A Senate Finance Committee hearing on Thursday took China to task for just about everything under the sun – from its ability to avoid anti-dumping charges to how it benefits from developing market status at the World Trade Organization. Everyone —right, left and even one witness from K Street — agreed that the U.S. had to move fast on countering China. Other than the pleasant surprise of watching people from mega law firm Akin Gump side with China hawks in the Senate like Committee Chairman Ron Wyden, another surprise was hearing Senators and witnesses say that big American corporations are not helping on the China front.
“Companies are willing to sacrifice their values to get access to China’s market, helping with censorship, surveillance and social control,” said Sen. Mark Warner (D-VA). He recalled a time when he spoke with Google after it was discovered that they were either helping or planning on helping China’s government build a surveillance search engine. “U.S. companies are willing to help the goals of the CCP,” he said, raising the question as to how to hold U.S. companies “accountable to the values they espouse here while they quietly work to advance the goals of the CCP” in China.
Earlier this week, Apple CEO Tim Cook, Tesla CEO Elon Musk, Blackstone Group Inc’s Stephen Schwarzman and Bridgewater Associates’ Ray Dalio listened in as Xi Jinping spoke at the Boao Forum about diversity and inclusion, and ending the new Cold War in a veiled swipe against Washington’s China policies.
Sen. James Lankford (R-OK) said there are “serious issues” for any company doing business in China. “You need to be clear-eyed about having a communist government as your partner.” Lankford acknowledged that there is a strong financial motivation for being there: a billion people to sell to.
They’re selling, but they are under constant pressure by Beijing to share its worldview, some witnesses said.
Aynne Kokas, Associate Professor of Media Studies and Senior Faculty Fellow at Miller Center for Public Affairs at the University of Virginia in Charlottesville spoke about the pressure from mainland Chinese social media campaigns against companies like apparel retailer H&M for banning the use of cotton from Xinjiang, home to the Uyghur Muslim minorities. Businesses are bending over backward to please China, or risk losing that market. “Hollywood studios are censoring, presumably to keep access to China,” Kokas said.
At the end of 2020, U.S. multinational corporations like Apple were sitting on more than $5 trillion in liquid assets. We need to make it profitable for those companies to invest that capital here, either in revamping and building new supply chains, or in research and development and not in share buybacks.
Still, in regard to the question of ‘what can be done’ to turn American corporations off to China, no one had a clear-cut answer. Kokas mentioned creating a comprehensive data privacy network so China companies could not export data collected here from TikTok users, for example, back to China for facial recognition AI R&D. She said that was important because many U.S. companies have a partnership with China tech firms and “you have no idea how they are sharing that data with their Chinese partners.”
Working with allies, a favorite tack of the Biden administration, along with tariffs were also top of mind during Thursday’s hearing.
On the allies front, Michael R. Wessel, Commissioner of the U.S.-China Economic and Security Review Commission, and Clete R. Willems, a Partner at Akin Gump Straus Hauer & Feld agreed that Washington should not be waiting around for Japan and Europe to see eye-to-eye with them on the China threat.
“We cannot wait for our allies to fully see the impact of China’s policies,” Wessel said. He suspects that massive overcapacity in China will continue. The “huge subsidies and predatory practices will support their efforts. The CCP is looking to domesticate their technology and is spending more than we do on R&D,” he said, adding that American investors are investing in those new technology companies, including some that are on the entity list. “That has to stop. The U.S. has to stand up for our interests and not wait for allies,” he said.
Kokas gave the Senate an example of how this works even with companies that many on Wall Street consider benign. “Look at Baidu, which has raised tons of money on U.S. exchanges, then built a Netflix competitor with that capital,” she said.
Wyden responded instantly to that: “I’m particularly attracted to this idea of cutting off access to capital. That is a no-brainer. We’ve got to do that,” he said.
Willems said that dealing with China through anti-dumping and other punishing tariffs like Section 301s is like playing “whack-a-mole”.
“China just moves to other countries to avoid those duties. Europe is also looking at that, so maybe there is an opportunity for joint proposals there,” he said.
Akin Gump tends to work with China company clients, but during the hearing, they were on board with many of the same policies of the Biden administration. “We need to stand behind our tech companies,” he said. “Digital companies, technology companies. Those are our national champions. If you’re going to compete against China, you need to flex these national champions and engage directly with them and push back.”
Sectors such as polysilicon supply chains and rare earths and minerals were also discussed.
Some Senators in the hearing wanted the renewal of Section 301 tariff exemptions and the renewal of the Miscellaneous Tariff Bill (MTB), which deals with tariffs on hundreds of different items. The MTB law temporarily reduces or suspends the import tariffs paid on particular products imported into the United States. The Coalition for a Prosperous America opposes the MTB in its current forum because it has been used and abused as a tool for deindustrializing the U.S. The MTB should not be renewed unless it fosters a domestic industrial policy to rebuild manufacturing supply chains. See our report on this here.
Meanwhile, Sen. Pat Toomey (R-PA) continued pounding the table against Section 232 tariffs on steel and aluminum. He called for removing those tariffs on European and Japanese steel producers as a carrot to get them to work with us on China. “We need to do that it in any legislation this committee considers when dealing with China,” he said.
Since China entered the WTO in 2001 on up to 2018, the U.S. lost 3.8 million manufacturing jobs and not all of it was due to automation.
Wessel said in 2019, the U.S. actually ran a $134 billion advanced technology trade deficit with the world. “We should excel in that corner of the market, but China, through predatory and protectionist policies has skewed the balance. An estimated $2.4 trillion in IP has been stolen from our companies. If we continue to lose at that pace we will lose our tech sector,” he warned. “You will see the continued hollowing out of our manufacturing base and a reduction in our standard of living.”
Committee co-chair Mike Crapo (R-ID) said Wyden was “spearheading” the effort to go after China on the Finance Committee.
“This is going to be a bipartisan push,” Wyden said. “China has massive unfair subsidies, theft of IP, shakedowns of cutting-edge technologies, forced labor which is absolutely reprehensible – and it’s led to untold losses to American companies. China can access the American financial system and grow. From solar panels to software, American workers and our economy writ large have been exposed to China’s trade cheating for too long and the results are visible and have been for too long. We have spent two decades falling behind in a cold trade war and that didn’t change when it turned hot a few years ago,” he said. “If there is one issue central to the future of this country, it is to put ourselves in a position to outcompete China and we are going to build a bipartisan coalition to do it.”