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"China’s economic aggression now threatens not only the U.S. economy but also the global economy as a whole."









IT'S INVESTMENT RESTRICTIONS WEEK: The first round of tariffs on billions of dollars' worth of Chinese technology and other goods might not even be in place yet, but it's already time for round two: investment restrictions and export controls. The Treasury Department is expected by the end of the week to roll out its plans, which are aimed at protecting U.S. dominance in industries such as robotics and information technology where China, through its "Made in China 2025" initiative, is trying to become the global leader.
It's unclear what exactly the final proposals might look like, but Trump appears to have sided with more aggressive actions advocated by U.S. Trade Representative Robert Lighthizer and White House trade adviser Peter Navarro, over a more conservative approach favored by Treasury Secretary Steven Mnuchin, private sector sources familiar with internal discussions told POLITICO's Doug Palmer and Adam Behsudi.
The administration is already getting pushback from bureaucrats who think it would be a misuse of the export control system, and from businesses that fear the approach will further disadvantage U.S. firms trying to enter the Chinese market.
Lighthizer and Navarro essentially want to create two different U.S. investment regimes — one for China, and one for everyone else, private sector sources said. But opponents of that method worry it will only push Beijing to rely even more on "indigenous innovation" policies that favor domestic technologies and put foreign firms at a disadvantage in the Chinese market. Read the full rundown from Doug and Adam here. [POLITICO's Morning Trade, June 25, 2018]


BRACE YOURSELF: CAR TARIFFS ARE (PROBABLY) COMING: Trump took a step toward erasing any doubts about the administration's possible tariffs on foreign imports of cars and car parts on Friday morning, tweeting that the U.S. will be placing a 20 percent duty on cars coming into the country from Europe if the bloc doesn't change what Trump sees as protectionist policies.
"Build them here!" he wrote on Twitter. Trump offered Europeans some semblance of a way out, saying that the duties would be imposed "if these Tariffs and Barriers are not soon broken down and removed." But he offered few specifics, and his post was enough to elicit opposition from industry groups that have been searching for ways to change the president's mind on car tariffs.
"While we understand that the Administration is working to achieve a level playing field, tariffs are not the right approach," the Auto Alliance said in a statement. "Tariffs raise vehicle prices for our customers, limit consumer choice and invite retaliatory action by our trading partners. Automakers support reducing trade barriers across the board and achieving fairness through facilitating rather than inhibiting trade."
The national security element: Beyond stoking concerns that duties are on their way, the tweet also undermines the premise that the administration is looking to impose penalties on cars and car parts for national security reasons.
The Commerce Department, at Trump's direction, is examining whether an influx of auto imports from abroad is weakening domestic supply and thereby threatening U.S. national security. If Commerce Secretary Wilbur Ross determines that imports are indeed a threat — which was the conclusion he came to when he investigated steel and aluminum imports — that would be the justification by which penalties could be imposed under what's known as Section 232 of the Trade Expansion Act of 1962. The tariffs would also likely be imposed on a global basis, unless Trump offered exemptions to particular countries like he did for the steel and aluminum duties.

But the Friday tweet undercuts that justification by characterizing the auto tariffs, if they are ultimately imposed, as a response to Europe's own barriers [POLITICO's Morning Trade, June 25, 2018]



JUDICIAL MATTERS      





TRY, TRY AGAIN: A group out to repeal several tax increases in Oklahoma is regrouping after losing a court battle over its petition to put the question to voters. Revenue from the higher taxes on cigarettes, energy production and fuel is earmarked for teacher pay increases. But Ronda Vuillemont-Smith, co-founder of Oklahoma Taxpayers Unite, said that doesn't require a tax hike. "We have a $1.3 billion surplus we could use," she said, according to Tulsa's KTUL-TV. "Let's look at the constitution, let's look at the way we budget, let's look at the way they spend the money." The state Supreme Court ruled last week that the petition's wording was misleading, but the group can file another one next month. [POLITICO's Morning Tax, June 25, 2018]


FOSSIL FUEL SUIT DISMISSED: U.S. District Judge William Alsup granted a motion to dismiss a lawsuit Monday brought by the cities of San Francisco and Oakland against five major oil companies. The lawsuit alleged the five companies — BP, Royal Dutch Shell, Exxon Mobil, ConocoPhillips and Chevron — should pay for the anticipated harm from climate change and eventual sea level rise, but Alsup granted a motion to dismiss the case, concluding that "although the scope of plaintiffs' claims is determined by federal law, there are sound reasons why regulation of the worldwide problem of global warming should be determined by our political branches, not by our judiciary." NAM President and CEO Jay Timmons applauded the decision in a statement, noting that "other municipalities around the country who have filed similar lawsuits should take note as those complaints are likely to end the same way." Read the decision. [POLITICO's Morning Energy, June 26, 2018]




• Advent International received Brazilian antitrust approval for its $4.5 billion purchase of an 80% stake in Walmart’s Brazil operations. http://axios.link/fsot [Axios Pro Rata, June 25, 2018]
• KKR is in exclusive talks to buy Open Office, an Australian provider of management and compliance SaaS solutions, per The Australian. www.openoffice.com.au [Axios Pro Rata, June 25, 2018]
• Ooh!Media (ASX: OML) is buying fellow Australian outdoor advertising company Adshel for A$424 million. http://axios.link/sIbQ [Axios Pro Rata, June 25, 2018]

• DCS Global, a Dallas-based provider of revenue cycle management software, raised an undisclosed amount of growth equity funding from Tritium Partners. www.dcsglobal.com [Axios Pro Rata, June 25, 2018]



ENERGY






NATURAL GAS COALITION LAUNCHES: A new coalition to promote the natural gas industry launched today. The members of the so-called Global Natural Gas Coalition include the Interstate Natural Gas Association of America; American Petroleum Institute; the American Gas Association; the U.S. Chamber of Commerce, Global Energy Institute; the American Chemistry Council; the National Association of Manufacturers; and the Laborers' International Union of North America. In an interview with PI, Don Santa , chief executive of INGAA, said the coalition's main objective is to be "a unified voice in term of the benefits of natural gas" both domestically and internationally. Today's launch coincides with the World Gas Conference this week. [POLITICO Influence, June 25, 2018]



PETER NAVARRO


Peter Navarro's secret past... as a globalist 

I've got a quiz for you: Who wrote these passages?
  • "The clear danger of this trend [protectionism] is an all-out global trade war; for when one country excludes others from its markets, the other countries inevitably retaliate with their own trade barriers. And as history has painfully taught, once protectionist wars begin, the likely result is a deadly and well-nigh unstoppable downward spiral by the entire world economy."
  • "On the benefit side, protectionism within certain basic industries like autos, steel, and electronics helps to create and sustain an industrial base that, in times of war or national peril, can be shifted to defense purposes. However, this national security argument — and the existence of any benefits resulting from protecting these industries — can be legitimately called into question for several reasons."
If you answered with any of the following "globalists" — (a). Gary Cohn, (b). Larry Summers, (c). George W. Bush, or (d). Paul Ryan — you'd be wrong.
The correct answer is (e.) Peter Navarro. Yes, that Peter Navarro. The Peter Navarro who has become the Trump administration's hardest-line protectionist and proponent of massive tariffs against the rest of the world — using the very national security justification he undercuts above.
The reason you've never read about this globalist, free-trader version of Peter Navarro, is because the book these quotes come from is long out of print. We got a tip about Navarro's 1984 book, "The Policy Game," and Axios' Erica Pandey found a copy of it in the George Washington University library.
  • Pandey says it was a weird experience reading the book because the arguments Navarro lays out are the very arguments his opponents — Steven Mnuchin, Gary Cohn, Rob Porter and Larry Kudlow among them — have been using in sometimes heated internal arguments against him.
Before we published this story, Pandey shared these passages with Navarro and asked him why he changed his views so radically, given the underlying economics have not changed since he, as a 35 year-old, wrote the book.
The bottom line: The rise of China — and the country's extraordinary trade abuses — and the implementation of NAFTA profoundly changed Navarro's views, he says.
  • "It borders on the comical that Axios would spend so much time on a book written 34 years ago and completely ignore the insights of my later works like the 2006 Coming China Wars, the 2011 Death By China, and the 2015 Crouching Tiger," Navarro said.
  • "Together, these books explain at length why the globalist Ricardian free trade model is broken and urgently needs fixing in the name of both the economic and national security of the United States."
Navarro gave us a much lengthier explanation of his evolution. There's no room for it in this newsletter item, but I wanted to give it the space it deserves. So here's Navarro in his own words, explaining how he transformed from an unapologetic globalist into a hardcore economic nationalist.
Go deeper with Pandey's report on what Navarro used to believe. [Axios Sneak Peek, June 24, 2018]

NAVARRO KEEPS UP TOUGH TALK ON CHINA: White House trade adviser Peter Navarro kept to his usual tough line on China, suggesting that any effort by Beijing to address its industrial policies will fall short. His speech came after Trump decided this week to back off plans to hit Beijing with new, country-specific investment restrictions.
Navarro made the rare public appearance at a Washington think tank Thursday to present his recent report outlining China's policies of "economic aggression." The presentation largely revolved around a chart showing more than 50 Chinese policies and practices the administration says are aimed at protecting its own industries, securing natural resources and forcefully acquiring technologies and intellectual property from the U.S. and other countries.

"If you're in a negotiation and you take 25 of these off the table in a successful negotiation, you still have 25 left," Navarro said in closing his presentation at the right-leaning Hudson Institute. Read the story here. [POLITICO's Morning Trade, June 29, 2018]



SCOTT PRUITT






 "New Emails Suggest Scott Pruitt Discussed Hiring a Friend of Lobbyist Landlord": "Pruitt, the head of the [EPA], discussed hiring a friend of a lobbyist family that owned a condominium he was renting for $50 a night, newly released emails suggest. The files also show communications involving the lobbyist's client interests that have not previously been disclosed, suggesting a closer relationship between the lobbyist, J. Steven Hart, and the agency than previously known. ...
"The potential hiring of Mr. Hart's family friend was discussed in emails between Mr. Pruitt's chief of staff, Ryan Jackson, and Mr. Hart, who was chairman of the Washington lobbying firm Williams & Jensen and whose wife, Vicki Hart, rented the condo to Mr. Pruitt. Other subjects discussed during and after Mr. Pruitt rented Ms. Hart's condo included refrigerant chemicals, which was raised on behalf of Coca-Cola, and the Paris Agreement — the global climate pact to address climate change — discussed on behalf of the global bank HSBC.
"The emails also show that Mr. Hart suggested other potential hires to the E.P.A., including one person who he emphasized was a Republican and an African-American, on behalf of an executive of the philanthropic arm of the pork giant Smithfield Foods." https://nyti.ms/2MkRUOY
-- "Pruitt faces another probe for employee retaliation allegations," by Emily Holden: "The U.S. Office of Special Counsel is reviewing claims that [EPA] Administrator Scott Pruitt retaliated against a handful of employees who pushed back against his spending and management, according to three people familiar with the process. At least six current and former agency officials were reportedly fired or reassigned to new jobs, allegedly for questioning Pruitt's need for a 24-hour security protection — which has now cost at least $4.6 million — as well as his other spending and practices." https://politi.co/2K9C5Oo [POLITICO Playbook, June 25, 2018]
PRUITT FILES -- "The E.P.A.'s Ethics Officer Once Defended Pruitt. Then He Urged Investigations," by NYT's Eric Lipton: "The chief ethics officer of the [EPA] — the official whose main job is to help agency staffers obey government ethics laws — has been working behind the scenes to push for a series of independent investigations into possible improprieties by Scott Pruitt, the agency's administrator, a letter sent this week says.
"The letter is the first public acknowledgment that Kevin S. Minoli, who has frequently defended Mr. Pruitt's actions since he took over the agency in February 2017, is now openly questioning whether Mr. Pruitt violated federal ethics rules.

"The investigations recommended by Mr. Minoli include an examination of how Mr. Pruitt rented a $50-a-night condominium on Capitol Hill last year while he was being lobbied by J. Steven Hart, the spouse of the condo's owner, according to a federal official with firsthand knowledge of the inquiries, who asked not to be named since the details of the investigation are intended to remain confidential." [POLITICO Playbook, July 1, 2018]




FROM THE PORCH







WHITE HOUSE      










  • Trump pulled the US out of the United Nations Human Rights Council. Nikki Haley made the announcement on June 19, effective immediately. This is yet another example of Trump abandoning global engagement, eroding international institutions, and isolating the United States. It’s clear that he is not interested in protecting human rights, either at home or abroad. [Indivisible, June 23, 2018]






How cyber's forward defense could backfire
In recent months, the Pentagon has begun taking a more aggressive posture in its approach to cyber conflicts, seeking to slow attacks by taking the fight to enemy networks. But experts worry that approach could escalate cyber conflicts in ways the U.S. may not be prepared to absorb.
How we got here: Cyber Command, the Department of Defense's unified command for cyberwarfare, was conceived under President George W. Bush. It has been elevated in the chain of command under President Trump, who gave it increased autonomy as part of a Defense-wide effort to give the military more agility.
Why it matters: Under the new approach, there is "a very real danger of escalation," said Lisa Monaco, a former assistant to the president for homeland security and counterterrorism, via email.
  • Monaco notes that there are no international standards for what types of cyber actions constitute warfare , but other countries will tend to see what the U.S. does as acceptable.
  • There is no way to insure that another country will interpret actions the U.S. takes on its network as defensive.
The topic of the newly unleashed Cyber Command re-emerged Monday in a book excerpt in the New York Times by its cybersecurity reporter David Sanger.
What we're missing: "This is far from a cure-all to our cyber problems," said Michael Morell, former deputy director of the CIA. He sees two big hang-ups:
  • First, hackers often route attacks through other people's servers, meaning disabling an attack from Russia might mean damaging a server in England — an act of war against England, not Russia.
  • "Second, using our capabilities to attack the attackers is often not that effective because of the ease with which adversaries can move from one server to another," said Morell.
The best defense is a good defense: The best deterrent to a cyberattack, said Peter Singer, strategist at the New America Foundation, is "demonstrating that attacks won't work" — which can be as simple as hardening systems.

  • "If you believe that [offensive] kind of activity is necessary, then you must increase your defenses as well because other countries and groups will start carrying out these actions against the U.S.," said Michael Daniel, former President Obama's cybersecurity coordinator.
  • The White House has, in recent months, eliminated the cybersecurity coordinator position, which may limit the effectiveness of federal agencies' efforts to protect the nation from attacks.



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