Trade Actions to Constrain China a Focus of Select Committee Hearing

China's military ambitions, its role in the fentanyl crisis and Chinese purchases of U.S. farmland all got attention during the first hearing of the Select Committee on China -- but trade, and China's distortions of the global market, were the focus of both Democrats' and Republicans' questions to witnesses from the Trump administration and the head of the Alliance for American Manufacturing.

AAM President Scott Paul argued in his written testimony that the committee should recommend removing China from permanent most-favored-nation trading status, as it did with Russia, and prohibiting Chinese products sent directly to consumers from qualifying for de minimis treatment. He also said Congress should pass the Leveling the Playing Field Act 2.0, an antidumping and countervailing duty law rewrite. He said the U.S. should impose outbound investment screening and expand inbound investment restrictions, and set more export restrictions on technologies.

In his written testimony, he also said: "Congress and the administration should proceed cautiously with respect to altering or removing existing trade enforcement actions. Any proposals to ease imports of finished goods or inputs should be carefully examined to ensure that we're not doubling down on risky global supply chains, making it more difficult to reshore them, or undermining existing producers. While an accessible and transparent exclusion process is essential for trade enforcement actions, unwarranted tariff relief can also signal the demise of a U.S. company trying to establish a market foothold or one that has reinvented itself to fill gaps in our domestic supply chains."

Paul was the Democrats' witness, but retired General H.R. McMaster and former Asia Director on the National Security Council, Matthew Pottinger, also talked about the need for more investment screening, more export controls and more industrial policy to rebuild supply chains in sensitive areas that don't go through China.

Committee Chairman Mike Gallagher, R-Wis., said in his opening statement that the U.S. and China are in "an existential struggle over what life will look like in the 21st century," and said that America was naive to think that economic engagement would lead to political reform in China.

"But the era of wishful thinking is over. The Select Committee will not allow the CCP to lull us into complacency or maneuver us into submission," he said.

Rep. Darin Lahood, R-Ill. the member of Ways and Means who is also on the select committee, said he hears a lot from the business community that "you need to continue to engage." But LaHood, who Gallagher has said will lead tariff related policy on the committee (see 2301260064), emphasized the error it was to bring China into the World Trade Organization, and he asked how he should respond to corporate America, which is "scared and worried" about where the relationship is going.

Pottinger said, "We shouldn't kid ourselves... that Beijing has any interest" in mitigating global problems, such as climate change, drug trafficking or pandemics -- in fact, he said, often, you find the Chinese regime is one of the biggest contributors to the problem.

Rep. Andre Carson, D-Ind., asked Paul how Congress should focus on implementation of the Uyghur Forced Labor Prevention Act.

Paul said "importers are fighting against it every step of the way," but with more than 2,000 shipments detained, CBP is taking implementation seriously.

He recommended that, in addition to continuing to scale up, the agency should expand the priority areas of concern beyond cotton, tomatoes and polysilicon. He pointed to a research paper that said the auto industry is tainted by Uyghur forced labor (see 2212060054), a paper that has drawn the attention of Senate Finance Committee Chairman Ron Wyden (see 2212220045). He said that "an alarming amount of the automotive supply chain has tentacles into Xinjing," and that metals used in automaking should be classified as a focus for the bill. He also said that Congress should send the message to "importers that are complaining their goods are being seized" that those companies "need a different business model."

Rep. Haley Stevens, a Democrat whose district is in the heart of Michigan automaking, asked McMaster if it's a problem that 80% of electric vehicle battery manufacturing is done in China, and that 98% of microchips for the defense industry come from Asia, and he said yes.

She also asked him if it's problematic that China has 85% of refining capacity for critical minerals, and he replied that it's "a cause for grave concern," and that the government will have to do a lot to rectify it.

The ranking member of the committee -- there are 13 Republicans and 11 Democrats serving -- focused on the economic damage China's rise has done to U.S. manufacturing. So did Rep. Ro Khanna, D-Calif., who asked Paul to agree with him that government financing is needed to rebuild American industry. Paul said it is needed to correct the "market failure" that the unlevel playing field has wrought.

But Rep. Andy Barr, R-Ky., argued that legislation like the CHIPS act is dangerous. “The United States should not mimic the Chinese industrial policy and should not copy the Chinese command and control system," he said.

A Democrat, Rep. Jake Auchincloss, was the only member of the committee to ask about how lowering tariffs for Asian allies could combat China. He asked McMaster to give advice on how Congress might write a trade promotion authority bill that could lead to the country's re-entry into the Trans Pacific Partnership. He said that Australia, New Zealand and others in the TPP have told U.S. politicians "that they are willing to revise the TPP," and he thinks that a TPA focused on re-entry would go a long way toward constraining China.

In McMaster's written testimony, the former National Security Advisor said: "High-standard trade agreements are a vital part of any strategy to counter China. They can make it easier for companies and countries to link their supply chains with the United States, and help demonstrate to the world that we have a coherent, comprehensive international economic strategy to counter China."

During the hearing, he replied that he doesn't think that there's "much appetite for multilateral trade agreements," and said instead, the U.S. should work toward "really high quality bilateral trade agreements." He said the U.S. hasn't negotiated a new bilateral for 10 years.

Auchincloss said a TPA focused on a free trade agreement with Taiwan would be smart, and McMaster agreed.