Trade Liberalization Could Counter Chinese Economic Coercion

The chairman of the powerful House Rules Committee used his perch to promote a bill he sponsored that would allow the president to lower duties on non-import-sensitive goods made by a country that lost exports due to coercive actions; increase duties on imports from the "foreign adversary" committing the coercion; and allow the U.S. to more easily facilitate trade, including exports, with the coerced parties (see 2302230021).

At a hearing in front of the committee May 11, the Asia chair at the Center for Strategic and International Studies, Victor Cha, told members that "China’s economic coercion has become part and parcel of its foreign policy against many trading partners," and that 18 countries have been targets, causing tens of billions of dollars' worth of economic damage.

Rules Chairman Tom Cole, R-Okla., said in an interview after the hearing that he met with House Ways and Means Chairman Jason Smith, R-Mo., earlier in the day to ask him to look at the coercion bill seriously, "and work with us on this." Bills that affect tariffs must originate in Ways and Means. Cole said that when he talked to Smith, Smith told him that he'd been learning a lot about Chinese economic abuses, and how Ways and Means could be important in dealing with them. "I think he's very open and will give an honest look as to what we envision is appropriate from his standpoint."

But Cole added that the House Select Committee on China is undoubtedly "the tip of the spear." Cole said, "There are certain committees that are shirts and skins committees, and I call them that [because] they're meant to fight. That committee got really good membership from both sides of the aisle, and it clearly wants to work together and produce significant legislation."

Cole also mentioned Senate Majority Leader Chuck Schumer's ambition to advance competition legislation with China (see 2305030032), and said that while he doesn't have any direct knowledge of those negotiations between Senate Democrats and Republicans, he believes "it would be good for the American people to see some areas where we cooperate."

Witness Derek Scissors, a China expert at the American Enterprise Institute, testified that Congress can lead on China, and it has, with its reforms to the Committee on Foreign Investment in the U.S.

Scissors noted that when China punishes countries for actions it dislikes, it often targets agricultural exports, such as wine from Australia or citrus fruit and seafood from Taiwan.

"It's rare that a country will just reverse direction" after the coercion has begun, but that doesn't mean it's unsuccessful, Scissors said -- Beijing is taking these actions to dissuade other countries or firms from speaking out.

He said that China tends to coerce countries with smaller economies than itself -- Canada, Australia, Lithuania -- not the U.S.

"They don't start fights with us. They will sanction us, but only in response," he said. Still, he warned, if the U.S. wants to push back on Chinese economic coercion of U.S. allies, "we're going to have to make a sacrifice."

The political difficulty of that was evident in questions from Michelle Fischbach, R-Minn., who said that one-third of her constituents' crops are exported, and China is a top five market for those exports, so she's not sure how to balance their needs with national security issues.

Scissors responded, "When I meet with an American company, whether it's agriculture or not, with heavy dependence on China," he tells them: "You better prepare for it to go south. I can't tell you to stop selling soybeans to China," he said, but he asks if the farmer has a plan if half -- or even more than half-- of those sales evaporate because of U.S.-China tensions.

"The answer is not that you go cold turkey on China," he added. "But you better have a plan. The plan is going to cause some pain." He said that plan could be to pay for Taiwan insurance, diversify crops, find other markets, or even exit agriculture. "None are easy," he acknowledged.

Cha said there are some areas where China is so dependent on U.S. imports that they can't target those goods -- for instance, 85% of its corn is imported from the U.S. "I don't think they will go after that. They will not go after semiconductors. They need them," he said.

Scissors endorsed Cole's bill. In his written testimony he said: "The multiple trade liberalization options" in the legislation "represent exactly the right approach to bolstering victims of coercion. With regard to deterrence, new duties and quotas on Chinese goods can serve, as can revocations of export licenses, investment restrictions, suspensions of personnel movement, and the emerging option of data controls. The PRC’s unwillingness to accept costs in its own actions to date makes clear that threatening it with higher costs can reduce the chances of coercive behavior."

Witness Jamil Jaffer, founder of the National Security Institute, also warned Cole: "We have to be prepared ... they are not going to take our pushback sitting down. They assess that we're divided at home," and that we will abandon our friends, he said.

Jaffer later noted that some American winemakers acted as if it was a market opportunity when China punished Australia by blocking its wine exports.

Cha said that could happen, too, if, as he proposes, the U.S. tries to rally a sort of NATO for economic coercion -- if China coerces Lithuania, an EU member, then the U.S. punishes China in return. He suggested that Canada, Australia, the EU and Japan be part of this collective action group, adding that China is highly dependent on imports of 400 items, and these countries could stop those exports in response to coercion against one of them.

But it will be difficult to convince countries to summon the political will to cut off their exports to China, he said. "Free riding is likely. Small countries might worry China will pick them off."

Scissors said he liked that the bill Cole proposes does not mandate retaliation for coercion, because, he said, it would need to be judged on a case-by-case basis, and he suggested that some European countries have not been as willing to confront China as the U.S. has been, and so our response if they are targets should not be as robust. "Countries that cooperate with us more, matter more," he said.

Coercion isn't just against nations, but also against individual companies, witnesses said.

Jaffer said China threatens the economic viability of companies with sales in China "when they or their host nations have the temerity to speak out against China’s domestic and globally repressive activities or to adopt policies aimed at responding to widespread economic predation by the Chinese government and its national champions."

Cha said that when companies "are the target of economic coercion, they want it to go away as quickly as possible. Often they don't even report it."

Witness Yaqiu Wang, a senior China researcher at Human Rights Watch, noted that Intel ended up apologizing for a letter to its suppliers that told suppliers not to source from Xinijang. That letter was part of Intel's efforts to comply with the Uyghur Forced Labor Prevention Act, which essentially bans all Xinjiang inputs from entering the U.S.

Rep. Jim McGovern, D-Mass., who led the push to pass that law, said, "I lost count of how many meetings we had with American businesses and American business organizations, pushing back against" UFLPA. But Congress acted anyway, with a huge bipartisan vote. "This is a very polarized Congress that we have," he said. "But I believe we have more unity than not on this topic."

Cole said at the close of the hearing that the importance of economic alliances was reinforced by the testimony. He said failing to ratify the Trans-Pacific Partnership in 2016 was "a great mistake," and a "missed opportunity." TPP "fell victim, honestly, to a presidential campaign."