Running Faster and Tripping China

Readers of past columns know that my favorite metaphor about dealing with China is the marathon. There are only two ways to win: run faster or trip the other guy. The latter is not acceptable in actual marathons, but it is an important part of the tool kit in international politics.

For the past year, Congress has been trying to figure out how best to advance both goals. The Senate passed its U.S. Innovation and Competitiveness Act (USICA) bill last June, but until last week the House was taking its time to put its own proposal together. We are now seeing what occurs increasingly often on the Hill—nothing happens for a long time, and then everything happens at once. The House bill was revealed last Tuesday, and it is scheduled to go to the floor this week. That won’t be the last word, as it must be reconciled with the Senate bill, but given Speaker Pelosi’s oft-stated comment that she doesn’t take bills to the floor if she doesn’t have the votes to pass them, you can expect this one to pass and thereby set up a conference with the Senate.

Unfortunately, the House process turned out to be more partisan than the Senate’s, where USICA passed with 18 Republican votes. The House Republican opposition stems both from what is in the bill and what is missing. (One of the odder comments about it came from House Republican Leader Kevin McCarthy, who called it “a toothless bill that does more to appease their corporate allies than it does to strengthen America’s security.” I haven’t heard Democrats being accused of having corporate allies before. That’s usually what they say about Republicans. Maybe a party shift has occurred that I missed.) Much of the bill consists of “running faster” elements like the CHIPS Act and authorizations for the National Science Foundation, the National Laboratories, and other instruments of innovation, some of which passed the House last year but have reappeared in the new bill. Since the bill is nearly 3,000 pages, I don’t have space to go into a lot of detail, so I will flag only a few trade items of interest.

First in the “what’s missing” department is a boatload of provisions designed to broaden controls on exports to China and narrow the government’s decisionmaking authority with respect to issuing licenses. These were defeated in the House Foreign Affairs Committee, and I hope they will be defeated again if they reappear on the floor. I wrote about them last November and won’t repeat my arguments except to say they would take us back to the days of the Cold War in a way that would hurt our high-tech companies as much or more than Chinese competition. Their absence, however, is one of the main Republican criticisms of the bill.

The trade provisions are also arousing controversy, partly because they went into the bill without the Ways and Means Committee marking them up. The good news is that the bill would restore and expand trade adjustment assistance, a program that plays an important role in helping workers, firms, and communities deal with the negative impact of trade on their jobs and lives. Much of it expired last June 30, and renewal would be welcome. The bill also includes House versions of the General System of Preferences (GSP) and the Miscellaneous Tariff Bill (MTB) renewal, which differ in detail from the versions in the Senate bill.

The bill also contains two provisions that need further study and debate. One is Representative Blumenauer’s proposal I discussed two weeks ago that would remove China and several other countries from the benefits of de minimis tariff treatment. Business community lobbyists are already zeroing in on this one. It could well have merit, but there needs to be a fuller debate to identify what problems it attempts to solve and whether this particular approach, which likely will create issues with the World Trade Organization, is the best one.

The other is the outbound investment review process, which I have also discussed previously. This one has also aroused substantial business opposition, since it would upend the United States’ long-standing open investment policy. The proposal would create a cumbersome bureaucracy parallel to the Committee on Foreign Investment in the United States that, despite its stated intentions, would force companies to seek government approval for most of their outbound investments in an effort to achieve an objective that is already addressed by our export control system. Sometimes redundancy can be useful, but in this case the costs outweigh the benefits.

Finally, the bill contains changes to our trade laws designed to deal with two increasingly serious problems: serial offenders and circumvention. Dealing with dumping and subsidies via trade law enforcement can be like squeezing a balloon—it contracts in one place only to emerge somewhere else. This part of the bill provides for accelerated investigative authority for the Commerce Department to go after repeated violators of U.S. laws and those who seek to get around them by channeling their exports through third countries. CSIS’s Trade Commission on Affirming American Leadership last year made recommendations to deal with the circumvention problem as well. It is important to call out protectionism and oppose it, but it is also important to make sure rules against unfair tactics are aggressively enforced. These provisions would do that.

Any time you have a 3,000-page bill, you will see both good and bad in it. It would probably be wiser to debate the provisions one by one to better winnow out the wheat from the chaff, but the current congressional proclivity seems to be to throw everything into the pot and try to pass it all at once. Hopefully, the amendment process in the House and the conference with the Senate will eliminate the chaff and produce a sound final product.

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

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