The Washington Post-House committee calls for reset on China-US economic relations

2023-12-12T02:23:37.125Z

Members of a bipartisan committee on China are calling for a reset on the U.S.-China economic relationship, laying out over 130 policy recommendations for sweeping changes to how Washington governs trade, investment and security with the world’s second biggest economy.

The report, released Tuesday by the House Select Committee on the Chinese Communist Party, contains a broad legislative blueprint that — if followed — could ratchet up duties on Chinese goods, significantly curtail certain U.S. investments in China and further restrict or ban U.S. market access for companies including TikTok, as well as drone makers, chip manufacturers and telecommunications groups.

It also lays out a strategy for cushioning the blow to U.S. companies and banks from the potential shock waves of a partial decoupling and — in more serious scenarios — protect banks and enact sweeping economic penalties against Beijing in the event of conflict.

“We have to do everything in our power to prevent that from happening. And I think that one of those areas of instability is the economic relationship,” the committee’s top Democrat, Rep. Raja Krishnamoorthi, (Ill.) told The Washington Post. “We now have to size up where we are, recognize the reality of the situation and protect our interests.”

The report is the summation of months of investigation by the committee, which held its first hearing just nine months ago and has become a rare example of bipartisan cooperation amid fierce division in the House.

That bipartisan consensus that the economic relationship needs a major overhaul comes despite a relative recent thawing of relations between Washington and Beijing, following a meeting between President Biden and Chinese President Xi Jinping last month where the two leaders agreed to restore military communications and strengthen cooperation on counternarcotics — modest but meaningful advances following a year of turmoil.

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More broadly, the committee report lays out a framework for unwinding some of the advantages afforded to China in the wake of its accession to the World Trade Organization in 2001, benefits some lawmakers say were mistaken in hindsight. The report calls for China to be removed from its current “Column 1” tariff classification — a status that confers regular duty rates on imported goods. China’s removal would undermine its “most favored nation” trading status and potentially levy higher tariffs on Chinese goods, making them more expensive to consumers and less competitive in the market.

The report said the move would “restore U.S. economic leverage to ensure the PRC abides by its trade commitments.” It did not clarify whether it recommended China be reclassified in its own category or join the small handful of countries that fall outside of normal trade relations with the United States and have higher duty rates, including Cuba, North Korea and — since the war in Ukraine — Russia and Belarus.

The committee report also calls for the renewal of the China 421 safeguard mechanism, a rule brought in after China’s accession to the WTO and abandoned in 2013 that would allow Washington to impose tariffs on Beijing without the requirement of proving unfair trade practices.

“China has never abided by the promises it made when it joined the WTO and when we moved to permanent normal trade relations. And as a consequence, we find ourselves dangerously dependent on the PRC in key areas — areas that they could be weaponized in the event of a crisis,” Rep. Mike Gallagher (R-Wis.), chairman of the committee, told The Post.

Elsewhere, members stressed that the United States lacks an economic contingency plan in the event of war with Beijing, and recommended Washington develop strategies with allies to enact “severe diplomatic and economic costs” on Beijing, while calling on U.S. banks to undergo “stress tests” led by the Federal Reserve to assess their ability to withstand a sudden loss of access to China in the event of war.

It follows a September hearing held in New York by the committee with finance figures including Jay Clayton, former chairman of the Securities and Exchange Commission, and a simulated war game conflict it hosted in April where the group assessed America’s potential economic and military response to a war over Taiwan.

The committee said at the time that in the hypothetical 2027 conflict, the global economy would lose trillions of dollars in the event of an ensuing economic blockade with China.

The committee’s work — including investigations into TikTok, human rights’ abuses in Xinjiang, and U.S. tech exports to China — have attracted fierce condemnation from Beijing.

China’s Foreign Ministry has accused the Biden administration and individual lawmakers of pursuing a policy of economic “bullying” with the goal of containing the legitimate growth of China and its companies.

“The relevant report, which aims at building walls and barriers and pushing for decoupling and severing supply chains, runs counter to the principles of market economy and fair competition, and will undermine the international economic and trading order and destabilize global industrial and supply chains. Such attempts serve no one’s interests,” said Liu Pengyu, spokesman at the Chinese Embassy in Washington. He said that China will “will follow the developments closely and resolutely safeguard our rights and interests.”

House lawmakers said the committee’s report underscores the strong bipartisan support for tighter controls over Chinese economic practices and better preparation in the event of a crisis between the two superpowers.

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“Getting bipartisan agreement on five recommendations is almost impossible, let alone 150. So I’m proud of the work that went into this from members on both sides of the aisle,” said Gallagher. “We are not calling for a complete decoupling, but a recognition of the fact that the status quo is failing,” he said.

In Tuesday’s report, the committee said it recommended legislation that would require large U.S. firms with investments in China to disclose the impacts of a sudden change in access to the Chinese market, as well as a law that would force any “foreign-adversary owned” social media firm — including TikTok’s Chinese owner ByteDance — to divest its stake in U.S.-operated social media products or risk a nationwide ban.

ByteDance returned to negotiations with the U.S. government in September, six months after the Biden administration gave the company a choice to sell the firm or risk a congressional bill that could ban the platform entirely.

The House report also proposed a bump in domestic funding support for competitive technologies including artificial intelligence, quantum computing and semiconductors and recommended that revenue from Chinese tariffs be used to advance U.S. national security and competitiveness as part of a broader strategy to “support workers to prepare for a period of increased trade tensions and uncertainty.”

Krishnamoorthi said that the group also wanted to send a message to the CCP that there was potential for a return to more positive relations if it were to change course. “But right now, we’ve got to protect ourselves,” he said.