On June 8, the U.S. Senate passed the U.S. Innovation and Competition Act of 2021, a bill aimed at countering China on a plethora of fronts, though some of its provisions leave the door open for unstrategic tariff removal.
Passing with a 68-vote majority, the bill is now with the House of Representatives where it awaits an uncertain future, as Speaker Nancy Pelosi and her committee chairs are eager to leave their own mark on U.S.-China policy. Where things currently stand, the bill contains many constructive measures to bolster U.S. competitiveness with China, along with a few bad eggs.
Pertaining to the recent semiconductor shortage, the Senate bill addresses supply chain problems relating to China, allocating some $52 billion to build foundries, chip-making factories that are currently majority-owned by Asian multinationals. While the U.S. struggles to get the finished semiconductors it needs, China has been actively investing in all stages of the semiconductor manufacturing process for years. The bill on the table seeks to even the scales by providing incentives for semiconductor manufacturers and enabling component vendors to enter the market, which would make for less direct competition with Chinese tech giants Samsung and Taiwan Semiconductor. At the same time, the bill limits U.S. aid to countries hosting Chinese military installations.
The bill increases the U.S. Development Finance Corporation’s (DFC) maximum liabilities to $100 billion to invigorate crucial supply chains and address cybersecurity threats in developing nations.
The Senate bill also responds to a crucial insecurity revealed by the pandemic by encouraging increased domestic production of personal protective equipment (PPE), so as to make U.S. public health-related supply chains less dependent on China.
The bill then turns an eye to America’s allies with proposals to increase tech, defense, and infrastructure cooperation, with the aim of forming partnerships to counter China’s ambitions.
China’s predatory lending to developing nations is a long-going concern, and the bill in question seeks to counter Chinese influence and intellectual property theft by providing tech assistance to developing nations, especially those in the Western hemisphere. On a similar note, the Act combats China’s influence here at home by requiring a review of foreign contracts with U.S. universities, and notably provides long-anticipated scrutiny of the Confucius Institutes operating on college campuses and other education institutions across the U.S.
The Senate bill also goes after the Chinese government’s atrocious human rights violations against the Uyghurs in Xinjiang. It reviews export controls on items potentially being used to support the abuses. It imposes sanctions relating to forced labor in Xinjiang and authorizes appropriations for protecting human rights across China. Just last week, Customs and Border Protection imposed a Withhold Release Order on solar products made from polysilicon produced by Hoshine Silicon of Xinjiang.
Along similar lines, the bill provides for a diplomatic boycott of the 2022 Winter Olympics, which, genocide notwithstanding, are still to be held in Beijing as planned. The boycott would still allow American athletes to compete in the games but encourages the U.S. head of state to remain home along with all other diplomats and official government representation, so as not to honor the CCP.
For the CPA members, the Senate bill furthers competition with China by bolstering our own domestic industries. In particular, the bill passes the Advanced Technological Manufacturing Act, expands the Manufacturing USA program at $1.2 billion over FY22-FY26, and authorizes the Department of Commerce’s Manufacturing Extension Partnership at $2.4 billion over FY22-FY26.
The bill also passes the Country of Origin Labeling Online Act, which corrects the rather egregious and unfair regulatory policy that online retailers like Amazon don’t have to say a word on their website about where their products are coming from, while brick and mortar stores are required by law to do so. The bill requires that online retailers label their products with the country of origin, so that consumers can make informed purchase decisions, for instance, should they prefer to support local businesses.
The bill also requires reporting from the State Department and interagency on a number of key issues and coordinated strategies between the executive branch agencies. This is important for a whole-of-government approach to the hyper-coordinated and decades-long strategic planning of the authoritarian CCP. One of these reports, a report on the presence of Chinese companies in U.S. capital markets, will help us better understand how to protect unwitting U.S. investors from supporting the communist companies. While Wall Street sees the world’s second-largest economy as its new frontier, for risk-averse and patriotic Americans, it’s not a new playground but a new battlefield.
Despite these numerous benefits, the bill has its inadequacies, which CPA hopes the House will address. It misses a fairly obvious opportunity to pass tariffs on personal protective equipment (PPE) imported from China. Especially after China withheld shipments of PPE from the U.S. in the darkest hour of the early pandemic (that originated in China), the absence of retaliatory tariffs in this piece of legislation sticks out like a sore thumb.
Not only does the bill fail to add tariffs on PPE imports — it calls for the removal of tariffs on a variety of products from China. Should the House allow for this, it would be a give-away to China exporters.
Another give-away maintains China’s membership in our default tariff program through 2027 and keeps China’s Most Favored Nation status until 2023. Beyond the trade war tariffs, this status gives China full open markets access to our low tariff rates for thousands of product lines. Why the U.S. would want to give its biggest competitor near duty-free status on thousands of imported goods for the next six years is another mystery for Congress to explain.
A final shortcoming of the bill is its lack of safeguards on funds allocated to universities to protect from unwanted Chinese influence. America’s elite universities have a history of colluding with Chinese industry, Chinese Communist Party funded research projects, or kowtowing to China’s sensibilities in order to not hurt Beijing’s feelings. For example, this Harvard professor, who was discovered spying for the Chinese government, or this professor at Johns Hopkins, who fudged China’s COVID-19 numbers. Our universities are our future, and China’s focus is the long-term. This bill’s failure to fully address China’s influence in our universities is a major deficiency.
The Senate’s U.S. Innovation and Competition Act is a mixed lot. While it contains many important provisions addressing U.S. supply chains and China’s abuses, it contains several perplexing gifts to China that do much to demerit the legislation’s strengths. The house bill will, we hope, fix some of these China give-aways before any of this sees the President’s desk.