Administration Pushing for More Measures to Move US Companies, Supply Chains Out of China, Officials Say

The U.S. is working on more measures to dissuade companies from doing business in China, administration officials said, including through financial incentives and more industry outreach about enforcement risks. Commerce Department official Nazak Nikakhtar and State Department official Keith Krach also said the administration is working to collaborate more with trading partners against China.

Krach, the State Department’s undersecretary for economic growth, energy and the environment, said the agency is working to form a group of the U.S.’s “closest technological allies” to coordinate on export controls and joint research on emerging technologies. He expects the group to include about 10 countries, and said they have been receptive to the idea. “When I talked to my counterparts from other countries about this concept, the reaction is: It's about time,” Krach said during a July 30 hearing before the Senate Committee on Commerce, Science and Transportation. “[They’ve] been waiting for an alternative.”

But he also said that some countries are fearful of backlash from China, which could significantly harm their companies. “The biggest elephant in the room is China's retaliation. It terrifies countries, and it terrifies companies,” Krach said. “This is the whole reason for an alliance of democracies, which would also include the private sector.”

The U.S. and its allies also must address China's effort to dominate global standards-setting bodies, including through “systematically” identifying “all items that are critical to our national security,” said Nikakhtar, who is Commerce assistant secretary for industry and analysis, International Trade Administration, and previously served as the acting Commerce undersecretary for industry and security before stepping down in August (see 1908290044). She said the U.S. should focus on supporting industries that produce those items. “We've begun doing this through tax cuts to boost innovation and economic growth,” she said. “Let's do more.”

While incentives and funding may convince U.S. companies to limit their business in China, both officials said more government outreach will help improve industry awareness of the risks of China’s market. Krach pointed to the administration’s business advisory on Xinjiang, which warned companies of sanctions exposure and export control risks (see 2007010040).

U.S. CEOs “have a moral responsibility -- perhaps a fiduciary duty -- to establish clean governance principles and divest from companies that contribute to human rights abuses,” Krach said. “They should at a minimum disclose the Chinese companies they invest in.”

Committee member Sen. Dan Sullivan, R-Alaska, said he hopes the discussion will spur the administration to begin implementing more regulations to address the concerns outlined in a May White House report on the U.S.’s “strategic approach” to China. That report advocated for export controls and measures to convince allies to develop stricter foreign investment screening mechanisms. “I think these strategies have broad-based bipartisan support,” Sullivan said. “We’re hoping that this really starts to begin to establish a policy that can be utilized and implemented for decades.”