Paranoia Strikes: Part II

I have frequently commented on the growing number of anti-China proposals in the Congress and the competition among members of Congress to produce ever-more stringent bills. Many of these are statement bills. They will never become law, and their authors may not particularly care about that, since they are more interested in making a statement than in actually legislating. Lately, however, the proposals have escalated, and their chances of enactment have also increased. The latest and best example is the Chinese Military and Surveillance Company Sanctions Act of 2023, popularly known as the Barr bill, named after its author Congressman Andy Barr (R-KY). The bill has been approved by the House Financial Services Committee, but rather than attempting to pass it in the full House, it appears its proponents may seek to add it in conference to the annual defense authorization.

Discussing the bill requires a bit of context. The federal government maintains a number of lists of bad guys—companies and individuals determined to have engaged in activities deemed inimical to a variety of U.S. interests. The lists include the Chinese Military Companies list, the Chinese Military-Industrial Companies list, the Entity List, the Military End User List, and the Denied Persons List. These lists each have a different statutory basis and were developed for different reasons. The Chinese Military Companies list, for example, is a list of Chinese companies doing business with China’s military. It is cautionary—there is no penalty imposed on companies on the list. Placement on the Commerce Department’s Entity List, in contrast, means a license is required for all exports to that entity, potentially significantly restricting trade.

The mother of all lists is the Treasury Department’s Specially Designated Nationals and Blocked Persons List, or SDN list. If you are on that list, your U.S. assets are frozen; it is illegal for U.S. parties to engage in transactions with you; and you will find very few financial institutions anywhere in the world willing to engage in dollar-denominated transactions with you. The intention of the Barr bill is to push the Treasury Department to add the entities on these other lists to its SDN list if they are not already there. The effect of that would be to impose an economic “nuclear option” on entities the government has not determined deserve it. In addition, taking such an action would create enormous problems for U.S. companies trying to do business in China. For example, the three China companies that operate cellular telephone networks in China, China Mobile Communications Group Co., Ltd., China United Network Communications Group Co., Ltd. (China Unicom), and China Telecom Corporation Limited, are all on one of the other lists. If they are put on the SDN list, Americans and U.S. companies in China would be prohibited from contracting with them or their Chinese subsidiaries for telecommunications services in China. U.S. telecom companies would also be unable to contract with them to provide roaming services for Americans visiting China. The three companies also are responsible for testing and approving chips being incorporated into cell phones in China. If they were on the SDN list, U.S. manufacturers would not be able to get their chip-containing products certified, excluding from the Chinese market not only U.S. phones but products like autos and appliances that contain chips to connect to the internet of things. And this is only one example.

Defenders of the Barr bill argue that it requires the Treasury Department to consider putting additional entities on their list but does not require it to do so, and the Treasury Department will use its authority responsibly. That may be true if we have a responsible administration, like the current one, but that would be far from certain under a different president. It also begs the question: if you only want the Treasury Department to act responsibly, why encourage it to act irresponsibly?

Sadly, this is not the only example of paranoia. Bills have been introduced in the Texas legislature to bar Chinese students (and Iranians, Russians, and North Koreans) from attending Texas public colleges and universities and from buying property in Texas. We are also seeing a wave of bills preventing Chinese from buying farmland, even though the government already has authority to block any specific investment for national security reasons such as the property being adjacent to a military facility. Measures like these only serve to drive us further apart. One would think that educating Chinese students in the United States would be a good thing. They would learn about democracy and the history and culture of our country outside the reach of Chinese propaganda. If they end up staying here, we get the benefit of their talent. If they go back to China, they take part of us with them. We win either way. The fear seems to be that some of them are spies. Some of them probably are, but banning all of them is a classic case of throwing the baby out with the bathwater. It also demeans us as a people afraid to interact with others that might have different points of view.

The Barr bill and these other proposals bring to mind lines from “For What It’s Worth” by Buffalo Springfield—a song of my generation. “Paranoia strikes deep / . . . / It starts when you’re always afraid.” In the past, Americans weren’t afraid of anybody. Now we seem to be afraid of everybody.

William Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C.