Key assessments and recommendations
- Outcompeting China must be part of a broader strategy that draws on offensive and defensive tools to boost U.S. global competitiveness.
- The first order of business is to make transformational investments in the U.S. industrial base and workers. The United States should identify sectors where we want to develop or maintain global leadership and then create a plan to build and secure that leadership.
- The United States cannot expect China to play fair or change its ways. We, therefore, need modern trade policy tools capable of winning a long-term, strategic competition. This includes authorities to manage trade in strategic sectors without the need to demonstrate injury.
- Despite ongoing competition, the United States should always be ready to talk to China about commercial and economic issues. Failure to communicate is a recipe for miscalculation and rising economic conflict, with negative impacts on American workers, manufacturers, and consumers.
Context: China’s unfair and harmful trade practices and a U.S. strategic response
China has used nonmarket practices, including subsidies, trade barriers, IP theft, and other illegal activities (e.g., forced labor) to help fuel its rise to become an economic power and the world’s leading supplier of manufactured goods. Americans are concerned about China’s commercial behavior and want a response. At the same time, while China’s trade practices have certainly contributed to the decline in U.S. manufacturing and a hollowing of the middle class, they have also provided a foil that obscures the very real impact of poor U.S. trade policy decisions and a commitment to trickle-down economics that has, too often, failed the American worker. A more effective trade policy must therefore include more than traditional topics such as tariff rates, sanctions, and purchase commitments. It must prepare our entire economy (and the economies of U.S. partners and allies) for a lasting competition with China that positions our workers, companies, and people to succeed well into the future.
The role of Congress
Congress will have an important role to play in any strategy—both in appropriating funds to invest in American competitiveness and in updating the trade tools needed to respond to Chinese abuses and to manage trade in strategic industries. Perhaps equally important, Congress should avoid an across-the-board import tariff or repeal of permanent normal trade relations (PNTR) for China, either of which would be far too imprecise to compel China to act differently and would merely serve as a tax on working-class American families.
Invest in America: reshore, increase capacity, and lead key industries
The most important way to counter China’s abusive trade behavior is to invest in U.S. competitiveness. The CHIPS and Science Act, the Infrastructure Investment and Jobs Act, and the Inflation Reduction Act have spurred investments that have reoriented global production trends in industries such as semiconductors, renewable energy, and electric vehicles, positioning the United States as a leader for years to come. But more is needed. Congress should fund efforts to move manufacturing capacity from adversarial markets to the United States, prioritizing sectors that rely too much on Chinese production and, thus, pose higher risks to U.S. economic resilience. We also should expand programs such as AM Forward, which helps deploy 3D printing in small-and-medium-sized manufacturers, and bolster Manufacturing USA centers by providing them funding to upgrade local manufacturing facilities.
The United States should identify foundational technologies where it wants to create or maintain global leadership; develop a plan to achieve that leadership; and then invest the money needed to succeed. High on that list should be electric vehicles, batteries, green steel, quantum computing, artificial intelligence, and biotech. Each sector-specific plan should include a research and development component as well as measures to ensure that any product developed with the help of federal R&D investments is made in America by U.S. workers. Federal investments in production facilities should be conditioned on the recipient’s commitment to the highest labor standards, support for a unionized workforce, and ongoing workforce training. In some instances, federal investment in production facilities to support a more resilient, more competitive supply chain in a key strategic industry may be warranted. This could require a change in the locations where Defense Production Act investments can be located as well as a more strategic use of investment resources by the Development Finance Corporation (DFC).
For electric vehicles, it will be important to support U.S. manufacturers in the U.S. market, including by using trade enforcement tools to keep out dumped and illegally produced EVs. This includes working closely with key trading partners to ensure that EVs produced with forced labor or with illegal nonmarket subsidies do not flow through their markets as a backdoor to the United States. Importantly, in exchange for tariff and other trade protections, Washington must ensure that U.S. auto manufacturers maximize the pace in which they transition to EV production and do not weaken benefits for American workers.
Modernize the trade enforcement toolkit
The United States must increase its determined efforts to counter China’s nonmarket practices, use of forced labor, and unfair domestic subsidies. Congress must give federal agencies enforcement tools to move faster; coordinate more effectively with partners and allies; and close loopholes that let Chinese imports skirt enforcement. To start, Congress should close the de minimis loophole that lets imports under $800 avoid inspection, allowing Customs and Border Protection to inspect packages from nonmarket economies that it deems at a significant risk of including products made with forced labor or posing danger to U.S. consumers.
The executive branch also needs new tariff authorities so it can act on behalf of strategic industries without the need to demonstrate injury or the threat of injury. In a long-term, strategic competition with China it may be advantageous to address trade in certain sectors proactively—and, perhaps, by doing more than just leveling the playing field. Congress should also consider updating procedures for petitioners to request trade protection, including by allowing new types of evidence to demonstrate the threat of import competition (such as projections of potential damages) or by allowing firms in the supply chain of a larger original equipment manufacturer to request trade protection if subsidized imports of a finished good will hurt their ability to sell component parts to manufacturers in the U.S. market.
Create a forum to address commercial and trade issues
Dialogue will also be important to reduce the risk of miscalculation. The United States and China both stand to benefit from a strong, efficient global economy. Despite ongoing competition, it will thus be important to find opportunities to work with China on issues like freedom of navigation, high seas commercial piracy, and electronic shipping documentation. The Biden administration should invite a bipartisan group of governors and members of Congress to join an expanded U.S.-China Commercial Issues Working Group, presenting China with a unified front of American interests.