Bipartisan congressional report urges reset, higher tariffs to meet China economic threat

More investment is needed to develop critical technologies and U.S. exports need to increase to counter Chinese economic mercantilism, the Select Committee on Strategic Competition between the United States and the Chinese Communist Party (CCP) stated in a report based on a seven-month investigation.

China‘s “campaign of economic aggression flows directly from the party’s ideology,” the 53-page report states, noting that President Xi Jinping has laid out a strategy to defeat capitalism and promote China‘s version of socialism.

According to the report, a generation of economic interaction has failed to moderate China‘s political system, while Beijing is acquiring up to $600 billion annually in American know-how and intellectual property.

The report stopped short of calling for a complete decoupling of the U.S. and Chinese economies. Instead, the report presented a “de-risking” strategy for new policies that places national and economic security, along with American values, at the root of all economic engagement with Beijing.

Committee Chairman Mike Gallagher hailed the report as a major bipartisan achievement.

“It’s rare to get agreement in Washington, D.C., right now on anything, let alone 150 recommendations,” the Wisconsin Republican said. “That’s not to say everyone got what they wanted. But I think the report shows we can have principled compromise without compromising your principles.”

Committee leaders said they plan to work to codify in law many of the recommendations for resetting ties with China.

“It’s one thing to make recommendations for policy ideas; it’s another to move legislation and we want to do more of the latter,” said Rep. Raja Krishnamoorthi, Illinois Democrat and ranking member of the panel, during a briefing with reporters.

Reset, prevent, build

The 53-page report is divided into three areas: “Reset,” “Prevent” and “Build.”

The first section states that the U.S. needs to recognize that China‘s “party-state” poses serious risks to fair competition in the economic realm.

For decades, the U.S. government and businesses sought to gain access to the Chinese market for consumer goods, used China as a source for low-cost production, and made large investments in China‘s emerging private sector.

During that period, critics say, China failed to abide by trade promises, limited access to its markets, and stole hundreds of billions worth of technology while squeezing out U.S. competitors.

Those policies are part of a deliberate Beijing strategy of achieving global dominance for Chinese firms, and to make foreign nations, including the United States, dependent on China and subject to its coercion, the report said.

Curbing U.S. technology flows is the second area outlined in the report. It warns that American investment is fueling China‘s military buildup and furthering human rights abuses.

The report said the select committee is investigating four U.S. venture capital companies that fund Chinese companies linked to the development of technologies, including artificial intelligence and semiconductors, that could benefit the Chinese military and intelligence services.

The panel also said it is investigating MSCI, the largest U.S. index provider, over its possible role in facilitating capital flows to Chinese military contractors, human rights abusers and companies involved in surveillance technology, the report said. A third investigation is examining whether retail companies Nike, Adidas, Shein and Temu are using Uyghur forced labor.

Congress in 2000 granted China permanent normal trade relations status and a year later China joined the World Trade Organization, prompting hopes Beijing would evolve into a market economy. But more than 20 years later, China failed to live up to its commitments to produce an open, market-oriented system, the report said.

Intervention in the economy by the ruling Communist Party instead has increased and the party wields expansive power over all areas of economic activity, the report said.

The report stopped short of calling for ending China‘s preferred trade status and instead urges Congress to move China to a new tariff status that will restore raise import duties on more Chinese goods and give the U.S. economic leverage in pressing Beijing to abide by its trade commitments.

Technology theft

The third area of the report on fixing economic ties calls for investing in technology and strengthening economic power while working with U.S. allies.

“The best defense against the CCP’s predatory economic practices will fail if not paired with a proactive strategy to invest in America and increase economic and technological collaboration with like-minded partners,” the report said.

Funding research, fostering innovation and attracting talent in critical areas are needed, the report states.

The report said the U.S. does not have plans in place to deal with the economic and financial impacts of a conflict with China. Tensions between Washington and Beijing remain high over such issues as Taiwan and the South China Sea, where China has been engaged in provocative military activities.

The current defense authorization bill nearing completion in Congress contains a provision that would require a study of such impacts.

Other committee recommendations call for ending U.S. reliance on Chinese technology and restricting U.S. investment in China and exports that assist the military or further human rights abuses.

The committee also wants Congress to give the Treasury Department-led Committee on Foreign Investment in the United States more power to limit Chinese purchases. The panel recommended expanding U.S. global development and investment to counter China‘s Belt and Road Initiative infrastructure program in the developing world.

Mr. Gallagher, the committee chairman, said the U.S. spends a lot of time emphasizing the need to preserve a rules-based global order.

“But here we have a pattern of rule-breaking by a country over the course of two decades that is undermining that very order,” he said. “So Congress needs to find a way to enforce rule compliance or the very notion of that order, I think, disappears. This is our good-faith attempt to try and do that,” he said.

Mr. Gallagher said he agrees passing legislation will be a key to implementing the new economic strategy toward China, but the prospects of passing a major bipartisan bill are more likely after the upcoming presidential election.

The report urged Congress to pass legislation to ban adversary-controlled media platforms like TikTok, the popular Chinese-owned social media site that several other countries have banned.

Mr. Gallagher and Mr. Krishnamoorthi said they are discussing ways to restrict TikTok, whose American subsidiary is owned by the Chinese firm ByteDance.

“ByteDance clearly has access to the algorithm, which we all know, but it also has access to the data and back-end operations of TikTok,” Mr. Krishnamoorthi said.

Communist Party leaders inspected the TikTok data prior to the national party congress in October 2022, he said.

“Regardless of what TikTok says — they could be the most well-intentioned leadership in the world — as long as ByteDance has access to the algorithm as well as the data, then we have problems because they are subject to the influence of the CCP,” Mr. Krishnamoorthi said.