The new House Select Committee on the Chinese Communist Party finished off 2023 with a year-ending report highlighting the hearings they had this year on the China issue, centering the 52 pages on a to-do list for Congress in 2024.
The Committee, led by Chairman Mike Gallagher of Wisconsin and Ranking Member Raja Krishnamoorthi of Illinois, became “must-see TV” as far as Capitol Hill hearings went this year. The bipartisan members’ year-long listen-and-learn hearings and world tour culminated in their strategy report, released on Tuesday.
In it, the China Committee outlined three main categories of action, or pillars, including the continuation of a re-evaluation of the China relationship and a soft decoupling of the two economies; supply chain resiliency; and stemming the flow of capital to China from the likes of Wall Street and Silicon Valley. In total, the report makes nearly 150 policy recommendations to fundamentally reset the U.S.-China relationship.
Despite the heightened risks associated with U.S. investment in Chinese companies, the full extent and distribution of that risk and the implications for U.S. national security and financial stability remain unknown. The United States lacks a contingency plan for the economic and financial impacts of conflict with China. – from Pillar I of the year-end strategy report for 2024 for House China policy, by the House Select Committee on the CCP.
Over the spring, summer, and fall of 2023, the Select Committee held hearings, met with industry officials and experts, and traveled domestically and internationally to understand more of the challenges China poses. The Committee sent letters to Nike, Adidas, Shein and Temu asking about where they source their cotton from when making apparel in China as cotton from the far western Xinjiang province is off limits to the U.S. economy due to concerns about forced and prison labor of Uyghur Muslims there.
The Committee also sent letters to at least four venture capital firms regarding their investments in Chinese advanced technology start-ups. Although these actions have not produced any noticeable fruit, China watchers will just have to wait and see what evolves here next year. All told in Washington, the China threat nexus has only become top of mind since the Trump presidency. Before that, Washington’s way to challenge China was to lump every China neighbor into a free trade agreement with the U.S., as was the case with the now-defunct Trans-Pacific Partnership. Such a move would have created a half dozen mini-Chinas to contend with, plus the one big China we already have.
At the heart of the report is a story that says the government and the private sector can no longer ignore the systemic risks associated with doing business in China. A company’s pursuit for profit cannot come at the expense of U.S. national security and domestic economic well-being, Committee members agreed.
The report’s release comes roughly four weeks after Xi Jinping met with President Joe Biden in San Francisco. At a dinner held at the Hyatt Regency during the Asia Pacific Economic Cooperation event in which Xi and Biden met, numerous A-list executives paid $40,000 to sit at a table with Xi. These included top corporate executives like Tim Cook of Apple, and Larry Fink of BlackRock. During Xi’s speech, he called for friendship between the U.S. and China and a “win-win” situation. He was given a standing ovation by Cook, Fink, and hundreds of others who paid $2,000 for dinner with the Chinese leader.
The House Select Committee has its work cut out for them.
Here are some of the Committee’s recommendations that may interest CPA members:
House China Committee’s 2024 Recommendations
- De minimis: Aka the “China Free Trade Deal”
De minimis allows for duty-free shipment of goods to the United States if priced under $800. This has created what one Customs official referred to as the China free trade agreement.
The House China Select Committee says it wants changes to the de minimis import rule. Will they be able to persuade other members of Congress to go against the interest of customs brokers, and international shipping giants?
The Committee found that the U.S. cannot adequately track these small packages priced under $800. De minimis shipments enter the United States with fewer data elements than formal entries (ships at port carrying large containers), increasing the risk that contraband, narcotics, Uyghur forced labor products – namely apparel and solar goods – may enter the United States. The Committee recommends Congress pass legislation amending the Tariff Act of 1930 to reduce the de minimis threshold with particular focus on China. This is similar to legislation sponsored by Rep. Earl Blumenauer (D-OR). Congress should also direct Customs to strengthen its enforcement against transshipments from China into the U.S. market using the de minimis rule, the report states. Although the report does not make note of this, the de minimis reformers are not without their enemies on Capitol Hill. Some bills are likely to be poisoned by the interests of customs brokers, importers and large delivery companies. The Committee, and Congress, would be wise to understand the opposition’s interest in keeping de minimis as is. Overall, the Committee acknowledged the problems of the de minimis loophole and recommended changes in line with existing bipartisan legislation.
[Read the letter sent to Senate and House leaders by CPA, others, on de minimis used to import duty-free narcotics, contraband.]
- Most Favored Nation No More?
The Committee said China should no longer receive Most Favored Nation status, aka Normal Trade Relations status. Instead, creation of a new tariff schedule just for China was recommended, with tariff increases to limit our import reliance. The United States no longer maintains some of the key tools that were once available to protect itself against the distortions from non-market economies. Hearing witnesses encouraged Congress to rebuild that toolkit, including by revisiting China’s Permanent Normal Trade Relations and returning to an annual renewal of that trade status, the report said, adding that the Committee members acknowledged that granting China Permanent Normal Trade Relations did not lead to the benefits expected for the United States nor did it lead to the structural reforms in China. “Instead, it has ceded critical U.S. economic leverage in our relationship with China. Moving China to a new tariff column restores U.S. economic leverage to ensure that China abides by its trade commitments and does not engage in coercive or other unfair trade practices. It will also decrease U.S. reliance on China imports in sectors important for national and economic security,” the Committee said.
Removing China’s Most Favored Nation Status should be phased in over a relatively short period of time to give our economy the time necessary to adjust, the Committee recommended.
[Read CPA Trade Counsel Charles Benoit’s take on removing MFN for China here.]
- Domestic Investment, Tax Incentive Programs
The Committee wants the U.S. to invest in American innovation and strategic sectors of the economy with the help of tax incentives to encourage private investment.
Here, the strategy report mentions more government funding for research and development institutes that dole out money to companies and academic centers. And called for better guardrails to prevent foreign adversaries from exploiting U.S.-funded research, and to ensure federal incentive programs are not bolstering Chinese companies. The report should have mentioned China EV battery giants CATL and Gotion investing in the U.S. thanks to Inflation Reduction Act benefits. The same goes for solar players like JA Solar, Trina Solar and Canadian Solar (which is really Chinese-manufactured). While these are investments in the U.S. economy and in U.S. labor, these are indeed Chinese multinationals and not American ones who are taking part in those programs. American solar companies have been nearly wiped out due to China’s predatory trade practices. Anti-dumping duties, the Section 201 solar safeguards and the IRA stopped the bloodletting.
[Read about the recent Senate Finance Committee hearing where Sen. Thom Tillis (R-NC) says
the U.S. needs a tax incentives program to produce generic drugs at home.]
The strategy report called on Congress to create legislation that will lead to a reduction in U.S. dependency on China for its pharmaceutical supply chain. They recommended establishing a “Buy America” pilot program requiring Medicare, Medicaid, the U.S. Department of Veterans Affairs, the U.S. Department of Defense, and other federally funded health systems to purchase their pharmaceuticals and basic medical devices and goods only from U.S. labs. But in this recommendation, the Committee includes allies or “like-minded traded partners” which can be assumed to be the same thing. India is the largest source of generic drugs into the United States and most people in Congress would consider India an ally. The other portion of our drug imports come from Europe. Despite mentioning incentives, missing from this was a CHIPS Act like policy for drugs in short supply. Clearly the Committee is aware of the drug shortages and the country’s dependence primarily on India for generics. There is new legislation in the House from Rep. Claudia Tenney (R-NY) that provides tax incentives to generic drug manufacturers in the United States, not in Europe or India. CPA strongly supports this legislation, called the PILLS Act.
- Capital Market Restrictions on the List
The Committee said that no one knows what U.S. capital flowing into China is doing. “Given the heightened risk, this fundamental lack of information is antithetical to the American system of fair, orderly, and reliable markets and undermines the ability of U.S. regulatory agencies to protect investors,” they said.
They recommend Congress enact the Reveal Risky Business in China Act (H.R. 4451), requiring large U.S. public companies to disclose key risks related to China and the expected effects of a sudden change in market access.
They also recommended Congress tell the Treasury to provide monthly reports on U.S. portfolio holdings of foreign securities on the basis of nationality and, where appropriate, by sector. At present, the Treasury Department provides only annual nationality-adjusted reports with no sectoral information. Treasury should be required to provide quarterly reports on the U.S. portfolio holdings of China holdings, including companies on the Entity Lists run by Commerce and the Defense Department.
They also said Congress should ask the Federal Reserve to stress-test U.S. banks for their ability to withstand a potential sudden loss of market access to China.
On investment restrictions, the Committee did not mention outbound investment restrictions that would make it harder for Silicon Valley and private equity to invest in China advanced tech start ups and defense related industries, like drones. However, they did recommend banning investments in companies on the Uyghur Forced Labor Law Entity List. This will run up against opposition from the private equity firms piped into senior House members on other committees.
Legislation on capital market restrictions should include subsidiaries and parent or holding companies of China entities already facing restrictions, such as investment bans enforced by Treasury, or trade restrictions due to being on the Entity List. They recommended Congress enact legislation to prevent investment in Entity List names and consider mandating that the SEC delist any companies on the Uyghur Forced Labor list, managed by Homeland. Only one company on that list is publicly traded in New York – Daqo New Energy. Lastly, the Committee said that the federal retirement Thrift Savings Plan should be banned from investing in China companies on the Entity List, and that private equity firms disclose their investments in China. This pits large private capital against Capitol Hill, a group that is often part of the DC donor class.
[Read the CPA report about Entity List companies owned by Wall Street here.]
- COOL Online Gets a Mention
The Committee recommends Congress enact legislation like the COOL Online Act (H.R. 6299) mandating country-of-origin labeling for online-purchased products to ensure transparency,
consumer understanding, and clear trade practices in the digital marketplace. With the increasing prevalence of e-commerce, consumers should be able to make informed choices about the products they buy. Most online retailers will only say a product is imported rather than state country of origin, though this can be found at times.
[Read what Sens. J.D. Vance (R-OH) and Tammy Baldwin (D-WI) have ready to go regarding country-of-origin labeling legislation for online retail.]
- Minerals, Mining & Mexico
Other issues to tackle included the U.S. dependence on foreign supply of critical minerals and rare earths.
They said that Congress must move next year to ensure that critical minerals and materials needed for national security purposes are sourced domestically or from friendly countries when not feasible at home.
Congress should work with the executive branch and USTR to “advance sector-specific agreements to secure critical minerals and other components essential to U.S. economic and national security,” Committee members said, adding that there needed to be policies that incentivized the production of rare earth element magnets, used in electric vehicles, wind turbines, industrial automation, wireless devices, and GPS systems for the military. Once again, they said Congress should develop tax incentives that create a preference for American manufacturing for rare earths. They also encouraged support for the domestic battery recycling industry.
The Committee warned that Congress needs to pay careful attention to Mexico, making sure that the U.S. has strong rules of origin to prevent China from using trading partners in free trade deals to gain duty-free access to the U.S. While not mentioned in the report, the Central American Free Trade Agreement is another hot spot for China to dump goods that can then be shipped to the U.S. There is some concern that this is happening in textiles, for example.
Finally, the Committee recommends Congress direct the USTR next year to bring a comprehensive WTO dispute against China subsidies and non-market economic policies together with a coalition of countries who would then document how China has undermined the global economy with its unbalanced trade, and its perennial overproduction to keep full employment at home.
From the report: “Consecutive U.S. presidential administrations have sounded the alarm on growing U.S. dependence on China for critical goods, including rare earth minerals, components and chemicals used in U.S. weapon systems, and pharmaceutical products and precursors. China has already demonstrated its willingness to weaponize these dependencies to coerce the United States to constrain our policy options. Lastly, China’s growing leadership in key critical and emerging technologies vital to long-term competitiveness only heightens these risks.”
House China Committee Agrees On Key Principles, But Disagrees On Decoupling, Industrial Policy
House China Select Committee Has Big Recommendations For Congress In 2024
The new House Select Committee on the Chinese Communist Party finished off 2023 with a year-ending report highlighting the hearings they had this year on the China issue, centering the 52 pages on a to-do list for Congress in 2024.
The Committee, led by Chairman Mike Gallagher of Wisconsin and Ranking Member Raja Krishnamoorthi of Illinois, became “must-see TV” as far as Capitol Hill hearings went this year. The bipartisan members’ year-long listen-and-learn hearings and world tour culminated in their strategy report, released on Tuesday.
In it, the China Committee outlined three main categories of action, or pillars, including the continuation of a re-evaluation of the China relationship and a soft decoupling of the two economies; supply chain resiliency; and stemming the flow of capital to China from the likes of Wall Street and Silicon Valley. In total, the report makes nearly 150 policy recommendations to fundamentally reset the U.S.-China relationship.
Over the spring, summer, and fall of 2023, the Select Committee held hearings, met with industry officials and experts, and traveled domestically and internationally to understand more of the challenges China poses. The Committee sent letters to Nike, Adidas, Shein and Temu asking about where they source their cotton from when making apparel in China as cotton from the far western Xinjiang province is off limits to the U.S. economy due to concerns about forced and prison labor of Uyghur Muslims there.
The Committee also sent letters to at least four venture capital firms regarding their investments in Chinese advanced technology start-ups. Although these actions have not produced any noticeable fruit, China watchers will just have to wait and see what evolves here next year. All told in Washington, the China threat nexus has only become top of mind since the Trump presidency. Before that, Washington’s way to challenge China was to lump every China neighbor into a free trade agreement with the U.S., as was the case with the now-defunct Trans-Pacific Partnership. Such a move would have created a half dozen mini-Chinas to contend with, plus the one big China we already have.
At the heart of the report is a story that says the government and the private sector can no longer ignore the systemic risks associated with doing business in China. A company’s pursuit for profit cannot come at the expense of U.S. national security and domestic economic well-being, Committee members agreed.
The report’s release comes roughly four weeks after Xi Jinping met with President Joe Biden in San Francisco. At a dinner held at the Hyatt Regency during the Asia Pacific Economic Cooperation event in which Xi and Biden met, numerous A-list executives paid $40,000 to sit at a table with Xi. These included top corporate executives like Tim Cook of Apple, and Larry Fink of BlackRock. During Xi’s speech, he called for friendship between the U.S. and China and a “win-win” situation. He was given a standing ovation by Cook, Fink, and hundreds of others who paid $2,000 for dinner with the Chinese leader.
The House Select Committee has its work cut out for them.
Here are some of the Committee’s recommendations that may interest CPA members:
House China Committee’s 2024 Recommendations
De minimis allows for duty-free shipment of goods to the United States if priced under $800. This has created what one Customs official referred to as the China free trade agreement.
[Read the letter sent to Senate and House leaders by CPA, others, on de minimis used to import duty-free narcotics, contraband.]
The Committee said China should no longer receive Most Favored Nation status, aka Normal Trade Relations status. Instead, creation of a new tariff schedule just for China was recommended, with tariff increases to limit our import reliance. The United States no longer maintains some of the key tools that were once available to protect itself against the distortions from non-market economies. Hearing witnesses encouraged Congress to rebuild that toolkit, including by revisiting China’s Permanent Normal Trade Relations and returning to an annual renewal of that trade status, the report said, adding that the Committee members acknowledged that granting China Permanent Normal Trade Relations did not lead to the benefits expected for the United States nor did it lead to the structural reforms in China. “Instead, it has ceded critical U.S. economic leverage in our relationship with China. Moving China to a new tariff column restores U.S. economic leverage to ensure that China abides by its trade commitments and does not engage in coercive or other unfair trade practices. It will also decrease U.S. reliance on China imports in sectors important for national and economic security,” the Committee said.
[Read CPA Trade Counsel Charles Benoit’s take on removing MFN for China here.]
The Committee wants the U.S. to invest in American innovation and strategic sectors of the economy with the help of tax incentives to encourage private investment.
Here, the strategy report mentions more government funding for research and development institutes that dole out money to companies and academic centers. And called for better guardrails to prevent foreign adversaries from exploiting U.S.-funded research, and to ensure federal incentive programs are not bolstering Chinese companies. The report should have mentioned China EV battery giants CATL and Gotion investing in the U.S. thanks to Inflation Reduction Act benefits. The same goes for solar players like JA Solar, Trina Solar and Canadian Solar (which is really Chinese-manufactured). While these are investments in the U.S. economy and in U.S. labor, these are indeed Chinese multinationals and not American ones who are taking part in those programs. American solar companies have been nearly wiped out due to China’s predatory trade practices. Anti-dumping duties, the Section 201 solar safeguards and the IRA stopped the bloodletting.
[Read about the recent Senate Finance Committee hearing where Sen. Thom Tillis (R-NC) says
the U.S. needs a tax incentives program to produce generic drugs at home.]
The Committee said that no one knows what U.S. capital flowing into China is doing. “Given the heightened risk, this fundamental lack of information is antithetical to the American system of fair, orderly, and reliable markets and undermines the ability of U.S. regulatory agencies to protect investors,” they said.
They recommend Congress enact the Reveal Risky Business in China Act (H.R. 4451), requiring large U.S. public companies to disclose key risks related to China and the expected effects of a sudden change in market access.
They also recommended Congress tell the Treasury to provide monthly reports on U.S. portfolio holdings of foreign securities on the basis of nationality and, where appropriate, by sector. At present, the Treasury Department provides only annual nationality-adjusted reports with no sectoral information. Treasury should be required to provide quarterly reports on the U.S. portfolio holdings of China holdings, including companies on the Entity Lists run by Commerce and the Defense Department.
They also said Congress should ask the Federal Reserve to stress-test U.S. banks for their ability to withstand a potential sudden loss of market access to China.
Legislation on capital market restrictions should include subsidiaries and parent or holding companies of China entities already facing restrictions, such as investment bans enforced by Treasury, or trade restrictions due to being on the Entity List. They recommended Congress enact legislation to prevent investment in Entity List names and consider mandating that the SEC delist any companies on the Uyghur Forced Labor list, managed by Homeland. Only one company on that list is publicly traded in New York – Daqo New Energy. Lastly, the Committee said that the federal retirement Thrift Savings Plan should be banned from investing in China companies on the Entity List, and that private equity firms disclose their investments in China. This pits large private capital against Capitol Hill, a group that is often part of the DC donor class.
[Read the CPA report about Entity List companies owned by Wall Street here.]
The Committee recommends Congress enact legislation like the COOL Online Act (H.R. 6299) mandating country-of-origin labeling for online-purchased products to ensure transparency,
consumer understanding, and clear trade practices in the digital marketplace. With the increasing prevalence of e-commerce, consumers should be able to make informed choices about the products they buy. Most online retailers will only say a product is imported rather than state country of origin, though this can be found at times.
[Read what Sens. J.D. Vance (R-OH) and Tammy Baldwin (D-WI) have ready to go regarding country-of-origin labeling legislation for online retail.]
Other issues to tackle included the U.S. dependence on foreign supply of critical minerals and rare earths.
They said that Congress must move next year to ensure that critical minerals and materials needed for national security purposes are sourced domestically or from friendly countries when not feasible at home.
The Committee warned that Congress needs to pay careful attention to Mexico, making sure that the U.S. has strong rules of origin to prevent China from using trading partners in free trade deals to gain duty-free access to the U.S. While not mentioned in the report, the Central American Free Trade Agreement is another hot spot for China to dump goods that can then be shipped to the U.S. There is some concern that this is happening in textiles, for example.
Finally, the Committee recommends Congress direct the USTR next year to bring a comprehensive WTO dispute against China subsidies and non-market economic policies together with a coalition of countries who would then document how China has undermined the global economy with its unbalanced trade, and its perennial overproduction to keep full employment at home.
From the report: “Consecutive U.S. presidential administrations have sounded the alarm on growing U.S. dependence on China for critical goods, including rare earth minerals, components and chemicals used in U.S. weapon systems, and pharmaceutical products and precursors. China has already demonstrated its willingness to weaponize these dependencies to coerce the United States to constrain our policy options. Lastly, China’s growing leadership in key critical and emerging technologies vital to long-term competitiveness only heightens these risks.”
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