Evolving concerns about China’s trade policies and practices could prompt Congress to consider or take measures that go beyond the tariffs and trade restrictions the U.S. has imposed so far. Lawmakers are expected to intensify their scrutiny of both China’s actions and the Biden administration’s responses this year (see related article here) with Republicans now in control of the House of Representatives and a known China hawk (Rep. Jason Smith, R-Mo.) now heading up the chamber’s Ways and Means Committee.

A recent report from the Congressional Research Service notes that China is an important market for the U.S. but that U.S. firms face significant trade barriers, unfair practices, and a lack of reciprocity in key areas. “China’s system blurs state and corporate interests, enabling the government to deploy trade tools (e.g., antidumping, antitrust, standards, and procurement), economic coercion, and espionage to advantage its firms and advance China’s industrial and other policies,” the report states. In addition, China’s government controls or influences the purchase, financing, and price of top U.S. exports to China (aircraft, semiconductors, medical equipment, agriculture, and energy) and “has sought for some time to enhance its control of this trade while reducing its reliance on U.S. imports through trade diversification and industrial policies that use U.S. commercial ties to develop China’s capabilities.” Beijing also continues to require the transfer of critical U.S. capabilities to China to operate in strategic areas.

The report states that while U.S. lawmakers have raised concerns about these and other discrete issues (e.g., the U.S. trade deficit with China, human rights violations, Beijing’s industrial policies) in the past, these now “appear to be evolving into broader concerns about how the terms China sets for commercial ties may challenge U.S. competitiveness, national security, and leadership.” This can be seen, for example, in the national security strategy the U.S. issued in October 2022, which squarely positions China as the U.S.’ top competitor and outlines trade, economic, and other approaches the U.S. will use to manage that competition.

The report indicates that the U.S. has some leverage in this emerging situation. For example, the U.S. is a huge export market for China, taking in $505.3 billion in goods alone in 2021. In addition, U.S. foreign direct investment flows into China totaled $2.8 billion that year, with the total stock of U.S. FDI in China reaching $118.2 billion. These are important factors given that China depends on open markets to sustain its economic growth, allow its firms to expand, and access technology, capital, and critical resources.

Noting that neither the Section 301 tariffs against Chinese goods nor the bilateral Phase One trade agreement appear to have had much success in reshaping China’s practices of concern, the report suggests that Congress could use the U.S.’ economic leverage and consider tougher measures. These could include strengthening U.S. and global trade rules; requiring reciprocity with China with consequences for gaps; working with allies on China trade concerns; and deepening commercial, technology, and research ties with like-minded countries. Congress could also consider new terms for China trade, investment, technology, and research ties and determine whether and what actions are needed to address China’s trade coercion and efforts to sidestep U.S. policies.

For more information on how Congress might address China trade policy issues this year, please contact Nicole Bivens Collinson at (202) 730-4956 or via email.

Copyright © 2023 Sandler, Travis & Rosenberg, P.A.; WorldTrade Interactive, Inc. All rights reserved.

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