Many members of the Senate Finance Committee on Wednesday gave USTR Katherine Tai an earful on rolling back tariffs, with Sen. Ben Cardin (D-MD) saying he would “go to my grave never understanding why we dropped out of the TPP.”
Meanwhile, Committee Chairman Ron Wyden (D-OR) says he is laser-focused on getting the U.S. to outwit, outlast and outplay China.
For the most part, Tai spent roughly three hours sticking primarily to White House talking points on “working with allies” and bringing credibility to the World Trade Organization. She gave no timelines for exemptions to Section 201, 232 or 301 tariffs. Nor was there any talk of canceling tariffs on steel and aluminum, a favorite Committee battle cry of Sen. Pat Toomey (R-PA). He has been asking for steel tariff reductions since they were inaugurated nearly three years ago.
Sen. Wyden asked her what they could do to help the USTR tackle Chinese mercantilism along key supply chains.
“China is targeting growth in industries that we care deeply about: solar and semiconductors,” he said, singling those two out in particular. “These are hugely important in my part of the country and in the United States…what can we do to help you level the playing field for American companies both here and abroad,” Wyden asked her.
She said we need new policies, and new trade rules to tackle these issues of a China-centric globalization. “We do need new tools in my opinion and this is where this committee can make strides towards strengthening our trade enforcement rules.” Tai gave a couple of examples of enforcement in regard to Mexico. One was the so-called innovative rapid response mechanism that they are using to go after Mexico to make sure auto parts workers there are not being banned from forming a union, in order to “prevent a race to the bottom” in automotive labor costs.
When asked by Sen. Chuck Grassley (R-IA) about Mexico’s plans to ban GMO corn by 2024, she said she would take Mexico to task on that issue as it is a non-tariff barrier.
For steel, a tariff some Senators said should be lifted for Mexico and Canada at least, Tai said that the Section 232 national security tariffs on steel and aluminum in the Trump administration “were the best they could do given the laws they had on the books at the time. It’s an important trade remedy. But we need newer remedies, new sections in the trade agreements that we make up here and work with allies to coordinate in what could be shared interests.”
Wyden said that we needed to modernize Section 232.
The dead Transpacific Partnership keeps getting brought back to life by Committee members. Sen. Catherine Cortez-Masto (D-NV) asked if TPP could be resuscitated as part of Biden’s “work with allies” mantra.
For the second time, Tai reiterated that TPP was basically DOA in the Senate.
“The multilateral approach is a sound policy, but the devil is in the details,” Tai told Sen. Cortez-Masto. “We need broad bipartisan support that is going to be effective and not allow for free ridership,” she said, having noted earlier in the day’s Q&A session that there was bipartisan opposition to TPP.
Sen. Debbie Stabenow (D-MI) brought up the importance of Congress working on policies to build supply chain resiliency. She focused on semiconductor manufacturing and the need for foundries to be built in the U.S. sooner rather than later.
The recent shortage of semiconductors is due to a combination of factors, namely the spill-over effect of Covid-19 lockdowns, pent-up demand, and China hoarding. Most all of the semiconductors designed in the U.S. are manufactured in Asia, led by Taiwan Semiconductor and Samsung.
Stabenow made a point that the auto industry is facing layoffs because of the semiconductor shortage, a point not yet made by pundits in last week’s lackluster jobs report.
“We have laid off workers right now…because of our over-reliance on overseas fabrication,” Stabenow said. “What does the USTR have in its toolbox to fix this short and long term?”
Tai responded by saying they were taking a “whole of government” approach on this issue. She quoted Commerce Secretary Gina Raimondo as saying that there would be no short-term fixes, but that they are thinking of a longer term strategy. Tai said there was “a lot of motivation on our side to build resilience in this area.”
See CPA’s White Paper titled “Maintaining U.S. Leadership in Semiconductors” by chief economist Jeff Ferry and Roslyn Layton, Co-Founder of China Tech Threat.
Stabenow also raised the issue of new lines of business being cranked up due to the Biden administration’s almost singular focus on climate change. Electric car batteries were top of mind for Stabenow, who asked how the U.S. can compete with Asia.
Tai mentioned a recent IP dispute settlement between LG Chem and SK Innovation that would clear the way for more manufacturing in the U.S., but CPA does not see this as any particular fix. While it is good that the two South Korean battery makers have resolved their issues, an issue which might have put production at LG Chem on hold, their IP battle should have served as a classic case study of America’s dependence on Asia. Once again, we have two Asian corporations in control of a key critical input in making battery-powered cars. We need Tesla and GM to be as big a deal in the battery space as LG Chem and SK Innovation. Moreover, most of their raw materials and – in some cases – the battery cells themselves, come from Asia. They are then installed into battery packs in the U.S.
“Batteries are critical to new industry jobs that we have great potential for building here in the US,” Tai said.
Stabenow reminded her that we don’t have an economy “unless we make things and grow things.”
Sen. Elizabeth Warren (D-MA) asked Tai about ways the USTR could help tackle “big pharma’s” lock on drug prices. “I have urged Biden to take executive action to lower drug prices by allowing the generic production of insulin and epipens,” she said.
Worth noting, the Pharmacy Benefit Manager industry, known as the middlemen in the wholesale drug trade before it makes its way to drug stores and hospitals, are primarily the price gougers here. Tai did not have anything to say in response to Warren’s comments.
Senators spent as much time questioning Tai on Mexico and “working with allies” as they did on China. Sen. Maggie Hassan (D-NH) told Tai that she felt U.S. companies were easily wooed to conduct research and development in mainland China. “They use tax subsidies and give out free land. What do we do in response to that?”
“When we see practices that are inconsistent with the international trade norms, hold them to account,” Tai said. “It’s not just about R&D, because you need to focus on how that gets turned into production, into manufacturing. If we don’t have comparable scalability and the ability to pivot, we will remain very vulnerable.”
On holding China to account, CPA believes tariffs that a handful of key Senators on the Committee would like to see removed, have worked for important segments of the new economy Biden wants to build. Solar is case in point. If we open the door to Asian manufacturers, American manufacturers will never invest in scaling current production to meet demand in the near future. We could then say goodbye to a domestic solar industry, outside of solar installation and repair.
See the CPA White Paper titled “Reclaiming the U.S. Solar Supply Chain from China”, by Jeff Ferry.
The recent removal of three China telecom companies from the NYSE is also a way we have held China to account.
In regards to industries of the future, and economic security, Senator Wyden has smaller solar manufacturers in his state that could invest in growth, but clearly would stand down if they know the likes of Jinko Solar could flood the U.S. with solar panels. China dominates this supply chain almost from top to bottom, making them a veritable Green OPEC when it comes to solar power.
“We are laser-focused on being able to outcompete China and for us, my priority is to make sure China is not feasting on the global trade system as it now operates,” Wyden said. “This is going to take more than just vague calls for reform. It’s going to take action.”
Wyden is right.