Creating a stark choice between American investment and forced labor operations is the best way to combat modern slavery in China.
Public opinion of China has shifted drastically in the past decade. A recent Pew poll found that 83 percent of Americans now hold a negative view of the People’s Republic. That’s understandable given China’s long history of predatory trade against U.S. manufacturers. But there’s also the uptick in threats against Taiwan and the recent spy balloon let loose over the continental United States. As troubling as these military and espionage threats are, however, Americans are particularly bothered by the ugly human rights abuses that Beijing continues to mete out in western China. Forced labor in the Xinjiang Uighur Autonomous Region (XUAR) is deeply disturbing, and Congress must now apply maximum pressure on Beijing to rescue thousands of indigenous people pressed into virtual slavery.
Americans might be surprised to learn that some of the world’s top brands—including Apple, BMW, Gap, Nike, Samsung, Sony, and Volkswagen—utilize supply chains linked to the forced labor of Uighurs and other ethnic minorities in western China. It’s estimated that more than one million people in the XUAR have already been shipped to detention camps. And tens of thousands have also been transferred to factories throughout China.
Who exactly is benefiting from this forced labor? The Coalition for a Prosperous America (CPA) recently published a list of 50 Chinese enterprises with links to forced labor in China. This includes companies that are publicly traded in China and Hong Kong as well as in global markets.
Many of these Chinese entities are also tied to U.S. capital markets and American investors. As a result, these companies expose tens of millions of American retail investors to the financial risks and moral hazards of corporate “bad actors.”
Some of the Chinese firms tied to forced labor are now included in major financial indices, including MSCI, FTSE-Russell, and Dow S&P. However, because they are publicly traded companies, these companies are also interwoven with Exchange Trade Funds (ETFs) and index funds included in the investment products of BlackRock, Vanguard, and other large Wall Street firms. As a result, millions of everyday American investors are unwittingly investing in pensions, mutual funds, and other retirement products tied to Chinese companies with links to labor abuse.
A typical example is Huafu Fashion—which sources cotton from Xinjiang. More than 20 percent of the world’s cotton is produced in Xinjiang, and the U.S. Customs and Border Patrol (CBP) has identified cotton as a high-risk sector for China’s forced labor products. Huafu Fashion is a subcontractor for Adidas, GAP, Lululemon, and Target, among other notable brands.
In December 2021, President Biden signed the Uighur Forced Labor Prevention Act (UFLPA). Since then, the United States has blocked more goods from Xinjiang based on a presumption of forced labor. But while the UFLPA has increased the tools required to stop such importation, Beijing remains unmoved. That means Congress must now increase efforts to target the investor capital that funds these Chinese companies.
This is where the United States possesses enormous leverage. America’s financial markets are the single greatest means for Chinese firms to attract investment. As such, Congress could demand that the Treasury Department, the Securities and Exchange Commission (SEC), and the National Economic Council identify the specific financial risks for millions of American retail investors exposed to Chinese companies traded in U.S. capital markets.
What Congress can do is set criteria for thoroughly identifying companies that source goods through forced labor. Any company that does not completely disassociate from forced labor would be excised from trading and investing in U.S. markets. This would also include any exchange-traded funds (ETFs) and mutual funds containing such entities.
Essentially, global brands will face a choice: sever ties with Chinese companies tied to forced labor or be removed from U.S. financial markets.
This is a stark, necessary effort since publicly traded companies continue to knowingly engage in forced labor through their financing and direct business operations. This is abhorrent, and they should not be permitted to raise funds or trade in U.S. markets. Congress must apply leverage and force global brands to finally divest from such brutality—or have the world divest from them.
This Op-Ed by CPA CEO Michael Stumo was originally published on June 14, 2023 in National Interest.
