American Drone Maker Tells House CCP Committee Tariffs Necessary

The CEO of American drone maker Skydio told the House Select Committee on the Chinese Communist Party in a hearing last week (June 26) that tariffs were a much-needed tool if the U.S. wants any semblance of a domestic drone industry.

“Placing tariffs on subsidized products coming from our geopolitical competitors and using the funds from that to let end users pick the best secure products and technology makes a huge amount of sense,” Skydio CEO Adam Bry told the Committee on Wednesday. [Testimony]

DJI, a Chinese drone maker whose products are for sale on Amazon and banned for military use by the Defense Department, controls roughly 80% of the U.S. commercial drone market. The House Select Committee’s Chairman, John Moolenaar (R-MI-2), said his concern about the drone ecosystem centered on China having the equivalent of “hundreds of thousands of spy balloon” drones flying overhead.

“Competition with China plays out in every sector that we serve,” Bry said. Skydio left the retail drone market and some of the commercial market because they could not beat similar China products on price.

This is a similar story across industries.

The Chinese government invests in local drone companies. “Here's one we found on a popular website today for $300,” said Ranking Member Raja Krishnamoorthi (D-IL-8), without mentioning the obvious -- Amazon. Turning to Bry, the Illinois Congressman said, “I actually bought one of your drones today. Unfortunately, it sells for over $1,000. That is quite a bit more than the $300 you can spend on a DJI drone. I guess it's no surprise then why Skydio pulled out of the U.S. consumer market last year,” Krishnamoorthi said, adding that the same story can be told about numerous industries – from recyclable, biodegradable to-go containers, to solar panels. “The CCP plan is very much the same across industries. They deny access to their markets and then they flood our markets. We have to take action on this.”

Chris Miller, a non-resident fellow at the American Enterprise Institute (AEI), recommended a mix of trade tools when dealing with China, including import restrictions. [Testimony]

Rep. Ashley Hinson (R-IA-2) asked Bry what he thought the government could do to help offset some of the cost differences between American-made drones and Chinese drones.

“I think the idea that’s been floated of placing tariffs on Chinese drones or increasing tariffs on Chinese drones, or at least enforcing the tariffs that are already there, is good,” Bry said. “The Chinese are also trying to get around these tariffs by going in through other countries. I think (tariffs) is one of the more natural opportunities that’s going to leverage our strengths,” he told her.

Hinson said her team was working on a bill to target Chinese tariff circumvention. “We’re trying to tackle that side of it,” she said.

“We all want to improve our competitiveness with China,” said Rep. Seth Moulton (D-MA-X). “We want to stop them from eating our lunch, stealing our ideas, taking all the good work that we do in research and development, and then profiting off of it by selling those products to the world.”

House CCP Discusses Ships and Chips

The House Select Committee on the CCP hearing focused on two other topics besides drones: chips and ships. The Biden administration passed landmark legislation to help semiconductor manufacturers in the CHIPS Act, and in April the White House ordered the USTR to begin investigating Chinese shipbuilding to see if subsidies are plentiful and distortive.

All Aboard…

The number of major U.S. shipyards has gone from 27 to 8. Meanwhile, China’s shipbuilding industry has skyrocketed. In 2002, China controlled 8% of the global shipbuilding market. Today, they control 51%, more than the rest of the world combined.

Chairman Moolenaar asked Scott Paul of the Alliance for American Manufacturing [Testimony] if state subsidies are going to the shipbuilding industry and if that is artificially reducing the cost of Chinese ships – such as merchant marine vessels used in global commerce.

“Yes. China has consistently done that for at least 20 years,” Paul said.

Paul said Section 301 tariffs were imperative here. “I think that’s very important so that there’s a disincentive for the commercial sector to be buying those heavily subsidized ships,” he said, adding that a new trade case petition should be considered following the USTR’s investigation into Chinese shipbuilding subsidies.

“I think the second aspect of (tariffs) is to use some of the revenue towards workforce training to provide a stable labor market for the United States so those shipyards that are currently only doing repairs on ships are turned into shipbuilders instead. And there are demand mechanisms that are identified in that petition that I think would be important as well,” Paul said. “We stopped investing in our shipbuilding in the 1980s. Adam Smith thinks free trade is important, but you have to invest in your own ships because they’re essential goods and they’re expensive. But we gave it up and others took advantage. China came in, and through a series of Five-Year Plans, identified shipbuilding as a pillar industry for them and poured hundreds of billions of dollars into the sector,” Paul said. “Think of all the materials that go into the ships, and how they are subsidized. So, it’s subsidy on top of subsidy on top of subsidy, and they would stop at nothing to keep that going. We need to respond to that through the Section 301 petition, and we need to restore some shipbuilding investment to turn these repair shipyards into building shipyards.”

Import and capital market restrictions for semiconductors…

Rep. Blaine Luetkemeyer (R-MO-3) talked about the CHIPS Act as an incentive tool and wondered if companies here investing in China were ultimately undermining that law.

Miller said investment flows into China’s chip industry “have declined substantially.”

“There are ways we can keep money from flowing from U.S. investors into the Chinese markets, where we are funding their ability to compete against our CHIPS Act companies here,” Luetkemeyer said. “Should we delist some of these companies from U.S. exchanges? That’s one way to strangle the money from them. Would you agree?”

“I think that is one approach,” Miller said.

“What are some of the other approaches, and how do you incentivize people to stay here versus go to China?” Leutkemeyer asked him.

“I think the restrictions coming into force on venture capital investment in China is an example of another approach that will reduce investment into the Chinese chip ecosystem,” Miller said, noting that new ideas on Chinese capital market restrictions being tossed around still on Capitol Hill.

Rep. Ro Khanna (D-CA-17) hinted that these Washington hand-wringing discussions are sounding repetitive. “We’ve had this argument time and time again, how we don’t want to pay a penny more for consumer prices, and we want to maximize corporate profits,” he said. “To do that, we’ve allowed industry after industry to go to China.”

Washington can always do nothing and see what happens.

Chairman Moolenaar asked Miller from AEI, “If these market distortions continue without actions by the U.S. government, will there be alternatives to Chinese products in the decades ahead?”

“There is a risk of becoming excessively dependent on Chinese suppliers,” Miller said.

Some on the Committee want to take it easy, and simply single out China. Rep. Andy Barr (R-KY-6) called China an ‘exceptional case’ and said he agrees with the Chamber of Commerce’s view that “protectionist policy could evolve into something beyond China” – meaning it will include tariffs on other countries.

Although China is keen on keeping manufacturing at home, companies have been allowed to outsource to Southeast Asia and invest in new manufacturing plants and partnerships in Mexico to maintain market share.

But Barr said extending tariffs beyond China is a mistake, and is an example of how the opposition sees things on China and global trade.

“The advantage that we have in our country is that we’re capitalists. We do believe in free and reciprocal trade, not with China because China is an exceptional case and they don’t engage in free trade. But I think it would be a mistake to try to copy Chinese industrial policies because that is the best way to misallocate resources. Free markets are the answer in our competition with China.”

American Drone Maker Tells House CCP Committee Tariffs Necessary

House CCP Discusses Ships and Chips

All Aboard…

Import and capital market restrictions for semiconductors…

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