U.S. Innovation and Competition Act: The Winners and the Losers in Senate ‘China Bill’

The U.S. Innovation and Competition Act (S. 1260), aka ‘The China Bill’ has passed the Senate by a vote of 68 in favor and 32 against. It is, and was, a gnarly compendium of other bills, including tariff-reducing amendments, demands for more Congressional oversight of the USTR, and more investigations into China as if we need more information to take action against the biggest headwind to American manufacturing outside of a dozen meteors landing in all 50 states.

There are some negatives in the China package, such as a continuation of the Generalized System of Preferences (GSP) and the Miscellaneous Tariff Bill (MTB) originally designed for low-income countries to have easier, near-zero tariff costs to sell to the U.S.

Some changes to those rules have been made that will supposedly make for a “level playing field” in regard to labor and environmental regulations. We will believe that when we see it. Mere case by case enforcement is never enough when entire industrial sectors are offshored to low regulation countries.

A trade amendment put in last week by Sen. Mike Crapo (R-ID) to speed up the process of exclusions to the tariffs put on China in the Trump administration also weakens tariff policy in favor of the globalists and multinationals. If you can just be exempt from tariffs, why impose them in the first place?

“This amendment on exclusions and the miscellaneous tariffs is clearly a step in the wrong direction,” ex-USTR Robert Lighthizer told his former White House colleague Larry Kudlow in a segment on Fox Business News. “When we’re trying to meet competition with China, the last thing we want to do is let them off the hook on a lot of things.” He said that CEOs that source from China had two years to move production elsewhere, so he finds it “troubling” they could regain the opportunity to avoid 25% or 7.5% tariffs through Section 301 exclusions.

On the MTB, Lighthizer said half of its benefit goes to China. “This is individual businesses lobbying to get a break,” he said. The U.S. Chamber of Commerce congratulated the Senate for including the extension of both GSP and MTB in the China bill.

It wasn’t a total win for the free traders at the Chamber. They also opposed Sen. Tammy Baldwin’s (D-WI) COOL Online Act. That made it into the final bill and will be required for companies like Amazon to label from where their goods are imported.

Online retailers have 18 months to act on this, with more action coming from the House of Representatives.

Online retailers will have 18 months to start labeling where their products are coming from. Nearly half of Amazon’s goods sold come directly from China. They’re not alone. The National Retail Federation tried to get this amendment removed from the U.S. Innovation and Competition Act.

Last month, CPA urged Congress to reject the lobbying efforts of large online retailers and importers, which CPA wrote about in an op-ed published on Fox Business.com. Additionally, CPA led a coalition letter to Members of the U.S. Senate urging them to pass the bill. Joining CPA in signing the letter were the National Council of Textile Organizations, the International Brotherhood of Teamsters, The Manufacturers Association of Central New York, and the Alliance for American Manufacturing.

Another positive in the Senate version, passed today, was the inclusion of the Make PPE in America Act by Sens. Rob Portman (R-Ohio) and Gary Peters (D-Mich.). This portion of the China bill is only good for government procurement as it would require federal agencies to issue long-term contracts for American-made PPE like N95 masks, face shields, and hospital gowns.

The private sector, however, will get a pass and be able to import these goods from Asia and Mexico without risk of tariffs. We do not know if this will survive the House version, but as it stands now, the inclusion of an amendment by Sen. Pat Toomey (R-PA) is a slight against American textile companies that invested millions in retooling for PPE production for the private sector during the pandemic.

We believe this portion of the bill does not support supply chain resiliency as it forces private companies to be dependent on the government and puts the onus of local supply on a small handful of companies awarded a government contract. Those contracts are designed for military hospitals and public health facilities primarily, though any state-run organization could make the purchase (think public schools for high quality, re-usable masks, for example, rather than the disposable paper ones from China).

“The U.S. Senate voted to stand with Americans over China and large online retailers like Amazon that want to prevent U.S. consumers from knowing where their products are really made,” said Michael Stumo, CEO of CPA. “We hope the House version of this legislation keeps the COOL online act, the Made in America PPE Act and several other important provisions. However, the pro-China trade provisions added by Senate Finance Committee members need to be stripped.”

Other positives from the bill included some $52 billion for semiconductor manufacturing, which we believe should reduce our reliance on the chips factories – known as fabricators, or fabs – in Asia. While many opposed such a high price tag for semiconductor manufacturers, the recent shortage of chips for the auto sector, coupled with the fact that China is ramping up its own nascent chip-making industry put the U.S. at risk of being forever dependent on Asia to make the next-generation semiconductors.

Unfortunately, the overall Senate bill puts a dent in the armor of tariffs, even as President Biden himself has never discussed the removal of tariffs on China in particular.

“One of the things President Trump is proudest of is what he did on trade,” Lighthizer said on Fox Business. “All the Biden administration has to do is keep doing what we did. Every indication is that they are.”

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