Congressional Research Service Suggests Preemptive Safeguards for COVID-19-Related Trade

A recent Congressional Research Service report suggests that the U.S. may want to use safeguards deal with China's export-dominated strategy to rebuild its economy after the shutdowns needed to fight the coronavirus disease COVID-19. “Congress may want to carefully monitor or consider whether to impose requirements about potential predatory commercial activity in the United States,” the report said. “The potential for China to overwhelm global markets as it leans on exports for economic recovery,” the authors said, may mean that safeguards would be better than “waiting until market injury has already occurred to seek damages.”

The authors said that China's decision to rebate value-added taxes to exporters by 13% or by 9% shows which sectors China is looking to for export boosts -- steel, insulation, wood products, glass and fiberglass, insecticides and chemicals. The authors noted that Congress is split on a policy response regarding the medical supply chain in this time of crisis. Some are calling for a nationalization of medical equipment and prescription drug production, or at least a diversification away from China. But other members of Congress say that the Section 301 tariffs on Chinese imports are partly to blame for shortages of supplies.

The report counters that argument by looking at the surge in demand, the increase in imports in China as COVID-19 hit in January, and China's export restrictions during that same period -- it says those three factors are more salient than higher costs for importers. The authors also say that if the U.S. had taken emergency measures in early February, when shortages first started being seen, they would have been able to lock in domestic contracts and achieved “an earlier start to alternative points of production.”

About 9% of U.S. imports are pharmaceuticals, medical equipment and products, and related supplies, but China is not the largest source of those goods by value. China is the dominant source of low-value masks and gowns, while Europe is the bigger source of drugs and ventilators.

The administration has loosened regulatory barriers to imports of N95 masks, and the CRS report authors suggest that is dangerous, not only because of possible quality problems. “Chinese firms also could capture market share and gain a unique foothold in the U.S. market through market softening and if the United States were to relax FDA and other product certifications,” the authors said.

With regard to blanket Section 301 exclusions or rollback, the report said: “A broader liberalization of U.S. tariffs on Chinese goods during the COVID-19 outbreak, could further expose the U.S. economy to Chinese excess industrial capacity at a point of economic downturn in the United States.”

The report also questioned whether China insisted on a force majeure provision in the phase one trade deal because it knew how bad COVID-19 would be in Wuhan. “The crisis is also calling into question China's ability to implement the U.S.-China phase one trade deal signed in January 2020,” the report said. “For example, China National Petroleum Company (CNPC) used the outbreak of COVID-19 to declare force majeure in canceling some liquefied natural gas (LNG) imports, a move followed by a downturn in overall oil and gas demand.”