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Tariffs Not Enough to Outsmart China, Experts Tell Lawmakers

Two House Foreign Affairs subcommittees held hearing Wednesday

The Senate-passed defense authorization bill includes a seven-year ban on sales of U.S-made parts to ZTE Corp., a Chinese telecommunications company. (Joe Raedle/Getty Images file photo)
The Senate-passed defense authorization bill includes a seven-year ban on sales of U.S-made parts to ZTE Corp., a Chinese telecommunications company. (Joe Raedle/Getty Images file photo)

The United States will have to use more than trade tariffs to force China to curb policies designed to give its state-owned enterprises a competitive edge over U.S. companies and undermine America’s technological future, experts on China told two House Foreign Affairs subcommittees on Wednesday.

The witnesses, at a hearing on Chinese trade practices, recommended strategies including using a new Justice Department anti-trust enforcement division that scrutinizes violations by foreign governments. They also said the United States should band together with trading partners to increase pressure on China to change discriminatory policies on intellectual property. In addition, the witnesses favored action on legislation in a House-Senate conference committee that would expand national security reviews of Chinese business transactions involving high-tech.

“If a country has an adversary and wants to stay ahead of him, there are only two ways [to do so]. Hold him back or run faster,” William Alan Reinsch, senior adviser in international business at the Center for Strategic and International Studies, told the Foreign Affairs subcommittees on Asia and the Pacific and on Terrorism, Nonproliferation and Trade. “Both strategies have their limitations, which is why the best approach is to pursue both.”

One strategy, Reinsch said, is to hold China back with tariffs and more stringent reviews of Chinese state-owned enterprises. Another, he said, would involve U.S. domestic policies to prepare workers for a digital economy, incentives for companies to stay in the United States and be innovative, expanded funding for basic research, and immigration policies that attract the world’s brightest people to study and remain in the United States.

ICYMI: Corker Chastises Fellow Republicans for Blocking His Tariff Amendment

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Derek Scissors, a scholar with the American Enterprise Institute, cited congressional efforts to punish ZTE Corp., a Chinese telecommunications company that violated U.S. sanctions with sales to Iran and North Korea. “We see in the example of ZTE, which was done for security reasons, we can hurt the [Chinese] communist party by targeting large state-owned enterprises,” Scissors said.

The Commerce Department, however, modified its punishment of the company after President Donald Trump said Chinese President Xi Jinping complained that U.S. action would kill the company and result in large layoffs.

Congress pushed back against the modifications and the Senate-passed defense authorization bill includes a seven-year ban on sales of U.S-made parts to ZTE.

The Senate and House fiscal 2019 defense appropriations bills also include provisions to toughen reviews of cross-border business deals, an approach supporters say will improve policing of transactions that could allow the Chinese government companies or investors to gain a stake in U.S. companies involved in cutting-edge technology.

The hearing came one day after the Trump administration announced that it is preparing to impose new tariffs on $200 billion of Chinese imports including leather goods, textiles and fish products.

China’s Foreign Ministry spokesperson responded Wednesday, saying that Beijing will take “necessary countermeasures to resolutely safeguard its rights and interests. … China will work with the international community to jointly safeguard the multilateral trading system and rules.”

Lawmakers’ rebuke

Lawmakers, especially Republicans, have weighed how to have a say in Trump’s trade actions especially those aimed at allies.

Earlier Wednesday, Tennessee Republican Sen. Bob Corker finally got his colleagues to vote in support of Congress playing a role in national security-related trade decisions such as those made recently by Trump. The symbolic, nonbinding vote was was 88-11. House lawmakers introduced similar legislation late Wednesday.

Trump has used Sec. 232 authority under the Trade Expansion Act of 1962 to impose tariffs on about $46 billion worth of steel and aluminum imports, including from allies such as Canada, Mexico and the European Union. The moves have riled trading partners and raised prices for U.S. consumers and businesses reliant on lower-cost imports from abroad.

House Ways and Means Chairman Kevin Brady said there could be support in the House “over the long term” for legislation like Corker’s proposal to give Congress the authority to approve or reject tariffs proposed under Section 232.

However, the Texas Republican said the current focus in the House is “on how we buy time for the president’s strategy to work against China. Critical to that is really lifting the pain off our local farmers and manufacturers.”

Speaker Paul D. Ryan echoed those comments early Wednesday.

“I don’t want to hamstring the president’s negotiating tactics,” the Wisconsin Republican said at a press conference after a House GOP meeting. “I think there are legitimate, absolutely unfair trade practices, particularly by China, that we and our allies should be confronting, so that is important to point out. … I just don’t think tariffs are the right mechanism to do that.”

Subcommittee Chairmen Ted Poe of Texas and Ted Yoho of Florida praised Trump for being aggressive with China but said the administration was dealing with years of theft of U.S. intellectual property, which requires the United States to develop policies and laws to curb future losses.

Meanwhile, the House Ways and Means Trade Subcommittee announced a July 18 hearing on the impact on agriculture and rural communities because of the U.S. steel and aluminum tariffs as well as tariffs imposed on China in response. Retaliatory duties triggered by U.S. actions also will be examined.

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