Cotton Says BIS Should Leave Commerce; Sanctions Should Shutter Huawei, ZTE

Sen. Tom Cotton, one of the most prominent China hawks in Congress, thinks that the Bureau of Industry and Security is buried within an organization “hostile to the aggressive use of export controls,” and so it should be moved from the Commerce Department to the State Department, because, he says, that department puts national security first. Cotton, who has published a lengthy report on what he calls the economic long war with China, discussed his views during an online program at the Reagan Presidential Foundation on Feb. 18.

He also wants the Office of Foreign Assets Control to be expanded and sanctions applied to those who steal intellectual property from U.S. firms and to those companies that profit from that theft.

“Huawei has been effectively cut off from most high-end U.S. chips; the United States should ensure ZTE is cut off, as well. When the next Huawei or ZTE arises, the government should deal with it in the same manner,” he wrote. He said the U.S. ambition should be to bankrupt both ZTE and Huawei through further sanctions and cutting them off from the U.S. financial system.

Cotton is also concerned about what we're importing from China, believing that we need to develop other sources of rare earth minerals, protective gear and active ingredients for medicines. He noted that the Chinese government imposed export controls on rare earth minerals that are used in the F-35 fighter jet (see 2102160070). He said that China “can ground our most advanced jets at any time. We can't allow it to continue.”

His report said that FDA should require that all drugs sold here in the U.S. “include conspicuous country-of-origin labeling for their active ingredients.”

He wrote that the U.S. should have “targeted import duties on Chinese companies that engage in anti-competitive practices,” but did not say during the webinar if he supports removing tariffs on Chinese goods from companies that are not engaged in anti-competitive practices.

He said advanced technology in semiconductors, artificial intelligence and other sensitive fields should not be allowed to be exported to any Chinese firm, even if they're not on an entity list or considered a military end-user. He said there's such a military-civilian fusion in China that they all need to be curbed.

Cotton wrote that “the most significant domestic resistance will come from the China Lobby: American and Western companies profiting off economic integration with China. The lure of China’s subsidized production capabilities and large and increasingly prosperous market has created a powerful coalition with great political influence. The China Lobby recoils at any claim that America’s prosperity and security -- indeed, our very survival as a free nation -- takes precedence over its bottom line.”

On the webinar, he complained that companies were arguing against stricter sanctions on products made in China's Xinjiang region, because of the pervasive use of forced labor in that province.

The moderator said that American families clearly benefit from cheap goods we import from China, and asked if that can't continue, even as we protect sensitive sectors like semiconductors?

Cotton replied, “There's obviously a difference between semiconductors and cheap plastic toys or T-shirts or umbrellas.” But he also said, “If I were a leader in corporate America and I had operations in China, I would be packing up and getting out.” He said with the Communist Party transferring the ethnic Uighurs to work in factories around the country, “you can't know where your supply chain is coming from.” So, he said, if you can't bring production back to the U.S., try to bring it back to somewhere in North America or South America.

In the report, he also said Malaysia and Vietnam could be good alternatives to China, and that he'd like bilateral trade deals with those countries, with Japan, with the United Kingdom and with the European Union. “Any new trade agreements must do more than simply increase cross-border trade volume. Successful agreements also must limit the depth and nature of China’s economic and financial integration with the parties. In practice, this should include restrictions on collaboration in strategically vital arenas such as telecommunications, semiconductors, and AI and quantum computing,” he said. “These agreements also should encourage caps on Chinese market exposure for imports and exports and limits on inbound and outbound Chinese investment, especially in areas of high technology.”

The moderator also asked him about the Creating Helpful Incentives to Produce Semiconductors for America Act, known as the CHIPS for America Act (see 2102160074), which Cotton co-sponsored with Sens. Mark Warner, D-Va., Chuck Schumer, D-N.Y., and John Cornyn, R-Texas. He said it's an unfunded mandate and asked when there would be funding for it. Cotton said they are working on that now.