Multinationals have been given two years to source supply outside of mainland China, instead they worked with K Street lobbyists and trade groups to get Congress to give them more tariff exemptions.
On Tuesday, Senator Elizabeth Warren (D-MA) wondered if the big multinationals, who have aided and abetted in China’s growth, and its side effect of creating economic dead zones in the U.S., had any loyalty to the U.S. In fact, Warren said during today’s Subcommittee on Fiscal Responsibility and Economic Growth of the Senate Finance Committee, which she chairs, that “big multinationals have no loyalty to our nation. They say quite openly that our loyalty is to our shareholders,” she said, noting that a chunk of those shareholders are foreign investors.
In a hearing titled Defending and Investing in U.S. Competitiveness, Warren said the U.S. has a chance to show China and the world that an American approach that invests in and promotes workers in trade policy is the best way to compete.
“American workers need to have a fair set of trade rules, which they do not have right now,” Warren said in her spirited open remarks. She has become a battle axe on the China front. “Our trade rules have undercut our workers, promoted off shoring, and created a global race to the bottom for labor and environmental standards. U.S trade policy needs structural reforms,” she said, adding that China “fundamentally devalues its workers by oppressing minorities in forced labor camps, and treating migrant rural workers in cities as second class citizens.”
This is true, said witness Mary Gallagher, the Amy and Alan Lowenstein Professor in Democracy, Democratization, and Human Rights at the University of Michigan in Ann Arbor, Michigan.
“Rural workers who migrate to cities for work do not get the same benefits,” Gallagher said in her opening remarks. Some 60% of China’s population, over 800 million, live in urban centers like Shanghai. But over 230 million, roughly the population of Brazil, are classified as rural and do not have rights to settle in Shanghai, arguably the most known China skyline, and a place the Western world equates with all of China. Still, the Michael Kors bag carrying Shanghai local is likely treated a lot better than the migrant worker that stitched her bag together in a factory somewhere and went home to a dorm room with other migrant workers.
The difference in labor rules is also compounded by the difference in environmental rules. While China has made some improvements in this regard, there is no trade agreement that fixes those disparities, unlike the United States Mexico and Canada Agreement, and the Central America Free Trade Agreement.
All of this means the big multinational outsources find better business and investment prospects in China, then they do in Central America.
“We don’t have a trade agreement with China so there are no standards for workers, so that serves to lower the cost of production in China relative to Mexico,” said ranking member, Senator Bill Cassidy (R-LA). “The cost of compliance that Mexico and Central America needs to invest in for environmental and labor protection, China does not have that cost. So between 2017-2919, China FDI inflow increased while FDI inflow to Central American decrease by around $1 billion,” he said.
That sucks jobs out of parts of the world that are sending thousands of migrants to the U.S., usually always in search of jobs, pressuring blue collar labor costs.
China’s relationship with Mexico was brought up in the hearing. But not in a good way. China is a leader in black market economies, from fentanyl shipped into the U.S. by Mexican drug cartels, to counterfeit goods like fake Nike Air Jordans.
According to David Luna, executive director from the International Coalition Against Illicit Economies in Washington, DC, said that some 80% of all counterfeit goods seized in the U.S. are coming in from China. He equated that to a loss of around 190,000 jobs in 2019 alone.
Warren spent part of her time touting her new Build Green and Buy Green bills that she wants to include in Congress’s infrastructure package. The bills focus on American manufacturing.
In green tech, China has taken its cues from Washington and Brussels over the years. After listening to leader after leader discuss climate change and the shift away from fossil fuels, China smartly invested in setting up shop to become the Western world’s Green OPEC. European’s solar industry has been decimated. The U.S. solar industry survives in large part due to Trump-era tariffs and anti-dumping victories against Chinese multinational solar manufacturers.
Jane Nakano, Senior Fellow in the Energy Security and Climate Change Program at the Center for Strategic and International Studies said Washington needs to be mindful of China’s near total dominance of supply chains serving the post-fossil fuel economy – from EV car batteries, to solar cells and wind turbines.
“Our overreliance on China for these new energy metals needs to be remedied,” she said. “Fundamentally, the U.S. has to do more to enhance its alternative energy competitiveness. You need to preserve a strong innovation ecosystem, rebuilding a manufacturing base, and securing supply chains.”
As the House tackles its own version of the recently passed U.S. Innovation and Competition Act in the Senate, dubbed the China bill, legislators would be wise not to repeat the trade provisions that make it easier to remove China tariffs. Companies had two years to get their act together and source outside of China, as one of the aims of those tariffs were to build supply chain resiliency. Instead, companies of all sizes – not just the corporate giants – opted to take a wait-and-see approach. They prefer the status quo, and weaker protections against China’s unfair trade practices. Any move by the House to replicate the trade provision that passed the massive Senate bill is counter to nearly every single thing Warren, Cassidy and the witnesses discussed today.
“America is never going to outcompete China with a country full of struggling workers,” said Senator Ron Wyden (D-OR). “That is a recipe for decline. Me, Warren, Cassidy, Biden, want to turn this around. That is what we just heard today at lunch. This is a hugely important subject. It is bipartisan. And we are going to have more hearings on this in the days ahead.”