthening our ties in the Asia-Pacific region.

TechNet has strongly opposed this policy of sweeping tariffs from the start. Instead of placing tariffs on our allies and trading partners around the world, the U.S.should be working with them to pressure China to change its trade practices. With U.S. leadership, such a coalition would no doubt be robust, focused, and determined in achieving this shared goal. It is still not too late for that.

Tariffs Hurt American Consumers, Workers, Businesses, and Innovation

However, escalating these tariffs through the proposed list four would keep moving us in the wrong direction.

Tariffs are taxes that hurt all Americans — consumers, workers, and businesses of all sizes. They slow the growth of our economy and weaken demand for American products at home and abroad. In fact, one study shows that tariffs will slow U.S. economic output by $322 billion over the next decade.

List Four

Should the administration’s proposed list four move forward, virtually no product involved in U.S.-China commerce will have been left untouched by tariffs. This includes popular consumer technology products and components that Americans use and have come to rely on each day, like connected devices, cameras, TVs and related products, keyboards, video game consoles and accessories, headphones, computers, smartphones, watches, and printers, among many others.

More specifically, imposing proposed tariffs on laptop computers and tablets would have an adverse impact on consumers, small businesses, and schools, due to increased costs and disruptions to U.S. companies’ supply chains. This will provide our foreign competitors with an economic advantage. Additionally, these tariffs would not remedy the problem of intellectual property theft by the Chinese, due to the fact that U.S. companies’ laptop supply chains are currently optimized to protect against IP theft.

In addition, moving ahead with tariffs on ink and toner cartridges would harm U.S. technology leadership and investment while having the unintended consequence of promoting intellectual property theft by making illegitimate and lower quality products more commercially attractive in the short-term. The administration proposed tariffs on these products in its first tranche and was right to remove them. It should do so once again.

The corresponding HTS codes for each of the product categories mentioned in this section can be found in the annex at the end of this document.

Moving ahead on list four will also further limit consumer choices and raise prices on many other non-technology items — such as food, clothing, office supplies, and even contact lenses — that American online marketplace and delivery companies are putting within easier reach for more U.S. consumers to enjoy. TechNet welcomes this opportunity to share our industry’s perspective as part of this Section 301 investigation focusing on China’s trade practices. Our diverse membership includes 82 dynamic American companies ranging from startups to the most iconic companies on the planet and represents over three million employees and countless customers in the fields of information technology, e-commerce, the sharing and gig economies, advanced energy, cybersecurity, venture capital, and finance.

Our message today is two-fold: do not hurt American consumers, workers, and businesses by moving forward with list four. But also, take stock of the negative impact this tariffs policy has had to date and the further economic damage another escalation would inflict.

First Three Waves of Tariffs Have Hurt U.S. Economy In Many Ways

Over the past year, the U.S.-China trade war has led to higher prices for consumers on a wide range of products they have come to rely on, significantly disrupted supply chains and threatened long-term projects such as data centers, and shifted capital away from long-term investments in R&D to help us seize the next wave of innovation.

Hurting American Competitiveness


Selling to more markets and customers abroad drives economic growth and job creation in the U.S. tech sector. In fact, U.S. tech exports supported an estimated 858,000 American jobs in 2017. However, the tariffs increase the costs of making our products — often increasing the price tag. Higher prices makes them more expensive — and harder — to sell abroad.

American companies lead the world in the mobile phone and connected device industries. When companies in this space compete, it drives down prices for U.S. consumers, including lower-income Americans who can increasingly gain access to cutting edge mobile devices. Just as important, these products have become foundational technologies and critical productivity tools for a wide range of traditional industries — agriculture, manufacturing, health care, and other key parts of our economy.

Putting tariffs on U.S. mobile phones and other connected devices gives our competitors in Korea, China, and elsewhere a leg up — raising prices for U.S. devices while making it harder for companies across all sectors of our economy to leverage these innovative technologies.

Competition abroad is fierce, but we know that the U.S. tech sector can compete with anyone on a fair and level playing field. However, fair and level is not what we have when our foreign competitors do not have to deal with these tariffs and can offer customers products similar to ours at lower prices.

Networking products that comprise the modern-day infrastructure connecting us have also been hit hard, including modems; routers; switches; optical and fiberoptic transceivers; network interface cards, adapters, and modules; access points, remote access points, and antennas; and beacons. At a moment when we are engaged in a global 5G race, the tariffs are hitting the networking products that are needed for 5G’s infrastructure.

Hurting Long-Term Data Center Projects and Investments Across the U.S.

Tariffs have also been incredibly disruptive to the construction of data centers, which are some of the most significant infrastructure investments being made by tech companies across the country today. In September 2018, TechNet’s official comments on the list three tariffs highlighted the specific harm caused by tariffs on servers, transmission devices, and other key computing components that make up the digital infrastructure needed to build and operate data centers.

Data centers are the lifeblood of an increasingly data-driven economy and can be found in every state. One study shows that, once operational, the average datacenter generates $32.5 million worth of local economic activity each year. During the construction phase, each data center generates nearly $10 million in revenue for state and local governments, while employing an average of 1,688 workers.

Tariffs on essential data center components, such as servers and transmission devices, threaten to stall this engine of economic growth. They disrupt supply chains, increase costs through de facto taxes, and inject uncertainty into business operations and local economies that host data centers.

Data centers are complicated supply chain projects that rely on the absolute certainty of receiving key components in a timely and cost-effective way. If critical pieces continue to be held up for delivery at a later date with higher, more unpredictable costs, companies would be incentivized to make investments and create jobs in other countries where such needless uncertainty does not exist.

In essence, these tariffs not only hurt the American tech sector the administration is working to protect from China’s unfair trade practices; they hurt many more workers across various sectors whose operations rely on cloud computing and data management tools.

Hurting Small Businesses

Tariffs also have a negative impact on small businesses that use online platforms to sell to customers around the world. Tariffs increase the costs of their inventory, and retaliatory tariffs hurt their ability to sell globally.

Tariffs on these and many other types of products do not just hurt the tech sector. Because these items are essential in our increasingly connected world, these tariffs hurt all sectors and businesses of all sizes.

Hurting Farmers and Other Sectors That Rely on Technology

It is clear that America’s farmers are among the most negatively impacted by the tariff war between the U.S. and China. The Trump Administration should understand that in addition to the crops being targeted, higher tariffs on technology products that America’s farmers increasingly use to manage water, detect diseases, and make better decisions are hurting them as well. This includes robots, sensors, cameras, fuel cells, and specialized batteries, as well as cloud computing and artificial intelligence applications.

In addition to farms, technology products are being put to use each day to enhance communication, efficiency, and productivity — in offices, factories, schools, hospitals, airports, and across all state government entities. Tariffs on these items serve as impediments to purchasing the latest and greatest technologies that enable them to work more efficiently.

Hurting Long-Term Innovation and R&D Investments

One of the most concerning ways the ongoing trade war hurts the American technology industry and our nation’s long-term economic competitiveness is how it impacts private investment in research and development (R&D).

R&D is the lifeblood of innovation.

Some of TechNet’s member companies spend billions of dollars each year in R&D to develop new products and enhance existing ones. Overall, the U.S. is currently the global leader in R&D spending, investing more than $5 in R&D for every $1 spent by Chinese companies — according to a 2018 report from PriceWaterhouseCoopers.

However, these tariffs have caused companies’ operating costs go up which has led to tough decisions about competing priorities. One of the consequences of this sustained trade war is having less money to invest in R&D. The future of U.S. innovation depends in part on ensuring R&D investments continue to grow in developing the next great American ideas and emerging technologies.

When all is said and done, the impact of tariffs on R&D investments may be the most damaging consequence of all. We do not know what kinds of technological breakthroughs we will cede to our international competitors by forfeiting investments in the next wave of innovation — the very innovations we will need to maintain our technological edge over China and other competitors. And by the time we find out, it could be too late for us to catch up. R&D investments not being made today will hurt our economy, our workers, and our global leadership role for years to come.

Conclusion

In conclusion, this prolonged trade war is hurting American consumers, workers, and job creators across all sectors. China must be confronted about its unfair trade practices, but high tariffs on 100 percent of Chinese imports will have a devastating impact on the long-term health of the U.S. economy. Tariffs on other nations will add to the harm.

We hope that President Trump will meet with Chinese leader Xi Jinping at the G-20 Summit later this month and that this face-to-face meeting between the leaders of the world’s two largest economies will lead to real progress.

In the meantime, TechNet, our members, and our partners across the business community will continue urging both the Chinese and U.S. governments to work strenuously to resolve this situation and end the tariffs. We urge the Trump Administration not to escalate this trade war by moving ahead with this fourth wave of tariffs.

Thank you for this opportunity to participate in these proceedings.

ANNEX

Tariff codes of product categories mentioned in comments

Cameras
8525.80.40, HTSUS

Connected Devices
8517.62.00.90, HTSUS

Headphones
8518.30.20, HTSUS

Ink and Toner Cartridges
8443.99.25 and 8443.99.50, HTSUS

Keyboards
8471.60.20, HTSUS

Laptop Computers and Tablets
8471.30.01, HTSUS

TVs and Related Products
8528.69.15, 8528.69.25, 8528.69.35, 8528.69.40, 8528.69.45, 8528.69.50,8528.69.55, 8528.69.60, 8528.69.70, 8528.71.10, 8528.71.20, 8528.71.30,8528.71.40, 8528.71.45, 8528.72.08, 8528.72.16, 8528.72.32, 8528.72.48,8528.72.52, 8528.72.56, 8528.72.62, 8528.72.64, 8528.72.68, 8528.72.72,8528.72.76, 8528.72.80, 8528.72.84, and 8528.72.97, HTSUS

Video Game Consoles and Accessories
9504.50.00, 8526.92.10, and 8543.70.87, HTSUS

Other Automated Data Processing Machines
8471.41.01, 8471.41.0150, and 8471.49.00, HTSUS

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