26 February 2020 Ways & Means China trade hearing focuses on systemic issues The House Ways and Means Committee's February 26 hearing on "U.S.-China Trade and Competition" focused on the Phase One agreement between the two nations (effective February 14) that cut tariffs on both sides and included Chinese purchasing commitments. The hearing also looked ahead to future agreements and the challenges presented by fundamental differences between how the two nations conduct business. In an opening statement, Chairman Richard Neal (D-MA) said the Phase One agreement leaves on the table more significant, structural commitments for future agreements, and that the US needs to seek commitment to structural changes that level the playing field for US workers and companies. Additionally, "Now, because of the outbreak of the coronavirus in China, purchase commitments and other promises made by China as part of this agreement may not even happen. And the potential economic consequences for un-diversified supply chains look like they will be severe," he said. Ranking Member Kevin Brady (R-TX) laid out his priorities for a Phase Two agreement, saying "Republicans will continue to work with the President to force China to take the next step to address other distortions, like subsidies, cyber issues, state-owned enterprises, and cross-border data flows."
In testimony, some witnesses said the Phase One deal did not address structural and systemic issues in the US-China trade relationship and questioned whether they could be addressed in the future. Stratford said the Phase One agreement represents new progress primarily in protecting intellectual property, especially for pharmaceuticals, and agricultural trade barriers, but most of the issues affecting US technology companies — digital trade, technology licensing, and cybersecurity regulation — were not addressed, nor were those affecting services other than financial services. He said nothing in the agreement addresses systemic issues that arise from differences in economic models between the two countries and include China's state-led role in sectors like financial services, telecommunications, energy, and transportation, as well as subsidization and protectionist industrial policies. Lee said she welcomed the use of tariffs against China but also that the Phase One deal squandered that leverage in failing to address key structural issues in our economic relationship with China, including their industrial subsidies, state-generated overcapacity, state-owned enterprises, and workers' rights violations. During questioning from Chairman Neal, Lee said US tariff leverage should have been used to address currency misalignment and workers' rights, as well as industrial policies like Made in China 2025 and very strategic decisions that the Chinese government has made to subsidize industries, which undermines US ability to compete in those sectors. Rep. Earl Blumenauer (D-OR) asserted that the Phase One agreement didn't put America first; businesses have been damaged, and losing markets for products like soybeans is something that is going to take a while to regain. The agreement is frontloaded in terms of aspirations that may have promise in the future, it is difficult to enforce, and it was not achieved by engaging with trade allies, he said. It also ignores state-owned enterprises, deep subsidies, and procurement issues: after ascension to the WTO, China is still operating under a "fiction that it is a developing country," Blumenauer said. Lee said forced labor and other labor rights are a huge issue in China. Rep. Danny K. Davis (D-IL) asked Stratford to explain why Phase One does not fix the problems that make fair competition impossible. Stratford said Phase One should be viewed as a work in progress: it positions us to address the unaddressed issues though he expresses concern that China is resisting the pressures the US might impose on them in the future, and the things we are dissatisfied about they are not prepared to change. Rep. Kenny Marchant (R-TX) asked Guebert what challenges are seen in negotiating a Phase Two agreement. Guebert said he is appreciative of enforcement protections for agricultural products in Phase One and would like to build on biotech areas and reducing tariffs on other agricultural commodities in Phase Two, as agriculture and steel and aluminum production have been particularly impacted by tariffs. Chairman Neal asked what lessons can be learned from the "5G experience" as it relates to China, as the US has been telling allies about the security risk with Huawei but offering no real alternative solution. Reif said we stopped investing in a sector that thought it was being taken care of, and we need to have universities and industry working together on next-generation technology, i.e., after-5G. Rep. Brian Higgins (D-NY) said China has more wisely spent money on infrastructure and investment and now 5G is dominated by China and 4G will eventually be obsolete. China is a bad actor in some respects but "they are smart enough to know that economic growth can only be achieved from investing in their own growth," as the United States did in the past, he said. Lee said we have to disentangle two different things we face with respect to China: one is cheating and violating the rules, and the other is that China is doing things we ought to emulate. The United States ought to invest in infrastructure, technology, and worker skills, but that requires a tax base to sustain those investments. Rep. Tom Suozzi (D-NY) also noted suggestions that the United States needs to have a multilateral effort to confront China, with nations like India, Korea, and Australia, and that the United States needs to invest more in R&D and infrastructure. Testimony from the hearing is here.
Document ID: 2020-0441 | ||||
