Background

A U.S. government commission known for its increasingly hardline stance on U.S.-China relations is calling for a raft of aggressive new actions that would have a significant impact on bilateral trade. The recommendations could be given serious consideration by a Biden administration whose first national security strategy squarely positioned China as the U.S.’ top competitor and potential future military opponent.

“After many years of attempting to engage China and persuade it to abandon its distortive trade practices, it is clear this approach has not been successful,” the U.S.-China Economic and Security Review Commission’s annual report states. Instead, “the United States has an opportunity to develop a new strategy based on building resilience against China’s state capitalism and blunting its harmful effects rather than seeking to change it.” This strategy would bypass the World Trade Organization, which is “unable to introduce meaningful new rules and procedures,” and focus on “approaches that advance [our] own national interests as well as cooperate with like-minded partners.”

Supply Chains. The Commission recommends a number of strong actions in this direction, including the following measures that would lay the groundwork for reducing U.S. supply chains’ reliance on China.

- allowing the president to require specific U.S. entities or U.S. entities operating in specific sectors to divest in a timely manner from their operations, assets, and investments in China when China uses or threatens imminent military force against the U.S. or one of its allies and partners

- legislation authorizing retaliatory trade measures against China to support allies or partners subject to Chinese economic coercion

- a new Economic and Security Preparedness and Resilience Office within the executive branch to lead cross-agency efforts to ensure resilient U.S. supply chains and robust domestic capabilities in the context of the ongoing geopolitical rivalry and possible conflict with China (with particular emphasis on semiconductors, rare earths, life-saving and life-sustaining medications and their active pharmaceutical ingredients, and castings and forgings)

- assessing the effects of potential disruptions in U.S.-China trade on defense mobilization and the domestic availability of critical materials, products, and supplies

- requiring suppliers to the U.S. government in critical sectors to confidentially disclose all tiers of their contractors for the purpose of identifying supply chain dependencies on China

- federal help for small businesses to decrease their dependencies on Chinese suppliers and prevent investments from Chinese firms

- a semiannual public report on the volume of products detained, excluded, or seized for violations of the Uyghur Forced labor Prevention Act and related enforcement activities

- a new interagency committee charged with developing options and creating plans for sanctions or other economic measures in a range of possible scenarios, including a Chinese attack, blockade, or other hostile action against Taiwan

- directing the Food and Drug Administration to annually identify drug products that utilize APIs and other ingredients and inputs sourced directly or indirectly from China to and develop alternative sourcing arrangements, including by maximizing the production of such goods domestically or from trusted countries

- requiring U.S. corporations and U.S.-registered subsidiaries of foreign corporations to publicly disclose each year all holdings in firms linked to China’s military

- a new database calculating, at the product level across all industries, U.S. import dependence on China or major source locations known to use components and materials from China

Tariffs. The Commission states that Congress should consider legislation to immediately suspend China’s permanent normal trade relations (also known as most-favored nation) treatment, which would likely result in higher import tariffs on Chinese goods, if a new report to be produced by the Office of the U.S. Trade Representative concludes that China has failed to comply with the market access agreement it reached with the U.S. ahead of its accession to the WTO.

Trade Remedies. The report calls for more and stronger antidumping and countervailing duty actions against imports from China. It urges Congress to direct the Department of Commerce to develop a process to identify and self-initiate AD/CV duty cases on products from China, with a priority on products injuring or threatening to injure small and medium-sized enterprises or industries facing long-term harm from Chinese industrial overcapacity. It also wants DOC to develop the capability to identify and self-initiate circumvention, evasion, and transshipment enforcement cases to address products originating from China. Further, it recommends that DOC update its methodology for determining AD duties for products from China in a way that offsets lower prices for Chinese-sourced inputs in the calculation of third-country costs used to determine dumping margins.

Of particular note in this area is a recommendation that USTR publicly identify in an annual report the industries wherein China’s subsidies pose the greatest risk to U.S. production and employment and that DOC apply a rebuttable presumption of guilt in AD/CV proceedings in light of the findings of this report.

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

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