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It’s Time to Stand up to China

May 31, 2023
Our diplomatic policies have failed, and China is the winner.

IndustryWeek's elite panel of regular contributors.


I think most people are waking up to the realities of dealing with China. We now know that they are not a friend or a trading partner. They are a competitor that uses technology theft, espionage and mercantilism, and whose primary objective is the global displacement of the United States.

After giving China most favored nation status and allowing them into the WTO, the United States. adopted a policy of looking the other way when China broke the rules, thus encouraging them to do it again. Instead of facing up to the problems, the U.S. has chosen dialogue, diplomacy and collision avoidance over enforcement. This policy is generally called “forbearance.” It is based on the illusion that China would eventually see its interests best fulfilled by following the rules.

Twenty-two years after joined China the WTO, these policies have failed, and China is the winner. It is a rogue nation whose reaction to our diplomacy is to be ever more aggressive because we have avoided enforcement.

The Mood in Congress Is Changing

In the last 5 years, the U.S. has implemented a number of policy changes and regulations in response to China’s unfair trade practices. In particular there are seven policy areas where further action appears imminent.

1. House Select Committee on the Chinese Communist Party (CCP). In March 2023, the first meeting of the bipartisan house committee was held on Capitol Hill. Ranking member Raja Krishna Moorthi said in his opening remarks that “we wrongly assumed that trade and investment would lead to democracy in China. The opposite has happened,” with the government becoming more authoritarian while advancing policies to undermine the U.S. economy and replace strategic U.S. industries.

2. Expanding tariffs until we have balanced trade. According to the Coalition for a Prosperous America, tariffs and tax credits have boosted industrial investment, reshored production, lowered Chinese imports by 13% and created thousands of manufacturing jobs. When Trump implemented the Section 301 tariffs on imports from China in 2018, it was with the understanding that other tariffs (4A and 4B tariffs, which total $280 billion) would not be implemented as long as China agreed to purchase a minimum of U.S. agricultural products as defined in the Phase One Agreement. However, China did not comply with the agreement, and is again calling our bluff. The Phase One agreement did not work, and it is now time to implement the 4A and 4B tariffs, which would help America reshore production and critical industries. We need to keep in mind that accepting huge trade deficits with China means that we are subsidizing their growth as a competitor and adversary.

3.Tax credits were used to boost domestic investment in semiconductors. The 2022 CHIPS Act allocated $39 billion worth of credits spread over 10 years to help microchip manufacturers invest in facilities and equipment in the U.S. to develop and manufacture semiconductors. So far, Intel has announced plans to build two fabrication facilities in Ohio, Micron has plans for a new operation in upstate New York and TSMC is going to build a plant in Arizona. Tax credits have also triggered investment in autos, electric vehicle batteries and renewable energy. Biden administration’s tax credit policies have also had positive effects on manufacturing industries, initiating roughly $150 billion in investments that could create 20,000 direct jobs.

4. Advanced Industries is the Brooking’s Institution’s designation for 50 industries that are at the forefront of economic growth The sector includes oil and gas, aerospace, biotechnology, life sciences, opto-electronics, communication, weapons, computer systems and software—as well as most of the disruptive technologies, such as additive manufacturing, advanced materials, advanced robotics, big data analytics, cloud computing, the Internet of Things, and genomics. But as important as ATIs are, America has been running trade deficits since 2002 and many of these technologies are now made in China. The U.S. can protect many of the advanced industries by implementing the 4A and 4B tariffs as originally proposed by the Trump Administration .

5. Holding Foreign Companies Accountable Act. This act requires that Chinese companies must submit to the same auditing rules as American companies that are listed on the NYSE or Nasdaq. Chinese and other foreign companies traded on U.S. stock exchanges must be delisted from the exchange if they do not allow the Public Company Accounting Oversight Board (PCAOB) to oversee their audits. So far, the Chinese Communist Party (CCP) has not allowed  260 of China’s biggest companies to comply with the audits, and consider their financial information to be state secrets. They were given three years to comply. When that time is up in 2024, PCAOB should do its duty and delist all Chinese companies who do not submit to an audit.

6. Most Favored Nation status –Several Republican legislators have called for the U.S. to review or revoke China’s Most Favored Nation status. Testifying to the Congressional Executive Commission on China, Rory Truex, a Princeton University expert on Chinese politics and authoritarianism, called the Chinese Communist Party “one of the most sophisticated, repressive regimes in world history. The United States and China are in a new Cold War and it is time for Congress to review China’s permanent normal trade relations.”   MFN status means a country is eligible for America’s lower tariffs. Denying MFN means moving a country to a higher tariff bracket—currently, Cuba, North Korea and Russia, are among the few countries in that bracket. Besides revenue gains, denying MFN status would also strengthen U.S. supply chain resiliency and  send a message to the global business community that sourcing from China is not favored and they should look for sources elsewhere.

7. American investor exposure. In their ongoing efforts to find the best returns for their clients, Wall Street firms like Blackrock and Vanguard have exposed American retail and institutional investors in index funds to a wide range of publicly traded Chinese companies that are involved in developing weapons systems and new technologies and building infrastructure in support of China’s military modernization goals. Millions of average Americans—via their pension funds, mutual funds, ETF holdings and other retirement products—are unwittingly investing in Chinese companies involved in serious technology theft and/or implicated in the genocide of the Uyghur people.   

Both Trump and Biden issued executive orders banning Wall Street from investing in Chinese defense contractors and state-owned companies. but the sanctions only cover a small percentage of offenders (44 Chinese companies have been delisted as of May 2021). Sanctioning capital markets is a target-rich environment that is in its infancy, and it is time for the U.S. enforce the executive orders.

America is at a crossroads. We must stop dealing with China as we hoped they would be, and begin dealing with them as they are. The U.S. is in a favorable position in the struggle because the U.S. market is the largest and most important market in the world with goods imports of $3.2 trillion in 2022. China needs our consumer markets more than we need theirs.

A guest essay in the New York Times by former U.S. Trade Representative Robert Lighthizer summed up the China problem: “It has become clear that China is not a friend or partner in development, but rather an adversary bent on world dominance”. He went on to say that we should not seek decoupling from China, but instead should “adopt a policy of strategic decoupling of our economy from theirs.” The process of strategic decoupling has begun and the government is in the process of changing the rules of the game.

It is not an exaggeration to say we are in the beginning of a cold war with China and must defend ourselves just as we did with the Soviet Union. Accepting the status quo like we did for 20 years is no longer an option. If we embark on a policy of strategic decoupling, it will be a long, slow and contentious process. The objective should be to continue trade and economic activity that is beneficial to the U.S. and is based on reciprocity and progressively expanding Section 301 tariffs with a goal of balancing our trade. It is time to face reality and do something for the country, our citizens, and American manufacturing.

Michael Collins is the author of the book Dismantling the American Dream: How Multinational Corporations Undermine American Prosperity. He can be reached at mpcmgt.net.

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