Assessing the Select Committee’s Report on Economic Competition with China

On December 12, the Select Committee on the Chinese Communist Party published a bipartisan report aimed at reimagining the U.S. economic and technological relationship with China. The report is the result of intensive bipartisan negotiations, the result of which is a series of targeted recommendations for how the U.S. government should reevaluate and retool its policies to fit today’s technology-driven economic security environment. The premise of the report is that China is trying to strategically decouple from the United States, while exercising economic policies that leave the U.S. economy vulnerable. According to the report, “Never before has the United States faced a geopolitical adversary with which it is so economically interconnected. Addressing this novel contest will require a fundamental reevaluation of U.S. policy towards economic engagement with the PRC as well as new tools to address the PRC’s campaign of economic aggression.” In short, the world is in an age of “weaponized interdependence,” and the United States must prepare to de-risk.

The Report: Reinvigorating U.S. Economic Security

The report is divided into three main pillars. The first pillar seeks to “reset the terms” of the United States’ relationship with China. The second pillar focuses on stemming the flow of capital and technologies that can fuel China’s military modernization and facilitate human rights abuses. The third pillar centers around the need to reinvest in U.S. technological leadership through supply chain security initiatives and immigration reform. Pillar three also focuses on the need to build economic resilience strategies in close concert with allies.

Pillar One: Resetting the Economic Terms of U.S.-China Relations

The first pillar argues that the utility of the World Trade Organization (WTO) for confronting today’s problems is limited, and that the WTO has not historically succeeded in altering China’s underlying problems. This failure has resulted in overcapacity, which can enable economic coercion. If reining in China’s behavior cannot be achieved in the WTO, “then a new multilateral effort by likeminded market economies that goes back to first principles is needed.”

The report also calls for moving China into a new tariff column. This move would essentially revoke permanent normal trade relations (PNTR) for China, which could have catastrophic effects by levying significant duties on a short time frame. The immediate effects of this policy would be massive, with inflationary price spikes on everything from critical inputs to everyday consumer goods, potentially undoing the “soft landing” that the United States seems to have achieved. While revoking PNTR would be carried out over a phase-in period, the results are likely to produce major negative downsides for the U.S. economy.

A growing chorus has emerged recently urging the United States to reimagine its approach to economic security. The report notes that the United States currently lacks a team or office dedicated to economic security issues and calls on Congress to designate an economic security coordinating office that can carry out contingency planning for a potential geopolitical crisis. Moreover, the Select Committee calls on the United States to:

“Formulate a U.S. Economic Security Strategy. The strategy should assess on an annual basis the risks to the resilience of U.S. supply chains, with an emphasis on critical dependencies that are likely to be weaponized by the PRC or other foreign adversaries for geopolitical purposes, such as a potential conflict in the Indo-Pacific, and strategies to defuse threats without unnecessarily undermining economic growth or damaging American security.”

This language aligns with broader de-risking and economic security goals of close international partners, including within the Group of 7 (G7) framework.

Other report recommendations include implementing Section 232 remedies to impose additional tariffs on products from countries of concern and other third countries. However, the report recommends limiting the applicability of Section 232 tariffs to adversarial countries, while limiting the use of these tariffs on allies and partners. Doing so “would allow Commerce to focus its efforts on imports from a country of concern, including through third countries while encouraging, rather than undermining, work with U.S. partners and allies.” This language will be well-received by allies such as Australia, Japan, the Republic of Korea, and the United Kingdom, which remain subject to the Trump administration’s steel tariffs despite maintaining a close defense relationship with the United States.

This pillar also recommends directing the Department of Commerce to impose duties on legacy chips from China, which analysts believe will feature prominently in the next tranche of U.S.-China technological competition. Chinese overcapacity of legacy chips could result in injury to U.S. producers, harming U.S. chip competitiveness over the long term and further exacerbating the consequences of a current sector-wide cyclical downturn.

Other interesting portions of this pillar include expanding the “rebuttable presumption” of the Uyghur Forced Labor Prevention Act (UFLPA) to include Chinese seafood products to avoid U.S. complicity in Chinese illegal, unreported, and unregulated (IUU) fishing. Chinese over-fishing has been a key topic in WTO fishery subsidies negotiations but has faced significant enforceability hurdles.

Other provisions of the first pillar include recommending the enactment of legislation “that would force divestment, or, if necessary, ban foreign adversary-controlled social media platforms, such as TikTok, from the United States.” It also recommends fully funding “rip and replace” programs that would remove Chinese products from U.S. communications networks.

Pillar Two: Curbing Capital and Technology Flows

This pillar focuses primarily on export control and investment screening tools, noting that export controls and investment tools have been slow to adapt to today’s threat environment. It calls for the significant expansion of Committee on Foreign Investment in the United States (CFIUS) authorities and for bolstering the Biden administration’s executive order on outbound investments, arguing that investment restrictions should be allowed on a sectoral basis.

On export controls, Pillar two calls for additional funding for the Bureau of Industry and Security (BIS), which oversees export controls. However, the Select Committee ties this funding increase to significant BIS reforms, aligning with a recent report from House Foreign Affairs Committee Chairman Michael McCaul (R-TX) that accuses BIS of prioritizing private sector profits over national security interests and calls for a much harder line on the granting of export licenses to Chinese entities. The Select Committee report also calls on BIS to establish a cloud computing end-use rule to close a loophole that allows foreign militaries to access U.S.-produced advanced semiconductors through cloud service providers.

The suitability of the multilateral export control regime has featured prominently in the fallout of the Russian invasion of Ukraine. It revisits the question of whether or not the United States should seek to establish a new regime. The report calls on the Department of State to establish a new plurilateral export control regime among like-minded countries that would mirror the Coordinating Committee for Multilateral Export Controls (COCOM), the Cold War era effort to curb technology flows to Warsaw Pact countries. In an acknowledgment that “protect” elements must be promulgated concurrent with “promote” policies, the Select Committee calls on Congress to offer “creative incentives” for countries to join. It also calls for additional resources for the Department of State to run this new plurilateral regime.

Pillar Three: Investing in Technological Leadership and Building Allied Economic Resilience

The first two pillars are defensive, while the third pillar of the report focuses on offensive trade and technology measures. It notes that “A united, multinational effort to incentivize, invest in, and jointly restore our economic security is overdue.” This section provides six specific recommendations and focuses slightly on critical mineral and medical supply chains. The six recommendations are: 1) invest in innovation; 2) acquire new talent through targeted immigration changes; 3) develop a positive economic agenda; 4) create transparency regarding U.S. risk exposure to foreign weaponization of critical mineral dependencies; 5) authorize efforts to reduce dependencies on foreign sources of medical supplies and to secure medical supply chains; and 6) expand the U.S. tool kit for countering the Belt and Road Initiative (BRI).

A few highlights from these recommendations include investing in innovation through additional funds for the National Science Foundation (NSF), National Institute of Standards and Technology (NIST), and the Department of Defense’s Office of Science and Technology Policy, prioritizing technologies relevant to national security. The report also seeks to establish a mechanism for the U.S. government to fund early-stage, capital-intensive emerging tech and to incentivize private sector investment in critical and emerging technologies via tax breaks, including a capital gains tax exemption.

On immigration and talent strategy, the report acknowledges that the United States must do a better job attracting talent to remain competitive. It recommends relaxing work authorization permits for workers from Five Eyes, the Quad, and NATO countries, as well as providing International Traffic in Arms Regulation (ITAR) exemptions for foreign nationals from Five Eyes countries who work on AUKUS. On the more restrictive side of immigration policy, it recommends expanding visa screening procedures to prevent the influx of foreign nationals from countries of concern.

On ways to develop a positive economic agenda, the report prefers bilateral trade agreements (beginning with Taiwan) and sectoral arrangements over traditional and larger free trade agreements. It specifically calls for sustaining the U.S.-EU Trade and Technology Council (TTC), urging the U.S. Trade Representative (USTR) and the Departments of State and Commerce to maintain the dialogue. This is likely to assuage fears in Brussels about a deterioration in bilateral diplomatic talks with the United States as the focus shifts toward the Indo-Pacific and a possible change in political leadership in the United States after the 2024 election.

The remaining recommendations urge greater supply chain transparency, friend-shoring incentives, and broad de-risking of critical sectors. It also urges a closer integration of the Development Finance Corporation (DFC) with the Department of Defense to align development policies with U.S. security strategies.

The Untied States and its international partners are entering a new era of economic security in which geopolitics, de-risking, and supply chain security dominate economic relationships. While some of the recommendations of this report could lead to deep economic disruptions—particularly revoking China’s PNTR—efforts to cooperate more closely with allies on supply chain security and export controls will help advance U.S. leadership on economic security and reaffirm the United States’ commitment to foreign economic engagement. Nevertheless, as the report acknowledges, achieving greater economic security “will require hard tradeoffs and will not be without cost.”

Emily Benson is the director of the Project on Trade and Technology and senior fellow with the Scholl Chair in International Business at the Center for Strategic and International Studies (CSIS) in Washington, D.C.