Commentary Type

Key Economic Strategies for Leveling the US-China Playing Field: Trade, Investment, and Technology

Prepared testimony delivered before the U.S.-China Economic and Security Review Commission hearing on Key Economic Strategies for Leveling the US-China Playing Field: Trade, Investment, and Technology

Body

Commissioner Miller, Commissioner Wessel, and members of the Commission, thank you for inviting me to testify today. I appreciate the opportunity to appear before you to testify about US trade policy and its effectiveness in addressing China's nonmarket practices. In this testimony, I describe and evaluate US trade policy toward China, omitting discussion of export controls and investment restrictions. This omission does not imply that such efforts are unrelated to economic resilience, only that they are grounded in national security concerns and, thus, more appropriate for discussion in that context.

The objective of US trade policy toward China has shifted over the past two decades, from seeking to bring China into compliance with its treaty obligations to a protracted trade war to strategic decoupling. Detailed bilateral trade data shows that the US has reduced both its imports from and exports to China since the onset of the 2018-19 trade war. A review of recent research on these developments finds that decoupling from China has been costly for US consumers and producers.

The recent Biden administration decision to maintain existing Section 301 tariffs on China necessitates an inspection of the structure of these taxes. Analysis of the four waves of trade-war tariffs finds that they fall heavily on producer inputs, that they tax imports that have no obvious relation to the cause for action, and that they omit exports that may have unfairly benefited from the practices identified by the investigation. This pattern of levies raises basic questions about the efficiency and fairness of their design.

Tariffs on China has allowed a set of third countries to increase their share of US imports. Recent analysis of their trade patterns finds that they have raised the share of their imports from China in pace with gains in the American market. Countries replacing China tend to be deeply integrated into China's supply chains and are experiencing faster import growth from China, especially in strategic industries.

This review leads me to offer four recommendations to the Commission. My first recommendation is that the US clarify and communicate its strategic intent with respect to trade with China. Secondly, I argue that Section 301 tariffs should be reformed to target Chinese technology related practices. Thirdly, I argue for greater clarity concerning US intentions to reduce Chinese content in global supply chains. Finally, I argue for limiting executive discretion as currently exercised under Section 301.

More From