Top Five Blunders (At Least) in Senate’s China Bill

The trade provisions in the Senate’s so-called China bill do not level America’s playing field with China.

First the good news: the Senate’s U.S. Innovation and Competition Act of 2021, recently passed with a vote of 68 in favor and 32 against sets aside real money to build out and support semiconductor foundries in the U.S. instead of Asia, where nearly all of the foundries making American computer chips reside. We need this badly.

The Act includes provisions to mandate country of origin labels for online retail. Some 50% of everything sold on Amazon comes directly from China, by China sellers on the site.

And the Senate bill would require government buyers of personal protection equipment  – both state and federal – to buy U.S. made masks and hospital gowns, or PPE, if the bill ever becomes law.

Now the bad news: quite frankly, there is a lot in this bill that companies who import from China, Chinese companies, and President Xi Jinping himself, will absolutely love.

Trade provisions in the Act weaken the trade war and take a hammer to some $250 billion worth of tariffs of Made in China goods. On this front, the anti-tariff crowd and the CCP can take a victory lap. Their horse is on the right track, in the right lane, and ahead by a nose as the House of Representatives takes up this issue next.

Nearly all of the worst part of the Senate bill comes from Division G, dubbed the “Trade Act of 2021”. It rolls out the red carpet for the Chinese Communist Party and the K Street lawyers of Chinese firms and American multinationals dependent on China who can file legal claims to get their tariff payments back.  They’ve been threatening this already.

For those who filed for exemptions on the Section 301 tariffs, this was a good bill. Section 301 was the China tariffs imposed by the Trump administration.

An unintended, but much expected consequence of the Senate passage of the U.S. Innovation and Competition Act is other importers smell blood in the water now.

The U.S. Chamber of Commerce and more than a dozen other trade groups, including American Apparel and Footwear Association, a trade group that is not happy with sanctions against cotton producers in Xinjiang (home of Uyghur prisons), are now urging the White House to cut Section 232 tariffs on steel and aluminum.

What sneaker and shirt makers have to do with steel and aluminum is a mystery. But from a pure business standpoint, this is about breaking through the tariff barrier.

In a way, the number one blunder is the can of worms this bill has opened up for Trump-era tariffs.

Top 5 Blunders

CPA’s trade counsel, Charles Benoit, went through some of the key portions of the Trade Act and what it means in layman’s terms. In addition, we also found a successful attempt by Japanese commercial truck maker Mitsubishi to make a dent in American truck tariffs.  The reason why we even have an automotive industry in this country is because of a 25% tariff on light-duty trucks. (Ford’s Mach-E Mustang is made in Mexico. Ford’s Lightning battery-powered pick-up truck will be made in the U.S. thanks to tariffs)

Here’s a look at five key blunders of the “Trade Act of 2021.” Blunder 1, other than the can of worms mentioned earlier, can be found in Title 1 of the Trade Act.

Title I:

• Makes it harder for Customs and Border Protection to stop the importation of products made with child labor and forced labor (Sec. 71001). Right now it is a law enforcement exercise internal to CBP, but now before CBP can do a Withhold Release Order they have to consult with the State Department to see what the ramifications would be;
• Elevates Big Tech in USTR decision making (Sec. 71012) and that deprioritizes other issues, namely manufacturing and farming;

Title II:

• Wants tariff cuts on imports of “essential supplies” at the exact moment we’re trying to reshore these industries – primarily PPE. This facilitates a Made-in-China shopping spree for private sector hospitals and clinics (Sec. 72001). The determinant of what is essential relies on the USTR, so it could mean other items that are part of the Strategic National Stockpile, including essential medicines;

Title III:

• The United States has been subject to economic warfare for decades by mercantile countries. Section 301 of the Trade Act of 1974 is the President’s principal tool to defend U.S. producers in this war. And yet, this section of the bill makes Section 301 unworkable, unless the WTO gives us their blessing. (Sec. 73001)
• The bill reinstates all the exclusions that expired in December and provides refunds for the tariffs paid on Chinese imports since January 2021.
• It requires regular audits of Section 301 tariff exclusions. This is a poison pill for any USTR and President. If a company sues (and they will) and can show any inconsistency in the way exclusions were implemented (inconsistencies abound because commerce is messy), they will win and USTR and the President are unlikely to push back in the face of a legal fight with the private sector.
• Puts an impossible burden for USTR to justify not giving a tariff exclusion. They even have to do an antitrust analysis as part of the legislated criteria.

Title IV:

• Currently, the President can remove countries from the Generalized System of Preferences for whatever reason the White House sees fit. The President and the Executive Branch are in charge of international relations. But this bill would make those decisions subject to U.S. judicial review; a headwind for any nationalist manufacturing agenda of any President going forward, not just Biden. Sets the tables for lawsuits.
• Squanders an opportunity to build on the 2016 American Manufacturing Competitiveness Act (AMCA) with everything we’ve learned since about trade. We now know that, aside from chemicals, 85% of the petitions for items to be included in the 2020 Miscellaneous Tariff Bill (MTB) were for retail goods. There are hundreds of new tariff cuts and extensions for two years for lower tariffs. This contrasts with how the AMCA is marketed as helping American manufacturing. If we’re going to do a clean renewal, we should rename the AMCA the “Importer’s Tax Cut” Act.

MTB’s Warning Shot to Trucks:

• Cuts tariffs from 24% to 20% for EV commercial light-duty trucks. Mitsubishi petitioned for the inclusion of EV commercial light-duty trucks in December 2019. They were asking for 0% tariffs.
  

  Mitsubishi tried getting two of its EV-powered trucks down to a zero tariff rate as part of the Miscellaneous Tariff Bill. They succeeded in getting it down to around 20%.

The recent letter to the White House by importers, coupled with Mitsubishi getting a tariff cut, albeit small, should serve as a shot across the bow of the House of Representatives as they debate their version of the U.S. Innovation and Competition Act.

The House version is also a compendium of bills designed to buttress the U.S. economy from Chinese mercantilism and its Frankenstein-level state-driven capitalism. A vote is expected by the end of July. The main bill does not have a name yet.

These blunders, as CPA sees it, are the worst of the provisions in the Senate bill. Should they make it to President Biden’s desk and signed into law, then his talk of getting tough on China, and building back better through a more inclusive economy will be wholly dependent on government contract work.

The private sector, with this bill’s passage into law, would potentially be in for a reversal of four years of measures that have been designed to boost American manufacturing and manufacturing labor. Biden supports and ran on both of these positive agendas. These issues are vote-getters for people from both parties, and among independents.

The Trade Act of 2021 is a return to globalism. If Congress agrees to roll back the clock to “more globalization”, not less, then Biden will be the last line of defense.

While there are plenty of other bills that would run counter to what is in the Trade Act of 2021 provision, Congress would be in a position of whack-a-mole when tackling China. The private sector – most of them small to midsized businesses glued to the U.S. – will be forced to compete with a billion people in Asia who think differently on trade, the environment, and labor and human rights than we do.