Background

As the Biden administration continues to formulate its policy toward China, more voices are being raised in support of or opposition to specific approaches. This article outlines recommendations from a recent report from Sen. Tom Cotton, R-Ark., calling for the U.S. to pursue a strategy of targeted decoupling from China and urge its allies to do the same. The report explains that the U.S. has “grown too entangled” economically with China given that the two sides are “in the middle of a strategic competition … that may last as long as the Cold War.”

Among the trade-related actions urged by Cotton’s report are the following.

- impose credible, reliably enforced sanctions on the perpetrators and beneficiaries of Chinese intellectual property theft

- apply secondary sanctions against non-U.S. entities and individuals that engage in transactions with sanctioned Chinese targets

- expand the Office of Foreign Assets Control to help it carry out this sanctions campaign

- apply targeted import duties on Chinese exporters that receive substantial state subsidies or engage in anti-competitive practices such as export dumping

- tighten U.S. export controls on certain advanced technologies for all Chinese end-users

- revoke China’s permanent normal trade relations status

- expand restrictions on U.S. outbound investment in China to include investments in Chinese technology companies, companies tied to the Chinese Communist Party, and companies implicated in the CCP’s human rights abuses

- require the Committee on Foreign Investment in the United States to scrutinize inbound Chinese investments into strategic sectors with a presumption of denial

- ban the sale of cutting-edge semiconductors developed or produced with U.S. software or technology to all Chinese entities

- explore establishing a multilateral semiconductor trading and export control bloc

- continue efforts to halt Chinese firms from expanding their positions in global 5G telecom networks and impose further sanctions on Huawei

- diversify foreign sources of rare earths to reduce reliance on China

- prohibit federal purchasing of items containing rare earths and critical minerals mined or processed in China by a certain date

- prohibit federal purchasing and reimbursement of drugs that contain active pharmaceutical ingredients made in China by a certain date

- create a Food and Drug Administration requirement that all drugs sold in the U.S. include conspicuous country-of-origin labeling for their active ingredients

- retain or reshore enough domestic medical equipment manufacturing so that production can be increased to meet crisis-level demand within six months

Recognizing that targeted decoupling from China will impose up-front costs and create risk, the report urges a number of steps to mitigate these impacts, including (1) negotiating bilateral trade agreements with partners like Japan, Malaysia, Vietnam, the United Kingdom, and the European Union that prioritize U.S. jobs and exports and “limit the depth and nature of China’s economic and financial integration” with those partners, and (2) using the U.S. Agency for International Development, International Development Finance Corporation, and Export-Import Bank to connect U.S. firms with new customers, migrate supply chains out of China, and combat Chinese attempts to dominate sales of key technology.

In addition, the report states, the U.S. government should make the following changes to “better position itself for the economic long war” with China.

- consolidate federal export control licensing authorities into a single licensing agency within the State Department

- give the secretary of defense a new role, deputy chair of CFIUS, to ensure that Treasury addresses national security concerns raised by the DoD and other organizations on the committee

- charge the Department of Commerce with collecting data that informs an annual report on the state of the U.S.’ industrial base and its dependency on key foreign inputs as well as contingency plans to insulate the U.S. against supply chain disruptions

- empower the DOC to support the regeneration of U.S. manufacturing in key sectors

Copyright © 2021 Sandler, Travis & Rosenberg, P.A.; WorldTrade Interactive, Inc. All rights reserved.

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