Section 301 tariffs are very likely here to stay, but manufacturers that benefit from tariffs say they believe additional trade tools are needed to deal with China.
The House Select Committee on the CCP held a makeshift hearing in Wisconsin this week titled “The Chinese Communist Party’s Threat to American Manufacturing.” The hearing was part of the new Committee’s eight-month listen-and-learn initiative to discuss the China threat with manufacturers, think tanks, special interest groups, and investors. The Committee is supposed to be a front-line risk assessment on the China issue and come up with bills to counter them.
Auxin Solar CEO Mamun Rashid was one of three who provided opening testimony. He mentioned new laws like the Inflation Reduction Act (IRA) being complementary to tariffs. Legislation such as that was needed as a one-two punch to keep U.S. manufacturing competitive with what is really a Frankenstein monster economy controlled in large part by the CCP.
Rashid told the Committee that while the IRA programs are good, America will never be able to “out-subisize China.”
Washington needs a more watchful eye here. Rashid said China has become skilled at evading tariffs. In the simplest way, without mentioning transhipping and fake origin labeling, Chinese companies facing tariffs or anti-dumping and countervailing duties (AD/CVD) on the mainland are investing in new factories in Southeast Asia. They then ship from there, nearly duty-free. For solar in particular, tariffs on Chinese multinationals operating out of the four Southeast Asian nations are exempt from tariffs until next year due to a declaration by the White House last year. The existence of this moratorium totally undermines the recent Commerce Department ruling that four Chinese multinationals in Southeast Asia were circumventing duties. The final determination still allows China to avoid future duties by constructing wafer facilities outside of China—something the Chinese are doing right now. It takes roughly 18 months to build a wafer facility, which is why the Biden administration chose to suspend tariffs for two years via its Solar Emergency Declaration of June 6, 2022.
The exemption given to China solar manufacturers by the Biden administration also undermines the production tax credits in the IRA as China is still cheaper for importers and is aggressively building up in even lower-cost countries. Gains in U.S. solar manufacturing could be wiped out in a few years if the U.S. is not careful, CPA chief economist Jeff Ferry warned in a report published July 13. Although the IRA’s domestic manufacturing incentives are new, and the largest effort in U.S. history to reshore the solar supply chain, a look at the solar industry’s experience in the years 2009-2012 after the passage of Obama’s American Recovery and Reinvestment Act (ARRA) shows how Chinese determination to dominate an industry can drive other nations’ industries into the ground.
“It is critical that the domestic production incentives under the IRA are strengthened, and Chinese firms lose qualification for American taxpayer dollars so that the history of the ARRA is not repeated and the American clean energy supply chain is supported and protected,” said Ferry about the difficulties of building a domestic solar supply chain if China is basically expanding from the mainland into four Southeast Asian nations, four of which are currently exempt from tariffs despite a Commerce ruling against some of them for breaching U.S. trade laws. It is China’s goal to ensure that their companies’ solar components continue to rule the roost here in the U.S.
See CPA statement on the Commerce determination on China solar dumping.
“Make no mistake about it, China is coming up with ways to benefit from the IRA and get around these trade rulings. We need rules to make sure American taxpayer money is not going into the pockets of those in China’s politburo,” Rashid said.
At least three Chinese solar companies are building new factories in the U.S. to make solar panels. These are Longii in Ohio, JA Solar in Arizona and Canadian Solar in Texas. He did not mention those companies by name. They will qualify for IRA tax credits.
Bob Wahlin, CEO of Stoughton Trailers, the host of Wednesday’s hearing, said China’s unfair trade policy was not a mistake; he called it “purposeful economic policy.” He said addressing those policies were “essential to American manufacturing.”
Stoughton has over two thousand workers in three states. They make chassis and used to make containers for cargo ships, but were priced out by Chinese state owned enterprises.
He mentioned one of his biggest competitors, China International Marine Containers (CIMC), put Stoughton’s container segment out of business and now they are coming for chassis. They were stopped in their tracks thanks to an AD/CVD victory for Stoughton and others.
To give the Committee a sense of what that victory meant for Stoughton, Wahlin said, “Prior to that trade relief, only 5% of chassis sold here were made here. But after the AD/CVD determination, nearly 50% are made here now. We hired hundreds of new employees and U.S. supply chains are less reliant on China for vital transportation equipment because of AD/CVD laws but those laws must keep up with evolving schemes,” he said.
Wahlin said the Section 301s were helpful for him but he views them as temporary. He has invested in automation and laid off some workers as a result, putting others to work in higher technology jobs if qualified. He said China was often able to circumvent the 301s and this is where anti-dumping becomes an important tool to stop China’s encroachment on a particular market. Moreover, through China’s Belt and Road (OBOR) policy, Beijing is allowed to give subsidies to Chinese multinationals operating in OBOR partner nations.
“CIMC has done this in Thailand with chassis and now Customs and Border Protection is investigating that facility,” Wahlin said in another example of how relentless China is when it comes to trade. He mentioned his support for Leveling the Playing Field Act 2.0 (H.R. 3882), sponsored by Reps. Terri Sewell (AL-07) and Bill Johnson (OH-06), Frank Mrvan (IN-01) and Beth Van Duyne (TX-24). Sens. Sherrod Brown (D-OH) and Todd Young (R-IN) have had similar legislation in the Senate since 2022.
During the opening of the hearing, Ranking Member Raja Krishnamoorthi (D-IL) likened the U.S. China trade game to an NFL match, only that China gets eight downs instead of four, and China has 90 players instead of 53 like the U.S.
Rep. Darin Lahood (R-IL-16) gave an example of how one of his constituents that benefited from tariffs, later lost that benefit when China shifted gears to Thailand. “When tariffs went into effect in 2019, Sunsong began to ship products from Thailand instead of China,” Lahood said about Sunsong, manufacturer of automotive fluid transfer hoses and lines. The company rivals Plews & Edelmann of Illinois which makes similar items used for power steering, for example.
“Their supply chain process is simple…send their product to Thailand, slap a Made in Thailand label on it, and avoid the tariff. They have their own subsidiary there now to maximize this strategy and Plews is now restructuring, laying off, and shrinking their product line because they have no other option,” Lahood said.
Rep. Lahood said the federal government “needs to be faster at supporting small to midsize businesses to push back against Chinese companies that do not play by the rules.”
A Plews executive was part of the hearing and said they have complained to the Department of Justice’s trade task force to no avail. Plews executive chairman, David Rashid (no relation to Mamun), said tariffs were not enough. He listed some ways his competitors can make up for those import duties.
“I know some of my competitors who are publicly traded get a 13% export subsidy write-down; they get loans that are a fraction of what I pay in interest; they get R&D subsidies, building subsidies. We saw it because they show that in their public documents and so we can see what the cost delta is for a company like ours to compete with them,” he said.
Craig Dickman, managing director of Green Bay-based venture capital firm Titletown Tech said the Section 301 tariffs helped the U.S. He echoed what manufacturers on the panel who supplied the Department of Defense (DoD) said about an industrial base – if there is no commercial market for their goods because the market is undercut by Chinese players, then those companies will not survive and that will be a huge sourcing problem for the DoD.
“China underprices, and dumps, and that has had devastating consequences for manufacturing, American workers, and economic security,” said House Select Chairman Mike Gallagher (R-WI). “Tariffs, when applied strategically to China, reduce reliance on China and increase domestic manufacturing. Targeted economic incentives to narrowly defined sectors can strengthen our economy and national security and countervailing duties can be used to level the playing field.”
Raja Krishnamoorthi, the Committee Ranking Member said the Committee has come together on a bipartisan basis to “take what we know from this and similar hearings and come up with solutions.”
Krishnamoorthi said the China variable represented the “the highest stakes” yet when considering the future of the American industrial base and its blue-collar workforce, posing the final and most important question of all – which was whether Washington’s urgent China rhetoric will ultimately lead to action.