Trump softens trade stance toward China and raises optimism

WASHINGTON » President Donald Trump de-escalated a confrontation with China on Wednesday, dropping plans to impose strict limits on Chinese investment in U.S. technology companies and instead urging Congress to strengthen existing laws that apply to all foreign countries.

The administration’s more conciliatory stance raised at least the possibility that the two sides could work toward a negotiated end to the punishing tariffs they’re set to impose on each other’s goods beginning July 6. And it fueled a temporary rally in financial markets, which had been reeling on fears of an escalating trade war.

Stocks sank late in the day, though, after Larry Kudlow, Trump’s top economic adviser, said on Fox Business Network’s “Varney & Co.” that the administration’s policy shift should not necessarily be seen as a softening in its stance toward China.

It was unclear whether the policy shift would lead to a truce between the world’s two biggest economies, which have been edging toward a high-risk confrontation, or whether any formal negotiations might soon begin. But Kudlow told reporters that the two sides are “in communication.” And analysts said they took heart that the administration had offered some semblance of an olive branch to Beijing.

“It seems like this move is being undertaken with the goal of coming to a resolution ultimately on the trade policy issues the U.S. has with China,” said Stephen Ezell, who manages global innovation policy at the Information Technology and Innovation Foundation think tank.

Last month, the White House said that by the end of this week, it would announce tight new curbs on Chinese investment. The idea was to prevent stateowned or politically connected Chinese companies from buying advanced U.S. technology. Beijing is seeking such technology as part of its “Made in China 2015” initiative, a roadmap to its goal of becoming a global tech leader.

But on Wednesday, the Trump administration announced a less-draconian approach: It would work with Congress to strengthen reviews of foreign investment under the existing Committee on Foreign Investment in the United States, or CFIUS, led by Treasury Secretary Steven Mnuchin. CFIUS applies to all countries — not just China — and its reviews are conducted on a case-by-case basis.

“It makes eminent good sense,” said Christopher Brewster, a senior member of the CFIUS practice at the law firm Stroock & Stroock & Lavan.

“Defining technology that is ‘off limits’ is an exceedingly difficult task,” Brewster said. “For this reason, broad-scale investment restrictions are a clumsy tool that inherently run the risk of being over-inclusive or under-inclusive. Using the CFIUS process is a more nuanced approach.”

The House has approved a bill to strengthen the CFIUS law, and the bill will likely be considered by a House-Senate conference committee for a Senateapproved defense measure.