With one major exception, an amendment by Senator Mike Crapo (R-ID) to a massive China bill is mostly bad.
Between a mile-long list of requested tariff-free and tariff-reductions on goods ranging from chemicals no one but a chemist has ever heard of, to golf balls and wetsuits, to all tariff exemptions on personal protection equipment needed to fight pandemics, amendment number 1562 adds very little to Senator Chuck Schumer’s U.S. Innovation and Competition Act (S. 1260).
Crapo’s amendment was agreed to by Schumer this week as a consolation to getting more votes in favor of what many have called the Senate China bill as it addresses a feared competitive lag, and supply chain resiliency.
Crapo’s amendment passed the Senate nearly unanimously, with only four voting against it.
91-4: Senate adopts Crapo-Wyden bipartisan trade policy amdt to science and technology research China bill.
4 Senators Cotton, Hawley, Rubio and Sanders voted No. pic.twitter.com/N2Chh6HLGe
— Craig Caplan (@CraigCaplan) May 27, 2021
Senator Marco Rubio (R-FL) voted against Crapo’s addition, saying it made “no sense” in a bill designed to protect American supply chains for its over-reliance on China.
“It is critical that our legislative effort to compete with China doesn’t inadvertently end up benefiting the Chinese Communist Party. Unfortunately, like far too many components of this package, this amendment fails to meet that bar,” Rubio said. “If the stated purpose of the bill before us is to make our nation more competitive, especially in light of our reliance on China for basic products, including personal protective equipment, it makes no sense to support a provision that cuts tariffs on products made in China.”
CPA wrote a letter to Finance Committee leader Ron Wyden (D-OR), a China hawk, and warned about an amendment to include an extension of the Generalized System of Preferences (GSP) and Miscellaneous Tariff Bill (MTB). Both of those trade rules keep low-cost producers as major beneficiaries of U.S. economic growth, often at the expense of domestic manufacturing and labor.
Wyden said the extension of GSP and MTB were a “win-win”. He mostly believes that it will benefit countries who abide by American labor and environmental standards, but – as the cliché goes – the proof is in the pudding. Only time will tell how this will be enforced. It could be a pretty bow over a pretty package with nothing really of value inside.
Some of China’s Belt and Road partners in Asia can transship through them thanks to weak rules of origin in the GSP program. Only 35% of a product must come from the GSP country in order to be eligible for the zero-tariff treatment.
CPA warned about MTBs impact on one hot sector – the nascent EV truck market.
“President Biden’s American Jobs Plan could be threatened by the MTB on various fronts. In the electric vehicle (EV) market, for example, Mitsubishi-Fuso Bus & Truck Corporation has petitioned the government to waive the 25 percent tariff on medium-duty electric trucks. Granting the waiver could unleash a potential flood of imported electric trucks that would quickly overwhelm America’s infant EV truck industry. Unfortunately, Mitsubishi’s petition has already received “recommended” status by a government agency and could be allowed if Congress passes the MTB bill,” CPA’s CEO Michael Stumo warned in an op-ed on April 11 in The Washington Times.
America’s SUV and pick-up truck market has done well for the big automakers thanks to tariffs. U.S. auto imports have nearly doubled over the last 10 years.
Other than asking for country of labeling for beef (Figure 1), which CPA supports, the new amendment is full of government investigations, formations of new committees on labor rights and China’s extra-territorial censorship, and tries taking a hammer to Section 232 and Section 301 tariffs as they relate to pandemic relief.
Figure 1: Excerpt from the amendment on COOL for beef.
What’s in Amendment 1562?
Title III of the amendment is where things get gnarly.
Anyone who has listened in on Sen. Crapo’s comments during Finance Committee meetings knows that he has been calling for faster exemptions from Section 301 tariffs on China. He is also anti-tariff in general. Here, he calls for giving Congress more power of the USTR and creating a USTR watchdog unit in the form of an Inspector General. This bureaucracy would slow the Executive Branch from making any White House trade decisions.
The amendment also calls for duty suspensions and reductions on numerous goods, including some textiles (cashmere, spandex, elastane) and face gaiters, often used as face masks. The list here is so long it would take an hour to go through.
One side note, the amendment looks for tariff exemptions for exercise cycles. Peloton just built a $400 million factory in Ohio.
The amendment is a headwind for other legislation looking to reshore personal protection equipment (Figure 2). The Senate has heard from industry leaders on this before. China is back to dumping products in the United States, meaning the many millions of dollars textile producers put to work in retooling to make things like hospital gowns or specialty microbial masks won’t get put to full use.
Figure 2: PPE Exemptions
The Crapo amendment has its good points, but many of the good points are too slow to take hold. Including the country-of-origin labeling for beef.
There is also language in their on looking at Hong Kong as an end-around certain tariffs and restrictions. But if the amendment is lifting those restrictions and tariffs anyway on certain goods, then the Hong Kong language may be moot.
Finally, another highlight we like is a review of overcapacity along key supply chains. Here, Crapo singles out China, but also brings up the Biden administration rhetoric of tackling oversupply issues through “discussions with allies” and – worse – “bilateral negotiations with the People’s Republic of China.”
CPA’s take is that we have been negotiating with China on these issues for years. This is kick-the-can-down-the-road legislation.
Moreover, should the USTR find that China, or any other country, is operating above capacity and therefore dumping products and suppressing global prices for things like steel, the bill calls for action “not later than one year to two years”.
Schumer’s China bill has included the COOL Online Act by Sen. Tammy Baldwin (D-WI). Amazon and the National Retail Federation are against labeling where their products are made and sold from.
For now, our concern is that if Schumer’s bill passes without COOL Online, and with the Crapo amendment intact, then we go from a mostly anti-China bill, to a somewhat pro-China one.