Contracting Bill That Would Ban Chinese SOE Business Debated in Senate

A hearing about the Time to Choose Act, a bipartisan bill that would ban consultants and other service providers from working both with the U.S. government and Chinese-owned companies, Senate Homeland Security Committee ranking member Rand Paul, R-Ky., said he agreed with a witness who said it could create a slippery slope.

Paul, in his opening statement earlier this week, criticized the bill, whose lead sponsor is Sen. Josh Hawley, R-Mo., as "unserious legislation" that would harm the interest of the U.S. government.

He acknowledged that despite China accounting for about 10.5% of U.S. trade this year, China and the U.S. are in an adversarial relationship.

But, he said, "How do you convince somebody to do what you want? Do you think scolding them works?"

Paul argued that the trade embargo with Cuba did not remove Communists from power on that island, and added, "Frankly, sanctions don't work."

Witness Byran Riley, director of the free trade initiative at the National Taxpayers Union, said the bill could allow the president to include companies that sell goods to China, and to the U.S. government, such as farmers who sell to the school lunch program. "This type of legislation could open the door to similar restrictions being placed on U.S. firms that do business with countries that have policies viewed unfavorably by the president. For instance, an American company could conceivably be penalized for doing business in a country with different environmental, labor, or social policies," he said in his opening statement.

Committee Chairman Sen. Gary Peters, D-Mich., who is a co-sponsor of Hawley's bill, said in his opening statement that a consulting firm that advises the U.S. government on cybersecurity and national security strategy was simultaneously advising Chinese state-owned enterprises that did work for China's navy.

"In another example, the same firm’s research and recommendations allegedly assisted in the creation of the Chinese government’s Made in China 2025 industrial plan in opposition to U.S. foreign policy objectives, and our national and economic security," he said. "These examples demonstrate the need to strengthen our laws, specifically around disclosure of foreign ties, particularly where federal contractors are providing services to authoritarian governments who seek to bolster their economic and geographic assets in competition with our nation."

Witness Clark Packard, a research fellow at the libertarian Cato Institute, argued that national security has been a pretext for protectionism, both in the resistance to allowing Nippon Steel to buy U.S. Steel and in the Section 232 tariffs on steel and aluminum.

"U.S. Steel has no military contracts. For more than 60 years, Japan has been one of the United States’ strongest allies and today hosts more than 55,000 U.S. military personnel and thousands of DoD civilian contractors. It is incongruent that the United States would deploy nuclear weapons if necessary to defend Japan from attack, yet simultaneously claim Japanese investment is a national security threat," he said in his opening statement.

Packard acknowledged that China's government policies pose economic challenges to the U.S., but that the U.S. government should respond by expanding trade with close allies such as Japan and South Korea.

Today, Japan receives 90% of its defense-related imports from the U.S. Simply put, Nippon would not pay a premium to purchase U.S. Steel only to shutter it. Indeed, Nippon would most likely provide the investment necessary to strengthen the firm.

"While flawed, the Trans-Pacific Partnership would have created an American-led trading bloc to offset China’s gravitational pull in the region economically and established higher-quality trade and investment rules and norms," he said. Since the U.S. is not rejoining the TPP, Packard said, adding Japan and other allies in Asia to the Korea-U.S. free trade agreement would be "a next best option."