It’s not going to be easy to move trade away from China and begin to decouple many U.S. supply chains that currently depend on Chinese producers. And it’s going to be even harder to move supply to the United States from Asia if free traders, including many on lawmakers on the House Ways & Means Subcommittee on Trade, are successful in turning the Indo-Pacific Economic Framework (IPEF) into a traditional trade agreement that opens new markets, primarily for agricultural commodities.
While everyone on the Committee agreed that China was the Frankenstein Monster the U.S. helped create, revoking China’s Permanent Normal Trade Relations, banning China from using the de minimis provision that allow for duty-free shipments of goods priced under $800, and massive worry from the American farm belt all make tackling China one monster of a task.
The Trade Subcommittee held a hearing on April 18 with six witnesses, including an ex-staffer that worked with Robert Lighthizer, a farm representative, a trade lawyer, and a CSIS think-tanker who said the U.S. was missing out on Asian growth if it avoids trade deals, with a warning that the U.K. was considering muscling into the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. A lot of the trade pressure to foment new market access in Asia comes from the farm states. Their representatives tend to bang the table on market access whenever trade is discussed.
There was a lot to digest in this hearing, so here are some takeaways from Committee chairs’ opening comments, and exchanges between the Witnesses and Committee members during the Q&A session.
The hearing was titled “Countering China’s Trade and Investment Agenda: Opportunities for American Leadership”. It was chaired by subcommittee chairman Adrian Smith (R-NE).
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From the Opening Statements
Chairman Adrian Smith: You’re either moving ahead or you are losing ground. And right now, we’re losing ground while China forges ahead with a trade agenda to shape the global playing field in its favor. We can do this, too, while partnering in a deeper and more consequential way with our allies.
Rep. Earl Blumenauer (D-OR) said Chinese government’s “state led, non-market anti-competitive approach threatens American workers and business. I hope we can all agree that now is the time to move from rhetoric to action.”
Blumenauer highlighted de minimis. This Customs rule has allowed for China e-commerce retail players Shein and Temu to gain easy, direct access to American consumers. De minimis, in effect, turns China into the virtual version of the American shopping mall.
“China continues to exploit the loophole in our customs law, some Chinese companies have developed a business model centered on exploiting the de minimis provision to evade oversight at the border, avoid paying duties, and undercutting American companies who are playing by the rules. Because of this loophole, there’s no way to tell how many of the more than 2 million packages a day contain products made through forced labor, intellectual property theft, or otherwise dangerous. Closing the de minimis loophole and addressing forced labor, the fruits of modern-day slavery have no place in the American market.”
Blumenauer also said the WTO membership didn’t bring China in line with Western economic standards of fair play. He highlighted overproduction, mainly in steel markets.
“After 20 years of WTO membership, they still embrace a non-market approach despite China’s own commitments that it would pursue open market-oriented policies. If anything, China has doubled down on its anti-competitive trade-distorting practices. China is the world’s leading offender in creating overcapacity, as evidenced by steel and aluminum. And of course, the Chinese production methods are some of the dirtiest in the world. The resulting overproduction and pollution has distorted global markets and contributed to massive increase in carbon pollution, harming American workers and manufacturers, as well as third countries, where American exports of steel products compete with exports from China.
Rep. Jason Smith (R-MO), Chairman of the House Ways & Means Committee: The folks who fuel, feed, and build our country have become collateral damage in China’s aggressive trade agenda. It’s time we stood up for them. We should be developing a plan to use our authority over trade and to use our leverage as a nation, to strengthen critical supply chains and reduce dependence on China.
And from the Witness stand…
Mark McHargue, President of Nebraska Farm Bureau [Testimony] was there to showcase how the agriculture sector is easily used as leverage for China. He said that Nebraska’s agriculture exports to China ranged between $936 million to a little over $1 billion in 2018 and is equal to 15% of Nebraska’s total exports. He said that turns out to be roughly $20,000 per farm.
“In 2022, we set a new record of selling agricultural goods into China at $40 billion or so, when you divide that by per farm, that’s about $55,000 per farmer or a rancher in Nebraska. But I also need to point out that despite the significant growth, U.S. market share and China’s in China’s market remained relatively stagnant in 2022, at about 18% of their agriculture market was from the U.S. and that’s declined from about 22% between 2013 to 2017. I run through all this data to highlight just how complex the relationship is. The United States should be actively working every day to diversify our list of trading partners. Quite frankly, the biggest disappointment that we in agriculture have with the Biden Administration, has been their non-existent effort to find new trading partners and pursue negotiations on any new free trade agreement. Whether we like it or not, China is an important customer. We need them, and they need us,” McHargue said.
Jamieson Greer, Partner, International Trade, King & Spalding and former Chief of Staff at the USTR under Robert Lighthizer [Testimony]: Chinese unfair trading practices have sapped the competitiveness of U.S. companies and workers resulting in hundreds of billions of dollars in annual trade deficits with China. Economic studies estimate that the U.S. has lost at least 3.7 million manufacturing jobs. Tens of thousands of factories following China’s accession to the World Trade Organization. WTO membership enabled China’s meteoric rise, which has been fueled and funded by China’s exports to the U.S., and investment received from the United States. Our working classes have lost jobs and our supply chains have foundered, but China’s manufacturing base is robust, and its military position has strengthened.
Greer said the U.S. should revoke PNTR with China, forcing Congress to review China’s trade status with the U.S. each year. “Congress and or the President should be looking at whether China should continue to receive Most Favored Nation status. We should continue to use export controls, and we should use Section 301, Section 232 tariffs. And we should take actions in government procurement to ensure that we don’t have products used in our defense contracts coming from Chinese companies,” Greer said.
Thomas Duesterberg, Senior Fellow, Hudson Institute [Testimony]: China is dependent on access to Western finance, and foreign markets for driving growth. Because of this dependency, U.S. trade and investment policies, such as those already in place, can and should be reinforced to take advantage of these growing weaknesses, and hopefully this will induce change in Chinese mercantilist policies. We need to do need a reverse CFIUS that will cover research projects and venture capital investment in China.
CFIUS is the Committee on Foreign Investment in the United States, an inter-agency body that reviews foreign investment in the U.S. A “reverse CFIUS” would review U.S. investment in China.
Matthew P. Goodman, Senior Vice President for Economics, Center for Strategic & International Studies [Testimony]: The United States needs trade. Trade creates growth. It creates jobs, it creates export opportunities for U.S. businesses, farmers and ranchers. Trade lowers costs for not only individual consumers, but for downstream producers that can then invest in more jobs. So yes, trade, does dislocate some jobs but we need a more robust set of domestic policies, real adjustment assistance, worker retraining, and incentives for investment in new jobs, to deal with that dislocation. We’re losing ground in the critical Indo Pacific region, which is what I mainly focus on, both economically and strategically because we’re not willing to negotiate formal trade agreements.
Roy Houseman, Legislative Director, United Steelworkers [Testimony]: This committee should focus on how to defend against market concentration of commodities by China. When nearly 100 million tons of China state-funded steel projects, the equivalent of one year’s U.S. production, are going into Southeast Asia and a new state-owned entity will centralize iron ore buying to push down prices…we need to prepare tools to defend our country’s steel industry from that sort of market concentration. Ensuring U.S. workers benefit from our trade initiatives must be at the forefront of policymakers’ decisions.
From the Q&A
Agriculture issues raised…
Rep. Adrian Smith asked McHargue about his farmers’ thoughts on IPEF.
McHargue: There’s tremendous opportunity there, quite frankly. When I visit with my farming neighbors, and we’re at the coffee shop, or we’re having conversations about trade, many of them don’t really understand the dynamics of trade and how it all works. They just know China is in the market, and they’re purchasing grain, they know that the market goes up. They move markets. So, when you think about the Indo-Pacific, you think about the population base, you think about the potential growth there. When you think about the concept of possibly decoupling from China, from the agriculture sector’s point of view, the only way that works for me is if you can find me a China replacement. That can come from regions like the Indo Pacific.
Rep. Michelle Fishbach (R-MN): My district exports roughly $1.5 billion of farm product every year. This competitor-customer dynamic is important to consider given national security concerns and other larger factors beyond agricultural exports. So what is the appropriate balance between expanding the Chinese market access and diversifying export opportunities through additional trade agreements?
McHargue: One of the ways that we can help that conversation is by continuing to establish other markets.With China, I think about the people that I do business with, even in my hometown, and it’s very clear to them that China is growing in their need for grains. They became one of the largest grain importers in the world. So that indicates to me that they’re going to continue to need our products. That gives us the leverage to have some of these conversations. If they don’t need our products, and we don’t have the ability to trade with them then I think we lose a lot of that leverage to deal with the things we’ve talked about today.
On removing PNTR…
Rep. Jimmy Panetta (D-CA): I’m concerned how this can play out, with retaliatory actions. Revoking PNTR will give us time to review China’s status and put the onus on China to decide if it will change its ways or not, but given the history of our 301 tariffs, don’t you doubt this strategy will be successful? Why haven’t the 301 tariffs changed China’s behavior?
Greer: When you look at the Section 301 tariffs, with respect to those items we have seen a decrease in those imports. We are now less dependent on China for those items. That’s the kind of direction we want to go in. You’re exactly right, that we want to worry about retaliation. It’s not an easy answer. We need to make sure our exporters and agricultural folks are taken care of, and that we are able to maintain the balance that’s needed.
Blumenauer brings up de minimis again…
Rep. Blumenauer: We are now importing directly over 2 million packages a day that escaped any meaningful inspection, probably loaded with counterfeit products or products don’t work as advertised. To what extent would closing the de minimis loophole impact Chinese goods?
Houseman: The $800 de minimis allows for a significant amount of direct consumer shipments of goods to U.S consumers. China has a $10 de minimis. We aren’t able to compete on the same level from here to sell to China duty-free online. Plus, a lot of the clothing items that China is producing have the potential of being made with banned cotton from the Xinjiang region. I think that we need to re-address this issue of an $800 de minimis with China, particularly.
On trade imbalances, “disastrous and outrageous”.
Rep. Vern Buchanan (R-FL): We get played by the Chinese in a very big way. I think we export around $200 billion and import around $563 billion, and we have a $400 billion deficit or so with them? This is disastrous and outrageous.
Goodman: This is because of our large dependence on China for pretty much everything. With such an excessive dependence, you can’t have fair and balanced trade with China.
Rep. Greg Steube (R-FL): We need a worker-focused trade policy, not a corporate price-centered one. And we need to take every step necessary to achieve balanced trade and eliminate the trade deficits that are bleeding our economy to death.
“We should use tariffs strategically to stop unfair trade in our market and to ensure the elimination of trade deficits. We have been running deficits of hundreds of billions of dollars year in and year out for decades. United States net international investment is an astonishing negative $16 trillion. Foreigners own $16 trillion more here than we do around the world. Foreigners including China own these assets and the future income from these assets. As a result of our own fool’s trade policies of the past, we have lost millions of jobs and much of our technology leadership and have transferred trillions of dollars to China. These huge annual trade deficits have built their military and developed their industry and technology at our expense. Their economy has grown from about $1.2 trillion in 2000, when ours was $10 trillion, and is now about $16 trillion. Ours is about $22 trillion,” said Steube.
Steube said that over the last 20 years, our cumulative trade deficits in goods with China have accumulated to around $6 trillion.
“Our trade and economic integration must be balanced in on terms that help America and our workers, not China,” Steube said. “We should put tariffs on all products imported from China until we achieve balanced trade.
Greer: Certainly, I’m happy to do that. And I think that your policy prescriptions are things that we need to strongly consider. Policy prescriptions for dealing with China depend on what you think about the threat. If your premise is that China is a generational challenge, and we think that they are preparing for military conflict with their neighbors or even us, if that’s the case, then we need to be thinking about our trade relationship in a way that strengthens our manufacturing and defense industrial base, maybe at almost any cost.
“But if you think the threat is overblown, then your ideas on what the policy prescriptions are going to be will be different. We need to have a conversation about that. I fall in the first cam. I’m concerned that we’re on a knife edge right now, and that we need to make sure our trade policy reflects that,” Greer told Rep. Steube.
On minerals and natural resources for ‘going green’…
Rep. Brian Higgins (D-NY) noted that China mines or refines 68% of the world’s nickel. China mines are refines 73% of the world’s cobalt, and China mines or refines 40% of the world’s copper. China also mines and refines 59% of the lithium, “which is also called white gold in the 21st century, because of the emphasis on electrification,” Higgins said.
“There are 200 mega battery manufacturing plants that are either online or will be completed by 2030 in China. For electric vehicles, 11 are in North America, 21 are in Europe, and 148 are in China. China has 80% of the global lithium-ion manufacturing capacity. Not only are we being outpaced, we’re getting clobbered. And unless the government makes a decision to gain access to these raw materials, we can never catch up. Because of this, we will end up being controlled by the country that controls the world’s supply chains. There are 17 mines in Africa that mined rare earth minerals and metals, 15 of the 17 in South Africa, Congo, Mozambique are either owned or controlled by China,” Higgins noted.
Duesterberg: We’ve been somewhat asleep at the switch and allowed the subsidized Chinese industry to take over these mining industries. We can and should start to exploit these resources.
On anti-dumping duties…
Rep. Terri Sewell (D-AL) is reintroducing her bill called the Leveling the Playing Field Act which will “modernize anti-dumping and countervailing duties enforcement laws,” she says. We need to seriously combat China’s circumvention of U.S. trade laws and target repeat offenders. How have steel workers been impacted by some of the current loopholes in our anti-dumping and countervailing duties laws?
Houseman: We’ve had to do five anti-dumping and countervailing duty cases, including two for trucks. The first one was against China and it was successful. We proved that 50 million tires were coming into the market, dumped at low costs just to kind of capture market share. We lost 5,000 workers in that industry during that period of time. Then, three years later, they were back at it because we saw imports rising very quickly from companies that have similar parent companies based in China. They basically shifted production to third-party countries and those tires back into the market. We filed that case. And we’re successful in that anti-dumping and countervailing duty case as well.
“We think the idea of enhanced penalties for bad actors is a right idea,” said Houseman from United Steelworkers. “The idea that these importers can continuously evade and break our trade law… For example, there have been three investigation requests and they have found evidence of a Chinese-owned company operating in the Dominican Republic where they brought in aluminum and transshipped it to the Dominican Republic to avoid duties. There are multiple cases like this now. We should be able to attack and address those sorts of repeat offenders and potentially knock them off the list from being able to export to the U.S.”
