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China Select Committee Argues for End of MFN, Lower de Minimis, FTA With Taiwan

December 12, 2023 by Mara Lee|Top News

Congress should remove permanent normal trade relations status for China, but rather than move Chinese imports into Column 2, it should create a China-specific tariff schedule "that restores U.S. economic leverage to ensure that the [Chinese government] abides by its trade commitments and does not engage in coercive or other unfair trade practices and decreases U.S. reliance on [Chinese] imports in sectors important for national and economic security," the House Select Committee on China wrote as one of its dozens of legislative recommendations in its "Strategy to Win America's Economic Competition with the Chinese Communist Party." The report, released Dec. 12, also recommended:

In addition to those legislative recommendations, the committee said Congress should make a number of funding priorities, including increasing funding for DOJ's Trade Fraud Task Force, considering "providing financial assistance or other substantive support to small- and medium-sized businesses or first-time petitioners who are pursuing an unfair trade case," and considering additional appropriations to offset retaliation for U.S. exporters that would come after China was removed from PNTR. The committee said the new tariffs on Chinese goods "should be phased in over a relatively short period of time to give our economy the time necessary to adjust without avoidable disruptions."

However, the 53-page report also acknowledged that decoupling or derisking "will require hard tradeoffs and will not be without cost. However, the near-term costs of protecting our national economic security ultimately pale in comparison to the long-term consequences of failing to act now."

Although the report was approved by nearly all the committee members, some members -- including the only member who also serves on the House Ways and Means Committee that would handle tariff changes -- said they were concerned that elements of the report were more protectionism than truly safeguarding national security.

Rep. Darin LaHood, R-Ill., the only committee member who serves on Ways and Means, which would write much of the legislation listed in the report, said he "initially" had concerns about changing PNTR, but suggested that other elements that favor farmers who rely on exports swayed his views.

Rep. Jake Auchincloss, D-Mass., whom Select Committee on China Chairman Mike Gallagher, R-Wis., credited with shaping the GSP language, said he couldn't approve the report. "I continue to think threads of industrial policy and protectionism run too strong in it," he said.

The House Ways and Means Committee chairman did not respond to the report in the first eight hours after its release; the top Democrat on that committee, Rep. Richard Neal, D-Mass., said that while he shares the committee's concerns on China's anticompetitive actions, "unfortunately, many of their proposals are better suited for headlines than guidelines. When confronting these challenges, Congress must take a cohesive approach where one policy does not undermine the goal of another."

Senate Finance Committee Chairman Ron Wyden, D-Ore., in a hallway interview at the Capitol, said he was pleased that the committee recognized granting China PNTR 23 years ago was a mistake, since China didn't meet its WTO obligations. However, he didn't say whether he supported reversing the policy, saying it was too complex to talk about in a brief interview.

In addition to the legislative recommendations, the committee also said Congress should ask the executive branch to take a variety of actions to either confront Chinese economic aggression or build up relations with allied trading partners.

It said that Congress should direct CBP to examine the use of de minimis for goods made in China but shipped from other countries. The report said Congress should direct the administration to limit Section 232 tariffs and quotas to non-ally trading partners. "Under congressional guidance, the Secretary should act on the importation of an article in such quantities or under such circumstances when a country of concern threatens to impair our national security. This would allow Commerce to focus its efforts on imports from a country of concern, including through third countries, while encouraging, rather than undermining, work with U.S. partners and allies."

Congress should direct the Commerce Department to initiate an antidumping investigation on permanent magnets and rare earth elements, the report suggested. Commerce should conduct a Section 232 investigation into Chinese medical device exports, including needles and syringes, it said.

The report said that if the World Trade Organization cannot constrain China's mercantilist practices, perhaps a new multilateral system of like-minded countries should be formed.

"While economic exchange with the PRC will continue, the United States government and the private sector can no longer ignore the systemic risks associated with doing business in the PRC or allow companies’ pursuit of profit in the PRC to come at the expense of U.S. national security and economic resilience," the report said.

A variety of groups that support U.S. manufacturing and trade restrictionist policies hailed the report.

Alliance for American Manufacturing President Scott Paul called the recommendations "game-changing," and said he hopes they become law, except the changes to Section 232. "We oppose any efforts to dilute Section 232 national security trade actions or initiate a fast-track free trade agreement with Japan, with its history of currency interventions and other market distortions that skew markets such as autos. We will urge the House of Representatives to set aside those aspects of the committee's report," he said.

Coalition for a Prosperous America CEO Michael Stumo praised the recommendation to hike tariffs on Chinese goods by ending its PNTR, and the recommendation of changes to de minimis, which he said is similar to the bill from Rep. Earl Blumenauer, D-Ore., which would end Chinese eligibility for de minimis.

"De minimis allows for duty-free shipment of goods to the United States if priced under $800. This has created what one Customs official referred to as the China free trade agreement," the group said.

But he warned: "Although the report does not make note of this, the de minimis reformers are not without their enemies on Capitol Hill. Some bills are likely to be poisoned by the interests of customs brokers, importers and large delivery companies. The Committee, and Congress, would be wise to understand the opposition’s interest in keeping de minimis as is … ."

The National Foreign Trade Council's senior director of international supply chain policy, John Pickel, said in a statement that lowering the de minimis threshold would tax consumers and small businesses, putting inflationary pressures into the economy without improving enforcement. He noted that CBP has said that it does screen de minimis shipments for forced labor and contraband. “Reducing de minimis would double the cost of a $50 package, costing taxpayers millions and undoubtedly causing unnecessary delays for businesses and consumers without improving enforcement," he said.

American Compass, a think tank allied with Trump's views on tariffs, spending on entitlements and industrial policy, hailed the report. Executive Director Oren Cass said: "The need to confront the China challenge has been obvious for at least a decade, but the American ship of state has been turning too slowly. Politicians wedded to an outmoded Washington Consensus and special interests profiting from the status quo resist even the slightest change of course. This report marks the first time that congressional leaders have grabbed the wheel and pulled hard, clear-eyed about the peril and prepared to act. Their courage is commendable, their warnings must be heeded, and their call to reset the nation's economic relationship with its primary adversary is correct."

Farmers for Free Trade issued a letter on Dec. 12, hoping to change the report that was already written. They said they didn't want China to lose its tariff treatment.

They said before China had permanent normal trading status, 23 years ago, its consumers bought 3% of U.S. agricultural exports. In 2022, the country bought 19% of ag exports -- more than $38 billion worth.

"A recent Oxford Economics Report estimated that China’s retaliation would result in more than a 30% reduction in U.S. agriculture exports to China," they wrote. "While we share the Committee’s concerns about many of China’s practices, passing the burden on to farmers to address those concerns is the wrong approach."