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Letter to Charles E. Schumer

January 17, 2017

The Honorable Charles E. Schumer
United States Senator for New York
322 Hart Senate Office Building
Washington, D.C.  20510

Dear Chuck:

It has been some time since we last talked, but I thought it might be useful to write to you directly about an important matter.

The U.S. Congress will soon consider legislation to levy a substantial tariff on goods for export to the U.S. by U.S. companies.  Apparently, it will also consider changes in the U.S. tax code to encourage foreign disinvestment of U.S. companies by denying companies a tax deduction for expenses incurred outside the U.S. and exempting from taxation revenues derived from exports from the United States!  Since most U.S. companies have direct investments in China as joint ventures with Chinese companies, it can be expected that such actions would very adversely affect both U.S. companies and their Chinese partners.  China, therefore, can be expected to respond.  While there has been much talk about a “trade war,” it might be useful to set out specifically what is likely to be China’s opening salvo in their “negotiations” with the U.S. – particularly since little attention has been paid to China’s probable response.  For starters, here goes:

• No goods or products from U.S. companies shall be sold in China unless the facility making such product is located in China.
• There shall not be levied any taxes for 10 years on U.S. companies employing more than 100 persons in China.
• The contracts for China’s multi-trillion dollar infrastructure program for schools, highways, railroads, ports, dams, power stations, will only be available for bidding by companies domiciled in countries which do not restrict the free flow of goods and services from China.
• China will invest its reserves in Euro-dollars, yen and other currencies, rather than U.S. dollars.
• China will seek majority equity investments in U.S. companies at favorable prices for stockholders, for the purpose of moving plant and facilities to locations in China.
• China will enter into bilateral and multi-lateral agreements with countries throughout the world that agree to open and free trade without tariffs, for the purpose of facilitating China’s export and import potential.
• China will provide human, financial and material support to Iran to facilitate its nuclear development program. 
• China will provide material support to facilitate the stability and growth of North Korea.

That’s for starters. 

Gene Rotberg
Former Vice President and Treasurer, The World Bank
(202) 944-3810
www.generotberg.com

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