Protests in Hong Kong could cut off an escape route U.S. importers have been using to avoid the Section 301 tariffs on Chinese goods, blogged trade consultant David Trumbull Wednesday. The 1992 Hong Kong Policy Act “gives Congress and the President, or the President alone by Executive Order, the power to suspend U.S. recognition of the separate Hong Kong Customs Territory if the U.S. determines that Mainland China has suppressed Hong Kong's autonomy,” Trumbull said. “The current tension in Hong Kong, with protesters saying that China is attempting to do just that[,] could trigger President Trump to invoke the Hong Kong Policy Act and subject goods of Hong Kong origin to the Section 301 tariffs,” he said. “Companies relocating production from Mainland China to Hong Kong to avoid the Section 301 tariffs on China are getting the jitters” over concerns the U.S. could use the law to end Hong Kong’s status as a separate customs territory from China, he said.

A “pessimistic outlook” on the world economy from the U.S.-China trade war led to a 3.5 percent production drop in global worldwide smartphone assembly shipments in June, reported IDC Wednesday. More of the same is forecast for July and August: IDC expects smartphone original device manufacturer and electronics manufacturing services' assembly volume to shrink due to Samsung and Huawei lowering regional market targets, high inventory and the U.S.-China trade war, said analyst Sean Kao. Overall in Q2, worldwide smartphone assembly shipment volume grew 12 percent year on year to 332.6 million due largely to lower inventories in Q1 and increased competition, IDC said. Assembly shipment volume from Chinese smartphone ODMs and EMSes rose to 51.3 percent in Q2 from 40.7 percent in Q1, said Kao.

Regardless of who wins the 2020 presidential election, tech companies likely will have to change their supply chains and reverse the international approach to research and development, said Derek Scissors, an American Enterprise Institute China scholar. Apparel and other low-value goods manufacturers were already moving to cheaper countries in Asia, but consumer technology firms were happy in China before the trade war began, said Scissors in an interview. "You could easily get a Democratic administration that wants to get tech out of China." Joe "Biden's people say they want that," Scissors said. He said the next Democratic administration won't use broad-based tariffs, as President Donald Trump has. Scissors said the U.S. dominates in advanced microchip design, and policymakers should intervene to stop industrial espionage in that field. But he said for chipmakers, restrictions on cooperating with Chinese researchers also will likely mean fewer sales in China. "If you say to Intel: you cannot do any research and development with China, the Chinese are going to find Intel a lot less interesting." Scissors said if decoupling happens, which he hopes will, the most advanced chips would likely be assembled in Japan, South Korea, Taiwan and maybe the Philippines. "The thing about China -- it's the end of a supply chain with tons of inputs where you make hundreds of billions of low-end consumer electronics every year," he said. "There's no other country that can replace that." Scissors said that scale might be found in Indonesia, Mexico, Vietnam or perhaps India.

A Chinese Foreign Affairs Ministry spokesperson denied knowledge for a second straight day of China's top trade negotiators phoning their U.S. counterparts over the weekend urging the resumption of talks toward a comprehensive trade deal, as President Donald Trump claimed they had on the sidelines of the G7 summit (see 1908250001). “I'm not aware of the two phone calls over the weekend that the U.S. side talked about,” said the spokesperson Tuesday. “The two sides have held 12 rounds of high-level consultations and the two teams have remained in contact,” he said. “Regrettably, however, the U.S. recently decided to add new tariffs on Chinese goods as a measure to impose maximum pressure, which is not constructive at all as it serves no one's interests.” China hopes the U.S. “will remain calm, return to reason, and immediately stop its wrong approach.” The spokesperson declined to answer a reporter's question about when the next round of negotiations will take place. The Office of the U.S. Trade Representative didn’t comment.

The Office of the U.S. Trade Representative will publish official notification in Friday's Federal Register that the List 4 tariffs will increase to 15 percent from 10 percent when they take effect Sunday and again Dec. 15, said a prepublication notice Tuesday. President Donald Trump ordered the increase last week after China announced retaliatory tariffs on $75 billion in U.S. goods (see 1908230006). "China’s most recent response of announcing a new tariff increase on U.S. goods has shown that the current action being taken is no longer appropriate," said the notice of the former 10 percent List 4 rate. USTR had said it also will launch a new "notice and comment period" to raise the previous three rounds of tariffs to 30 percent from 25 percent, but that action wasn't covered in Tuesday's prepublication notice.

President Emmanuel Macron said that the U.S. and France agreed to work together to reach an agreement in 2020 on modernizing the international tax rules. Macron told reporters Monday his nation's 3 percent digital services tax isn't designed to punish large companies. Rather, he said, "it's to fix the problem. And there are also plenty of French companies that will be touched." The U.S. is treating the tax as thinly disguised protectionism, and has opened an investigation (see 1908190043). Macron said that the French tax will be in place until an international pact. He said that if collections under the tax are higher than are eventually agreed to, the excess will be refunded. Senate Finance Committee ranking member Ron Wyden, D-Ore., in a statement said the "Trump administration should reject any deal that allows France and other countries to move ahead with discriminatory taxes on U.S. technology companies, in exchange for vague promises." President Donald Trump, also at the G-7 conference, didn't provide more specifics, and the French Embassy in Washington had no further comment.

Customs and Border Protection should provide more information through its automated commercial environment (ACE) system to importers about detention and seizures involving intellectual property rights, said the Commercial Customs Operations Advisory Committee IP Rights Working Group in draft recommendations released before COAC’s Wednesday meeting. The agency should improve intelligence sharing with industry on violations. The working group suggested CBP improve its e-recordation system to help keep track of trademarks and copyrights. Meanwhile, the next test of blockchain technology involving IPR is "anticipated to occur September," followed by an assessment, CBP said in an issue paper on emerging technologies.

It’s “undeniable” that “uncertainty” in China has increased as the U.S.-China trade war “escalated,” said Photronics CEO Peter Kirlin on a fiscal Q3 call Tuesday. Demand for the photo masks that Photronics supplies to the display industry is “design-driven” and “not necessarily” tied to unit sales of displays, he said. But “uncertainty can cause some customers to become more cautious and slow the rate of new product releases, thus impacting our business,” he said. China is 53 percent of Photronics flat-panel display revenue, he said. Kirlin thinks the trade war's “long-term” impact will be “a significant positive for our business,” because it significantly raises the opportunities of Chinese customers “to fully localize their supply chain,” he said. The short-term impact will be negative, but it’s “hard to really gauge in the next few months what the real impact looks like, because it’s a dynamic situation,” he said. Kirlin spent the first two weeks of August visiting customers in China, he said. Two or three months ago, the trade war “really wasn’t present in the active dialogue,” he said. “Now it’s on the tip of almost every customer’s tongue.” The threat of the 10 percent List 4 Section 301 tariffs, which President Donald Trump announced Aug. 1 on Twitter (see 1908010059), “was hanging out there regarding the largest export market,” the CEO said of Chinese customers selling goods to U.S. importers. “Who knows what tomorrow’s Twitter feed will bring?” Tariffs take effect Sept. 1 on finished TVs from China, but duties on smartphones, laptops, tablets and other consumer tech goods were deferred to Dec. 15 (see 1908130028).

Misinformation abounded in a Section 301 tariffs “update” the Sports & Fitness Industry Association sent to its membership Wednesday. List 3 tariffs “currently at 10% on $200 billion in imports,” wrongly said one bullet point. “President has threatened to raise them to 25%.” President Donald Trump did hike List 3 to 25 percent May 10 when his administration accused China of reneging on previous commitments in the trade talks (see 1905060015). Another errant bullet point said the new 10 percent List 4A tariffs taking effect Sept. 1 (see 1908130028) “will be applied to any product not entered for U.S. consumption by midnight August 30, 2019.” The actual deadline is midnight Aug. 31. We brought the errors to the attention of SFIA, where a spokesperson emailed Wednesday that “all is corrected now.”

Economic cooperation between China and the U.S. is “win-win in nature,” said a Chinese Foreign Affairs Ministry spokesperson Wednesday. “Our interests have become deeply intertwined.” He was responding to President Donald Trump's lengthy remarks Tuesday at the White House accusing China of “ripping this country off for 25 years.” American companies do $700 billion in annual sales and make $50 billion in annual profits in China, said the spokesperson. “If one party has been ripping off the other, it would not have been possible to have the highly complementary, deeply integrated and mutually beneficial relationship that we have today.” China and the U.S. “stand to gain from cooperation and lose from confrontation,” he said.