Foreign Affairs Subcommittee Talks Tariffs, Anti-Coercion Bill

The leaders of the House Foreign Affairs Subcommittee on the Indo-Pacific are trying to pass legislation to give the president the ability to respond to economic coercion of allies, but Chair Young Kim, R-Calif., asked witnesses at a subcommittee hearing she convened to advise what else could be done to stand up to China's economic aggression.

"The [Chinese Communist Party] must know that every act of coercion will result in a countermeasure from the United States and its allies," she said.

"American money and technology that fuels CCP coercion and predation cannot keep going to the PRC," she said May 18. "It makes no sense to increase the PRC's ability to coerce the United States and help it gain more leverage over us."

American Enterprise Institute China scholar Derek Scissors said that Kim said what he was going to say. He added that the Section 301 tariffs, some at 25%, some that started at 15% and later went to 7.5%, weren't effective in lessening U.S. dependencies on Chinese imports.

He said it is possible to do so, by deciding which goods aren't important and which we should not be dependent on China for.

Ranking member Ami Bera, D-Calif., asked the witnesses what the Countering Economic Coercion Act of 2023 (see 2302230021 and 2305110053) is missing.

Scissors said: "I think what’s missing is credibility on our side." He said it's good that the bill authorizes lowering tariffs on victims' exports, but that if the administration were to do that, "you're going to face opposition to that." He also said, "I think the legislation is addressing a symptom and the problem is … on net, we’re still helping the Chinese become better at coercion," through investments in their companies.

Bera said he agreed, and said members are discussing how to discourage outbound capital flows.

The Center for Strategic and International Study's Matthew Reynolds said what he likes about the bill is that there's a timeline for a prompt response. He thinks it would help countries resist China's pressure if the response is soon after China's action, to harm that country's economy.

"A big missing piece of the response so far, though, is also on the resiliency side," he said. "The U.S. needs to get back in the business of negotiating trade agreements."

Bera nodded yes.

Reynolds said he agreed with Scissors that outbound investment should be regulated if it's going into semiconductors, biotech and green tech in China.

"We also need to make sure we multilateralize those efforts," he said.

David Feith, a fellow at the Center for New American Security, said in his opening statement that CSIS's report on Chinese attempts to coerce Mongolia, Lithuania, Japan and others shows that it loses more than it wins.

"Target countries sometimes prove surprisingly resilient politically and adapt commercially by finding new markets other than China for their goods," his written opening statement said. "When it generates fear and loathing among foreign governments and businesses, it spurs diversification away from the Chinese market. That can diminish China’s leverage with those targets in the future."

But, he said, the U.S. and like-minded allies need to know more about the strengths and weaknesses of economies that might be targets in the future, so they can prepare for mitigation strategies.

Feith also said capital flows to China should be curtailed.

He argued that policy incentives to shift away from fossil fuels increase China's ability to behave as a "Super-OPEC."

Rep. Mike Waltz, R-Fla., agreed, saying that China's dominance in cobalt, lithium and manganese and other minerals used for electric vehicle batteries increases China's leverage over the U.S. economy.

Rep. Brad Sherman, D-Calif., suggested that ending capital gains rates for investments in Chinese equities would be a good way to do so. No witness spoke in support of that idea.

Then Sherman said, "Tariffs are really the only across-the-board way that we can disentangle our economy." He proposed there be a .25% tariff on all Chinese goods that would increase by a quarter percentage point every month.

"Companies that failed to disengage from China would be at a 40% disadvantage by the end of the decade," he said.

The other witness at the hearing, FemtoMetrix CEO Alon Raphael, described how three Chinese immigrant employees at his firm, which creates tools to detect defects in semiconductors as they are being made, stole his intellectual property and started a competing firm back in China.

"They made a business plan presentation that contained highly sensitive and proprietary FemtoMetrix information, which they used to solicit FemtoMetrix’s customers -- all while still employed there. This presentation included graphics and photographs created by FemtoMetrix ... lists of FemtoMetrix past and current employees misrepresented as" employees of Chongji Huang, one of the three employees that Raphael stole the intellectual property, "among other confidential information. In the business plan, Huang did not remove FemtoMetrix’s name from product images," he said.

He has brought a federal case, but said the courts' ability to act is limited.

"Assuming FemtoMetrix successfully obtains the injunction it seeks, as a practical matter, such an injunction is not enforceable in China. A permanent injunction likely would limit Weichong’s prospects for expansion beyond China, but not within. Similarly, a judgment for monetary damages against Weichong and its founders is uncollectible in China. The American legal system is not designed to address deliberate, international thefts of this kind and is not adequate for the task," he said.

When Kim asked Raphael what Congress could do, he had no answer, except to repeat that he is trying to use the courts, but they cannot solve his problem.

In Bera's closing remarks, he said: "Both sides of the aisle raise legitimate questions. There aren’t easy answers. I tend to be a free market guy. I tend to not to want to have the heavy hand of government tell companies what they can and can’t do, where they can and can’t invest." But, he said, there is a strategic competition challenge, and he said the economic coercion bill is a first step, not a last step.