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FedEx, embroiled in U.S.-China trade war, sues Trump administration

FedEx, embroiled in U.S.-China trade war, sues Trump administration
A FedEx delivery truck drives along Geary Street in San Francisco on Tuesday. (Justin Sullivan / Getty Images)

FedEx Corp. has fired a new weapon in the U.S.-China trade war, suing the Trump administration to block enforcement of trade restrictions that placed the company in Beijing’s crosshairs.

The federal lawsuit comes after the White House barred U.S. companies from selling technology to Chinese telecommunications giant Huawei Technologies Co. While trying to comply, FedEx employees mistakenly flagged packages involving Huawei in two incidents, and now China is considering adding the courier to a list of “unreliable entities.”

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While U.S. companies and lawmakers have expressed concern over how President Trump’s battles with China and other trading partners will affect business, the FedEx litigation represents another new tack. Trump and Chinese President Xi Jinping are scheduled to resume talks this week at the G-20 summit, with no signs their trade war will end soon.

“The increasing use of restrictions on exports and imports by the Commerce Department in various geopolitical and trade disputes creates just an impossible burden on FedEx and common carriers,” FedEx Chief Executive Fred Smith said on Fox News. “Huawei is just emblematic of this problem.”

Chinese authorities have almost completed preparations necessary to blacklist FedEx, people familiar with the matter said. A final decision would be made by senior Chinese leaders, said the people, who asked not to be identified speaking about nonpublic information.

FedEx shares slid 3.1% on Tuesday.

Between a rock and a hard place

FedEx’s lawsuit, filed Monday in Washington, says that under the Export Control Reform Act of 2018 and other rules, the shipping company must choose between operating under the threat of U.S. punishment and facing potential legal trouble from customers and foreign governments. The company moves about 15 million packages a day and many of those are sealed when customers hand them over, according to the lawsuit.

FedEx apologized last month for delivery errors on two Huawei packages that were returned to senders, and China’s biggest tech company said it is reviewing its relationship with the U.S. courier.

Those packages, which contained documents being shipped to Huawei in China from Japan, were diverted to the United States without authorization. Smith said the decision was an error by a 30-year employee, who sent the packages for a compliance audit.

In a separate incident last week, the Memphis, Tenn.-based courier rejected a package containing a Huawei phone being sent to the United States from Britain. FedEx said the rejection was a mistake.

‘Unreasonable burden’

FedEx said it supports the objectives of U.S. export-control laws and has invested heavily in compliance. But, it said, the restrictions create an “unreasonable burden” by holding couriers responsible for unwittingly aiding customers, with harsh criminal and civil penalties for violations.

Violations can lead to fines of $250,000 a package.

The Commerce Department said it would defend its security function.

FedEx rival United Parcel Service Inc., which also is subject to the restrictions, said it wouldn’t join the suit.

“UPS has not had any extraordinary issues with following government requirements relating to shipping restrictions,” spokesman Steve Gaut said by email.

Possible blacklisting

Meanwhile, FedEx is in danger of being placed on a list that China said in late May would target firms that the nation’s government says damage Chinese companies’ interests. That followed U.S. curbs on Huawei. The Commerce Ministry didn’t respond to a request for comment Tuesday, and the Foreign Ministry declined to comment on whether FedEx would be placed on the list.

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“We hope we satisfied them that this wasn’t any nefarious activity on our part,” Smith said in the Fox News interview. “It was just a well-intentioned FedEx teammate that made an error.”

FedEx said in September that package deliveries between the United States and China represent 2% of its total sales, which would be about $1.3 billion based on 2018 revenue. The company, which doesn’t typically break out sales by country, has not given an amount for its entire China business, which also includes sending packages to locations other than the United States.

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