[Senate Hearing 116-413]
[From the U.S. Government Publishing Office]
S. Hrg. 116-413
U.S. CHINA: WINNING THE ECONOMIC COMPETITION, PART II
=======================================================================
HEARING
before the
SUBCOMMITTEE ON
ECONOMIC POLICY
of the
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED SIXTEENTH CONGRESS
FIRST SESSION
ON
EXAMINING THE HIGH STAKES OF THE STRATEGIC ECONOMIC COMPETITION BETWEEN
THE UNITED STATES AND CHINA
__________
DECEMBER 16, 2020
__________
Printed for the use of the Committee on Banking, Housing, and Urban Affairs
Available at: https: //www.govinfo.gov /
______
U.S. GOVERNMENT PUBLISHING OFFICE
43-476 PDF WASHINGTON : 2021
COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
MIKE CRAPO, Idaho, Chairman
RICHARD C. SHELBY, Alabama SHERROD BROWN, Ohio
BOB CORKER, Tennessee JACK REED, Rhode Island
PATRICK J. TOOMEY, Pennsylvania ROBERT MENENDEZ, New Jersey
TIM SCOTT, South Carolina JON TESTER, Montana
BEN SASSE, Nebraska MARK R. WARNER, Virginia
TOM COTTON, Arkansas ELIZABETH WARREN, Massachusetts
MIKE ROUNDS, South Dakota BRIAN SCHATZ, Hawaii
DAVID PERDUE, Georgia CHRIS VAN HOLLEN, Maryland
THOM TILLIS, North Carolina CATHERINE CORTEZ MASTO, Nevada
JOHN KENNEDY, Louisiana DOUG JONES, Alabama
MARTHA MCSALLY, Arizona TINA SMITH, Minnesota
JERRY MORAN, Kansas KYRSTEN SINEMA, Arizona
KEVIN CRAMER, North Dakota
Gregg Richard, Staff Director
Laura Swanson, Democratic Staff Director
Cameron Ricker, Chief Clerk
Shelvin Simmons, IT Director
Charles J. Moffat, Hearing Clerk
Jim Crowell, Editor
______
Subcommittee on Economic Policy
TOM COTTON, Arkansas, Chairman
CATHERINE CORTEZ MASTO, Nevada, Ranking Democratic Member
KEVIN CRAMER, North Dakota ROBERT MENENDEZ, New Jersey
BEN SASSE, Nebraska DOUG JONES, Alabama
DAVID PERDUE, Georgia TINA SMITH, Minnesota
THOM TILLIS, North Carolina KYRSTEN SINEMA, Arizona
JOHN KENNEDY, Louisiana
Kyle Hauptman, Subcommittee Staff Director
Carol Wayman, Democratic Subcommittee Staff Director
(ii)
C O N T E N T S
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WEDNESDAY, DECEMBER 16, 2020
Page
Opening statement of Chairman Cotton............................. 1
Prepared statement........................................... 27
Opening statements, comments, or prepared statements of:
Senator Cortez Masto......................................... 2
Prepared statement....................................... 28
WITNESSES
Representative Will Hurd of Texas................................ 4
Prepared statement........................................... 29
Derek Scissors, Resident Scholar, American Enterprise Institute.. 6
Prepared statement........................................... 35
Melanie Hart, Senior Fellow and Director for China Policy, Center
for American Progress.......................................... 8
Prepared statement........................................... 40
Roy Houseman, Legislative Director, United Steelworkers.......... 10
Prepared statement........................................... 45
(iii)
U.S.-CHINA: WINNING THE ECONOMIC COMPETITION, PART II
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WEDNESDAY, DECEMBER 16, 2020
U.S. Senate, Subcommittee on Economic Policy,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Subcommittee met at 9:31 a.m., via Webex, Hon. Tom
Cotton, Chairman of the Subcommittee, presiding.
OPENING STATEMENT OF CHAIRMAN TOM COTTON
Chairman Cotton. I will call this hearing to order. Welcome
to today's meeting of the Economic Policy Subcommittee, which
is open to questions from all 25 Members of the Banking
Committee in addition to Subcommittee Members.
I would like to thank Senator Cortez Masto and her staff
and all the Committee staff for helping pull this together
under unusual circumstances.
We have an exceptional roster of witnesses today. I want to
introduce them briefly.
The Honorable Will Hurd has served as a member of the House
of Representatives for 6 years, where he has been a leader on
national defense and security issues. Most notably, he has
served on the House Intelligence Committee as the Ranking
Member of its Subcommittee on Intelligence Modernization and
Readiness.
Derek Scissors is a resident scholar at the American
Enterprise Institute, where he focuses on the Chinese and
Indian economies and on U.S. economic relations with Asia. He
produces a wealth of useful resources related to China, notably
the China Global Investment Tracker and the China Beige Book.
Melanie Hart is a senior fellow and director of China
policy at the Center for American Progress. Her most recent
work focuses on developing a comprehensive U.S. strategy toward
China, analyzing the domestic political factors driving Chinese
foreign policy, tracking Chinese industrial policy, and
assessing China's intentions toward the world.
Finally, Roy Houseman is legislative director for the
United Steelworkers, North America's largest industrial union.
In that capacity, Mr. Houseman oversees congressional affairs
and works to improve wages, hours, and conditions for the
Steelworkers' 1.2 million members and retirees.
I want to thank all of our witnesses for participating
today and thank our audience for tuning into our second hearing
on this topic, United States-China: Winning the Economic
Competition.
By now, it has dawned on many that the United States and
China are at the beginning of a long economic competition. The
big question now is whether we plan to fight or surrender.
Thankfully, many people want to stand and fight, and we
have made great strides in the past few years by, for example,
strengthening oversight of foreign investment in the United
States, tightening export controls of sensitive technology, and
imposing sanctions on malicious Chinese enterprises like
Huawei.
Despite these welcome actions, however, great challenges
still remain. The coronavirus pandemic has exposed the great
extent to which we depend on the goodwill of the Chinese
Communist Party to access essential goods, such as personal
protective equipment and medicine.
And each day, it seems, brings fresh revelations of
American companies seeming to kowtow to China, such as Apple TV
recently acknowledging that it will not stream content critical
of China.
So, clearly, not everyone has woken up to the threat that
China poses to our country, or perhaps they are awake to the
threat but they are hedging their bets. There are even some
warning signs that the next Administration might roll back some
of the progress we have made in the past few years in an
attempt to return to a failed policy of engaging and
accommodating China that both parties pursued over the last 30
years.
But, of course, winning our competition with China is not a
partisan issue. I have been fortunate to work with my
Democratic colleagues on a number of important initiatives,
from these hearings with Senator Cortez Masto, to my bill to
restore semiconductor manufacturing in America with Senator
Schumer. I hope that in next Congress this body will continue
to build on the good work we have already done on a bipartisan
basis.
Hearings such as this are opportunities for us to explore
new ideas at greater length with top experts. So I am looking
forward to hearing what all our witnesses have to say.
And on a final note, for the record I want to say that over
the past year, my staff has been hard at work on a report that
addresses this very issue of competition with China and how to
win it. That report is nearing completion, so I hope you all
will have a chance to pick up a copy once it is released early
in the new year.
Thank you again for joining us, and now I will turn it over
to Senator Cortez Masto, our Ranking Member, for her remarks.
OPENING STATEMENT OF SENATOR CATHERINE CORTEZ MASTO
Senator Cortez Masto. Senator Cotton, thank you so much.
And thank you to your staff. They have great to work with, and
I so appreciate all of the hard work that they have put into
the past two Committee hearings that we have had.
Thank you to the witnesses. I am excited for the discussion
today and so appreciate you taking the time.
Listen, I am so glad to be here to talk about what I
believe is a point of bipartisan agreement: that China is a
strategic competitor on the global stage. And as we talk about
what that means, I think it is important for us to talk not
only about what that means for our current moment, but for the
decades to follow.
Competition with China affects every sector--how we
innovate, how we do business, how we tackle climate change, how
we trade with other Nations, how we protect our national
security, and how we are able to impact the world around us. We
have an opportunity now--in the midst of this horrible
pandemic--to use this point of bipartisan agreement to invest
in our ability to compete, not just today, but tomorrow as
well.
At key moments in history, when faced with overwhelming
challenges--from the Great Depression to putting the first man
on the Moon--this country has risen to the challenge. And I am
looking forward today to talking about how we can make sure
that we have the right tools and right plan to do that again.
China's economic activity makes up a growing share of our
global economy. Some of that has been good for this country. We
have added jobs, reduced the price of goods by expanding trade
with China.
But in other cases, it has not worked out well. In too many
cases, Beijing has taken our technology, undercut our domestic
manufacturing base, and created an unfair playing field for our
companies and our workers.
We have seen this competition play out in Nevada in
multiple ways. At our military bases, leaders have repeatedly
expressed concern about Chinese Government attempts to spy on
the sensitive training that occurs there. I have heard similar
concerns from leaders in other sectors--forced technology
transfer and industrial espionage.
In the critical mineral sector, we have seen a different
but equally important aspect of the competition playing out.
While China has invested in developing the ability to extract
and process critical minerals that are essential to many of our
emerging technologies, we in the United States have
underinvested in those capabilities. In Nevada, that has left
important opportunities for economic growth untapped. Of
course, we must pursue these opportunities in environmentally
and socially responsible ways, but by failing to invest in
these key sectors, we are giving Beijing the advantage and
hurting ourselves.
Yet in Nevada we also see another aspect of our
relationship with China. We have strong cultural and economic
ties to China. We have a diverse Asian-American community in
Las Vegas, with a vibrant Chinese-American population. Our
world-class casinos and resorts attract more than 200,000
tourists from China annually. Now, that is good for Nevada, and
it is good for China.
So I believe we must approach our relationship with China
with a clear-eyed commitment to doing what is best for the
American people, but also with balance and attention to the
nuanced nature of our relationship.
We need to be able to compete and look for opportunities to
cooperate. We need to be able to call out the Chinese
Government where we disagree, while still respecting the rights
and freedoms of people in China and of Chinese Americans here
at home.
So I see three parts to our response to economic
competition with China.
First, we must invest at home. I have led bipartisan bills
like the ACCESS BROADBAND, SPEED, and Moving FIRST Acts to
strengthen our 5G and broadband infrastructure and our emerging
tech sector. We must ensure we are investing in innovation to
bolster our manufacturing industry, especially in the sectors
that will create the jobs of the future, like clean energy.
I joined my colleagues on the Senate Democrats' Special
Committee on the Climate Crisis over the past 2 years, where we
heard from stakeholders about the opportunities that a clean
economy can unlock for domestic manufacturing. So I look
forward to talking more about some of these opportunities
today.
But we also must protect and support our most important
asset: our people. I am a longtime advocate for collective
bargaining rights, for supporting safe and fair workplaces and
the growth of good-paying jobs in Nevada and throughout the
country. I am also proud to say that today I am joining my
colleagues Senators Schumer, Menendez, and others in
cosponsoring America LEADS, which is the most comprehensive
China legislation to date and makes significant investments in
the resources our workers, entrepreneurs, researchers, and
manufacturers need to get ahead and stay ahead.
And, second, we must rebuild our relationships with our
allies and partners so we can face the China challenge
together. We will not win in this competition on our own.
President Trump has rightfully identified some of China's
unfair trade practices, but he has gone about addressing them
in a way that has hurt Americans.
That is why I have advocated for stronger enforcement
mechanisms in trade agreements, including in U.S.-China trade
negotiations and questioned the Trump administration on their
strategy of alienating our closest allies in an increasingly
globalized economy.
Third, we must ensure we have the Government structures to
adequately address this challenge. Competition with China does
not fit neatly into committee jurisdictions or bureaucratic
organizational charts.
That is why I have been working with my colleagues to build
an informal bipartisan working group to ensure we are talking
across committees about these challenges. And I am exploring
legislation for the next Congress to work with the Executive
branch around similar issues, especially on emerging
technology.
And, finally, we are in a unique moment now. So many of us
are hurting from this horrific pandemic. We are working to pass
another COVID relief package, which we sorely need. But I also
see an opportunity in this moment for us to really double down,
to make investments not just to get us over this short-term
challenge, but to set us up to lead in the 21st century.
So I am grateful to all of the witnesses who are here today
to talk about the current state of our competition and the
policy tools that we need to address it. Thank you for joining
us today.
Chairman Cotton. Thank you, Senator Cortez Masto.
We will now turn to opening statements from our witnesses.
We will start with Representative Hurd.
STATEMENT OF REPRESENTATIVE WILL HURD OF TEXAS
Mr. Hurd. Chairman Cotton, Ranking Member Cortez Masto,
thanks for the opportunity to testify, and my comments are
based on my decade career as an undercover officer in the CIA
where I did operations against the Chinese. It is my time in
the private sector helping businesses grow in the markets where
the Chinese were already existing. My comments are informed by
my time helping to build the cybersecurity company where you
see the threat from Chinese hackers to not only the Government
but to the private sector, and then obviously my time on the
House Permanent Select Committee on Intelligence. In your
opening remarks, you alluded to this.
We are engaged in a new cold war with the Chinese Communist
Party. Now, some people do not like that term ``cold war.'' I
use it because we are not fighting with weapons, with, you
know, guns and tanks. But this is a struggle. This is not my
assessment. This is not from collecting intelligence. This is
based on what the Chinese have said about themselves. We all
know about Made In China 2025 where the Chinese themselves have
said they are going to try to surpass the United States of
America as the sole hegemon by being involved and leading in a
number of advanced technologies. This is a generation-defining
struggle on who is going to be the global leader on advanced
technologies like 5G, AI, quantum, things like syntactic foam.
These are all issues that if we do not win--why should we
matter--why should we care about this? If we do not win, it is
because the U.S. economy will no longer be the most important
economy. The dollar and English will not be the things on which
global economic activity happens. It will be Mandarin and the
yuan. And we have to realize that the Chinese intelligence
services are the best in the world at seeding operations. And
they are doing this against academia; they are doing this
against the startup community; and they are doing it against
Government officials.
We have seen, you know, the fact that people know this
woman Fang Fang and what has happened with a number of elected
officials to include some of my colleagues in California. The
fact that Chinese intelligence take the long-term approach to
looking at what is a potential intelligence operation 20 or 30
years down the road. Our intelligence services are not prepared
to deal with that. We do not operate that way.
I am currently investigating some reports in South Texas of
how Chinese nationals have come across our southern border
illegally in order to start working in some of these commercial
space companies. This is absolutely crazy that they would take
astrophysicists and try to get them to act like they are going
to go paint a wall or be a basic day laborer in order for them
to get access to some of these commercial space facilities.
We know about the Thousand Talents program. We know about
the Fox Hunt program that the FBI is aggressively pursuing. The
Chinese intelligence services operate differently from us. Just
because we do not consider it ourselves intelligence does not
mean it is not an intelligence operation, and we are going to
have to change our thinking.
When I was an undercover officer in the CIA and if you
would have said ``made in China,'' I would have thought that
meant a knock-off. But now ``made in China'' actually means
made in America first, and there are so many examples: the
syntactic foam company based in Texas that had connection to
Dr. Hart and my alma mater, Texas A&M, where a Chinese company,
you know, started working with an academic institution in order
to get access to technology that they could then steal and
develop themselves.
There is a wind farm in far West Texas that is owned by a
Chinese company, and the work that you all did and our
colleague in the Senate John Cornyn did on FIRRMA and
strengthening CFIUS. You have a Chinese general buying 40,000
acres in West Texas creating a wind farm and connecting to the
Texas grid. The long-term potential implications of that is
interesting, and the way you stop this is simply reciprocity. A
U.S. general would not be able to buy 40,000 acres in Beijing.
Why are we allowing a Chinese general to do that here in the
United States, a retired Chinese general?
This is the same thing when it comes to cloud and credit
cards. Why do we treat Alibaba in the United States like an
American company but Amazon is not treated like a Chinese
company in China? Why is Mastercard, Visa, and Amex not allowed
to operate in China but we allow the Chinese applications,
WePay, to operate here in the United States?
So these are some of the issues that we have to address,
and I am glad to answer questions after we get through these
opening remarks.
Chairman Cotton. Thank you, Representative Hurd. Those are
some good questions posed, and I hope we will come to them
later in our hearing.
Mr. Scissors.
STATEMENT OF DEREK SCISSORS, RESIDENT SCHOLAR, AMERICAN
ENTERPRISE INSTITUTE
Mr. Scissors. Thank you. I would like to spend my time, my
5 minutes, talking about one aspect of the competition, which
is whether it is, in fact, short-term or long-term. I think it
is legitimate to argue that it is long-term, but I am going to
make the case, at least briefly, that it is short-term. And the
reason I think this is important is because whether it is more
short-term or long-term changes the policy steps that we should
take at the outset.
So let me start with why it might be short-term, and this
is mostly on the Chinese side. I think we are all familiar with
the fact that China has a serious aging problem because many
families were restricted to one child, and encouraging births
now, as the Chinese are trying to do, is much harder as
societies develop. They are on a worse demographic trajectory
than Japan. The heaviest blow demographically probably starts
in a few years. In any case, China in 2040 will be
unrecognizable both demographically and socially. So when we
talk about a long-term competition with China in 2040, we are
talking about a different country, and demographics establish
that.
On debt, Chinese bank lending starts outrunning its GDP
growth in 2002. Everyone is very impressed with Chinese GDP
growth. Chinese bank lending is faster than Chinese GDP growth
and has been for about 17, 18 years. They caught us--this is
not a race we want to win. In broad economic leveraging,
financial leverages measures, the Chinese caught up to us in
2016. They were less leveraged than us prior to that; now they
are about as leveraged as we are. But they are much less
productive than us on a per capita basis. And when you are less
productive, when you are a more backward economy in that sense,
you are wasting a ton of money if you are highly leveraged.
So what has happened in recent years is China has wasted a
lot of money. They have wasted their opportunity to catch up in
productivity. They have spent a lot of money for progressively
less economic gain. That is going to be an anchor around their
economy for years to come. We have a problem there, too, which
I will get to in a second, but debt is a larger problem at
present for China than for us.
The party and many people observing China think innovation
will come to the rescue. Discussing innovation is automatically
less precise than discussing demography and debt, but a large
economy facing serious demographic and debt problems, it is
hard to innovate enough to carry that economy forward. The
Japanese have not been able to do it, for example, and the
Chinese actually have a worse problem than Japan, because they
reserve 20 to 25 sectors for the State, and State-owned
enterprises, which do not face competition, have no reason to
innovate. Chinese oil companies are not innovative. The
Mainland Chinese telecom services providers--China Telecom,
China Unicom, et cetera--are not innovative because they do not
have to be. And there are 20 sectors like that in China, so
that is a drag on their economy as well. So that is my argument
for why China is less of a long-term threat than it is a short-
term threat.
There is an important qualifier here, which is if we do not
take care of our own problems, then in 2040 we will be looking
at two overrated long-term competitors, the Chinese and us,
instead of just one--China. So we have to deal with our own
problems. But if the challenge is short-term, we have to deal
with China first because that is what we can handle in 2021.
Addressing long-term issues in the United States is worthwhile
absolutely, but it is going to take a good amount of time, and
we have an opportunity in 2021 to respond to China immediately.
The first thing that is necessary in that response is
boring, and no one ever wants to do it when they take over the
Executive branch, Democratic or Republican. We have to document
the problems. We have to document Chinese subsidies to their
full extent, which we have never done. We have talked about it.
We have to document coercive IP transfer, both theft and
coercion within China. We had a private organization do that at
a general level. The U.S. Government has never published
anything.
We have to document outbound capital flow, which is a
relatively new issue where we are not following where our money
is going and what it is supporting in China. We have had a lot
of concern about China. We have not had people wanting to do
detailed, boring work. Outbound capital flow, for example, U.S.
capital flow to China might now be near $1 trillion, mostly
through the Caymans. We do not know what the end user is. We do
not know where the sectors are being concentrated. We do not
know enough to make good policy.
My second recommendation is a twofold recommendation on
technology. Export controls were passed overwhelmingly on a
bipartisan basis in both the Senate and the House in the summer
of 2018, and they remain unimplemented, which I find
unconscionable. We need to implement those export controls as
the Congress has directed by the Department of Commerce in
2021.
We also need to start punishing beneficiaries of IP theft
and coercion. We really have not done that. We have talked
about it. We have talked about punishing the thieves. As an
economist, I do not care who stole it. I care where it ends up
and how that firm can use American technology to compete
against American companies and workers.
If we do not start punishing the beneficiaries of IP theft,
when we put export controls in place, the IP theft will get
worse. When we say, ``Hey, you cannot share technology with
China,'' the Chinese are going to say, ``Great, we will take
it.'' So those two things have to go together.
Third, once we document the subsidies, we need to employ
more broadly--and maybe this gets to the reciprocity
Representative Hurd was talking about--we need to employ more
broadly countervailing duties and other actions against
subsidized Chinese production. And that is not just Chinese
imports. It is also the fact that Chinese subsidies prevent
American exports to China, effectively closing off those
sectors, which means we need to consider what our response is
to that, that we will never be able to in the current Chinese
system compete openly in the Chinese market.
And, last, as I have mentioned about capital, once we
document those capital flows, if we find out that a large
amount of American money is going to areas that we consider
important, the Chinese are certainly trying to draw to areas
they consider important. But if we get the numbers and we say,
wow, we are giving $150 billion to advance Chinese technology,
we have to restrict it. I do not want to advocate for
restrictions right away because we do not know enough. But I do
want to advocate, to close on a point Senator Cotton brought
up, if we are going to help American semiconductor
manufacturing, we cannot at the same time have American
financial institutions pour money into China-based
semiconductor manufacturing. That is not sensible policy. So if
we find out that is the case, we are going to need to impose
outbound investment restrictions along with trade technology.
Thank you.
Chairman Cotton. Thank you, Mr. Scissors.
We will turn now to Ms. Hart.
STATEMENT OF MELANIE HART, SENIOR FELLOW AND DIRECTOR FOR CHINA
POLICY, CENTER FOR AMERICAN PROGRESS
Ms. Hart. Thank you. Chairman Cotton, Ranking Member Cortez
Masto, and distinguished Members of the Subcommittee, thank you
for the opportunity to testify before you today.
The United States stands at a critical juncture. China is
nipping at our heels. A new industrial revolution is underway.
But instead of marshaling our resources to leverage this
revolution for our maximum economic benefit, the United States
is drifting, and Beijing is watching.
China's leaders know that drifting Nations do not prevail
in industrial revolutions. In Beijing's view, current U.S.
inaction is creating a once-in-a-century opening for China to
finally catch up to and surpass the United States as the
world's leading economic and technical power. To turn this
dynamic around, the U.S. must address its economic challenges
head-on and reinvest in the fundamental drivers of our own
economic prosperity. The decisions that this Committee and
other members of the U.S. Congress make over the next year will
play a critical role in determining whether the U.S. succeeds
or fails.
I would like to make four key points in my opening
statement.
First, over the past two decades, China prioritized
investment decisions of its own economic power. The U.S. did
not, and that is one reason why China is now our peer
competitor. For decades, the U.S. was the world's leading
investor in research and development, and that gave us a
critical edge. But over the past two decades, as globalization
and the digital revolution unfolded, our spending did not
change. We did not upgrade our strategy, and the U.S. lost its
edge.
A similar pattern is playing out in public infrastructure.
While China and other Nations invest in world-class systems,
the U.S. forces its workers and companies to make do with aging
infrastructure built in and designed for the 1960s. The United
States would never send its military into today's battles with
cold war-era weaponry, but it forces its workers to fight the
21st century economic battles with 20th century infrastructure.
That is a gift to Beijing.
Second, Beijing also deploys predatory industrial policies
to siphon off U.S. technology advantage and boost Chinese firms
over their American competitors. I know the Committee is
familiar with some of those policies and the damage they cause.
Third, Beijing is responding to the Trump administration's
policies by doubling down. If the Trump administration's
ultimate aim was to force Beijing to abandon its predatory
economic policies, that effort has officially failed. Last
month, Chinese leaders issued a communique signaling the
direction they plan to take their Nation over the next 5 years.
It does not signal a change in China's economic strategy.
Instead, the new plan suggests that Beijing is doubling down.
Fourth, if the U.S. competes at full strength, China cannot
beat us. But that requires the U.S. to do two things
effectively that we are not yet doing: first, invest in our own
comparative advantages, the advantages that China cannot match;
and, second, form broad, global coalitions to neutralize
China's predatory behavior.
On the domestic front, the U.S. needs to treat the China
challenge as a ``Sputnik moment'' and rally around a national
competitiveness initiative that makes key long-term investments
in our comparative advantages. That should include things like
making high-quality postsecondary education affordable for all
Americans, rebuilding workforce development infrastructure,
making moonshot investments in national R&D, and investing in
productive public infrastructure.
The U.S. should also make rapid, targeted investments to
reduce supply chain dependence on China and speed time to
market for disruptive innovation. 5G network equipment is the
perfect example. We have made-in-the-USA 5G equipment
solutions. We have that. Some of them, like Virtual RAN, are
still relatively new, and mobile operators in the U.S. and
around the world are nervous about being the first company to
roll those new innovative technologies out. Congress can help
by funding test networks around the country. That is already
happened on U.S. military bases.
In my view, underserved rural communities around our Nation
are a logical next step. Once American companies are
demonstrating that they can successfully run made-in-the-USA 5G
networks in our Nation to address some of our broadband
devices, we can begin exporting them as well.
And, finally, high-tech sectors provide a near-term
opportunity to join forces with other Nations to build a broad
global coalition around China. We have opportunities to do that
on digital technology governance and also on assessing how some
of Beijing's subsidies and underpriced capital boost Chinese
firms at our expense, as Derek suggested previously.
Thank you, and I look forward to your questions.
Chairman Cotton. Thank you, Ms. Hart.
Finally, we will turn to Mr. Houseman.
STATEMENT OF ROY HOUSEMAN, LEGISLATIVE DIRECTOR, UNITED
STEELWORKERS
Mr. Houseman. Chairman Cotton, Ranking Member Cortez Masto,
Members of the Subcommittee, thank you for the opportunity to
testify today. I commend the Committee for uplifting the voice
of organized workers in this discussion, and our International
President, Tom Conway, gives his regards.
The United Steelworkers is the largest industrial union in
North America, representing workers throughout the
manufacturing sector. We also represent a growing segment of
health care, public sector, and even tech workers. This
diversity in profession creates a strength in understanding the
impacts that China's economic competition will play on the
worker in America.
Our first effort in competing with China must be to invest
in the basic infrastructure necessary to make Americans feel
safe from the COVID-19 pandemic, starting with an immediate
COVID-19 relief bill for the millions of Americans currently
laid off. We also need to immediately advance a regulatory
framework that ensures workers feel safe returning to work.
OSHA and MSHA standards dealing with a pandemic are sensible to
anyone who has stood shoulder to shoulder in a processing plant
or who has had to go through a lock-out, tag-out procedure.
As the country starts receiving the vaccine and containing
the pandemic, the existing challenges we faced prior to the
pandemic related to the Nation's infrastructure, labor force,
and international competitiveness will only become clearer.
Since such a large percentage of our members manufacture
today's high-tech materials and metals, I wanted to provide
focus on how China's near monopoly or market dominance has
impacted workers here and undermined U.S. competitiveness.
For example, in steel, China now accounts for over 51
percent of global production. In aluminum, China's share of
global output touched 57 percent in May. In rare earths, China
not only holds 35 percent of the world's entire rare earth
supply, but accounts for 70 percent of global production. Rail
CRRC, the Chinese State-owned enterprise, calculates they
control roughly 83 percent of the global rail market. And in
fiber optic cable, China's production reached 61.6 percent
share of the global total in 2019. These levels of production
or capacity can swing prices and prevent domestic entry and
have led to 205 antidumping and countervailing duty remedies
slapped against firms in China by the U.S. alone. Each of these
orders represent not just a recognition that China has
committed illegal trade practices, but also during a 3-year
period of time, domestic industry lost jobs, cut benefits and/
or lost market share.
The U.S. Government should respond to China's State
capitalism through a mix of policies and investments that
recognizes State economic power must be met with reciprocal
State economic responses.
We are a $22-trillion economy, and simple investments would
allow us to get goods out the door, whether it is the steel or
the next generation of medicines. Yet these products have to
travel on our crumbling infrastructure, as Ms. Hart indicated.
In 2019, the U.S. spent just 2.5 percent of our GDP on
infrastructure, down from 4.2 percent in the 1930s, while China
spends around 8 percent of its GDP on infrastructure.
We need to upgrade our ports, our roads, expand broadband,
build out our critical minerals, and improve our education
system. Our union members want that work, and American workers
are guaranteed that their tax dollars will go to expand the
manufacturing infrastructure to compete with China. This leads
to a simple fix. Expanding our Buy America provisions to ensure
the money Congress approves does not inadvertently go to jobs
in China.
Another investment we should make is expanding our
Manufacturing USA program. The 14 Manufacturing USA Institutes
conducted nearly 500 applied R&D projects to broad industry.
Legislation like the LEADS Act by Senators Schumer and Menendez
expands this successful program.
We should also expand the Manufacturing Extension
Partnership program. A network made up of the 51 MEP Centers
has led to American firms creating or retaining over 114,000
manufacturing jobs in fiscal year 2019. We should build on this
success and expand the program.
Last, we need to press back against China by building a
robust, unionized working class. Reducing wealth inequality in
America will unleash a spending potential that will propel us
into the future. The economic competition between the U.S. and
China will be a generational rivalry. United Steelworkers
believes our country, with the proper investments, planning,
and commitment to our most powerful asset--the American
worker--will be how we succeed in that rivalry.
Thank you, and I look forward to answering any questions
you may have.
Chairman Cotton. Thank you, Mr. Houseman. Thank you all for
your statements. We will turn now to questions. I will begin.
I want to address this to Representative Hurd and Mr.
Scissors. You both advocates for taking a harder line on China
on the economic domain, but I want to note that you have
slightly different approaches.
Representative Hurd, you have written about the need to
adopt a policy of reciprocity aimed at changing China's
behavior. So, for example, if Beijing restricts investment or
market access for U.S. firms, we could respond in kind until
they open their markets. The premise of the strategy, as I
understand it, is to encourage structural changes in China's
economy and changes to Chinese Communist behavior.
In contrast, Mr. Scissors, you have written that a partial
decoupling from China is overdue. You go on to state that a
strategy of decoupling is a recognition that America should
drop the pretense of changing the People's Republic.
So a question for both of you. To what extent can we expect
U.S. policy to change CCP economic behavior? I believe the
answer to this question is vital in formulating that policy.
Representative Hurd, I will turn to you first, and then I will
turn to Mr. Scissors.
Mr. Hurd. Thank you for the question, Chairman. The U.S.
and China were frenemies, and if we want to get them to change
their behavior, it has got to hurt. And so the U.S. Trade
Representative just produced a report last year about the
things the Chinese Government has not done at the WTO. It was
like 122 pages. So we need to be making sure that we are
working with our allies to put pressure on them in agencies
like the WTO.
The U.S. market is a market that buys a lot of Chinese
products, so we have a tool in our toolkit in order to use that
to try to get them to start operating fair. And so that is one
way--we are going to be able to out-innovate them. The fact
that an authoritarian Government can get somewhere first
because they can move all factors of production into one area--
they may get somewhere first, but they are not going to be able
to get beyond that point. And so that is why here in the U.S.
we have also got to make sure that we are prepared to compete
with them.
AI is one of those issues. Robin Kelly, my colleague from
Illinois, and I just passed an AI national strategy. It went
through six committees. It was saying that we needed to double
down on research like Ms. Hart was talking about, that we need
to focus on the national security implications of AI, that we
need to promote the ethical use of it, and that we need to
start developing workforce pipelines to ensure that Americans
are ready for this, so in other ways we can out-innovate them
and we should, but let us build relationships with our
colleagues. It is good to have friends or other Nations. The
Chinese are just like the Russians. They do not necessarily
have allies. They have dependents. And so we need to leverage
that tool in our toolkit to try to enforce some of those
behaviors.
Chairman Cotton. Thank you.
Mr. Scissors.
Mr. Scissors. I have no objections at all to the use of
reciprocity, as Representative Hurd has suggested. I think it
is a good idea, and if this were 10 years ago, I would have led
with reciprocity as a guiding principle for U.S. policy as
well.
The change has been the ascent to power and consolidation
of power of Xi Jinping, and a different Chinese leader might be
gone in 2 years, and I might say, ``Hmm, I do not know what our
policy should be in 2023 and beyond.'' But under Xi,
reciprocity is not enough. Even if it is enough in trade, it is
not enough in technology. Let me give you an example.
How are we going to reciprocally respond to Chinese theft?
Are we going to try to steal their technology? That does not
work as--first of all, we do not really want their technology
that much in most cases. But, second, we do not want to be
advocating for coercion of foreign enterprise in the United
States, for illegal actions against Chinese firms. That is not
the way we want to go.
So reciprocity has a role. The reason I moved to advocating
decoupling is because China has changed. It is not the same
country in 2020 as it was in 2010. It is not the same country
under Xi Jinping as head of the Communist Party--I could spend
all of my time documenting just the political side of that--as
it was under Hu Jintao in 2010 much less Jiang Zemin in 2000.
And a different China, a less aggressive, repressive China,
that is a different story. But this China, with Xi Jinping, who
wants to stay in power indefinitely, who is absolutely, as
Melanie mentioned as well, committed to the State sector.
Reciprocity is not enough. We do not want to be just like
China, and I do not mean to say that Representative Hurd says
we do. But we cannot match their actions, thankfully, in a
number of areas. So the response to criminal activity, and a
lot of Chinese activity in technology is essentially criminal,
is to separate from them. We cannot fully punish Chinese
companies because we do not have access to them because they
are protected by the party, so that is where decoupling comes
in. Reciprocity is a fine principle for a lot of reasons. It is
a good start. But with Xi Jinping's China, we need to do more,
especially in the technology area.
Chairman Cotton. Thank you, Mr. Scissors.
My time is up. I will turn the questioning to Senator
Cortez Masto.
Senator Cortez Masto. Thank you. This has been a really
enlightening conversation, and thank you so much for your
initial comments.
Let me jump back to manufacturing. There is a lot of talk
about how we need to manufacture American made again here in
the United States, how we bring the supply chains back. Let me
put a focus on something that is very specific to Nevada as an
example, and then I want to expand from that.
In Nevada, particularly in Henderson, we have the TIMET
plant, and the TIMET plant there manufactures, creates the
titanium sponge, with is the purest form of titanium. It is an
essential ingredient for so many things we build, from
commercial airplanes to our military's combat vehicles.
Now, the only domestic supplier that we have on this
important resource was in Nevada at that TIMET plant in
Henderson, but it went idle this year and had to lay off
workers. Before that happened, TIMET warned Federal regulators
that if the Henderson plant were to close, they said the U.S.
military ``will be 100 percent reliant upon titanium sponge
from risky countries, including China and Russia.''
Let me just say this, Mr. Houseman. We so appreciate the
steelworkers' efforts for this plant, and thank you very much.
But this just gives you another example of how do we--as we
have this conversation today, how do we turn this into a focus
on what constructively we can do to address concerns? We hear
this going on across the country. We hear that this is
happening. And we know that there is a range of manufacturing
industries that are going to be either put at risk or we need
to bring the supply chains back and start this manufacturing.
But how do you compete say, for instance, with China, who
already has reduced the costs for doing this and it is going to
be hard for our companies to startup even if they wanted to, to
go down this path? What are your recommendations?
Let me just start with Ms. Hart, if you would, because we
talk about, we hear about this all the time, but how do you
actually--how do you get it started? Because the costs are
going to be so high for any company that wants to start down
this path.
Ms. Hart. Sure. Thank you, Senator Cortez Masto, for the
question. You know, the missing piece in the current
Administration's trade strategy toward China is doing a supply
chain-by-supply chain assessment to identify in which supply
chains do we have too much dependence on China or other
Nations. Where do we need to diversify? And depending on the
substance, does that diversification need to involve targeted
investments here at home? Can it also involve exchange with
American allies and partners? So in rare earth sectors, we can
work together with Australia to improve diversification and
reduce our reliance on China. In others, targeted investments
at home make sense. And so that will require us to make some
smart investments, and that supply chain-by-supply chain
analysis is critical to target and determine where do those
investments make sense and how do we make sure we are getting
the biggest economic and national security bang for the buck
when we make them.
Senator Cortez Masto. Thank you. And, Mr. Scissors, let me
go back to you because this is your idea of how we document,
that we need to take the time to document, that it so boring
nobody really wants to take the time to do that. But if we are
able to document and really put this information down on paper
and identify it, it is a starting point for all of us to work
from. Is that what you are getting at?
Mr. Scissors. Absolutely. I wrote that down while Melanie
was speaking, and you obviously heard the same thing I did.
Supply chain-by-supply chain is an excellent approach because
it involves both investment and trade. You combine the two, and
technology, where we are in technology supply chains.
You and Senator Cotton are doing wonderful work on this
through this hearing and elsewhere, but you cannot make
decisions on where to invest and where to cooperate with our
allies and what to startup with if you do not know where the
Chinese element in the supply chain is. Maybe it is not
important at all. Maybe it is incredibly important. Maybe it is
hidden.
So we have to have that information to make good policy. It
is dull, but it would start off the Biden administration with
the base to make the necessary actions for all of you to judge
this is crucial for us to act now, this is secondary, judgments
which we really cannot make now, because even if we decide that
we know the importance of a supply chain, it is not obvious
what the Chinese role is.
I will wrap up here, but we all know an example of this,
which is active pharmaceutical ingredients, where the Chinese
are not the primary exporter. Our imports come from other
countries other than China, but they make the chemicals to go
into those ingredients. And so there is a hidden dependence on
China in that sector, and that requires a different policy than
a policy where--than policies required where the imports come
directly from China. So I 100 percent agree with both Melanie
and you. The first step has to be information.
Senator Cortez Masto. Thank you. I notice my time is up.
Thank you very much.
Chairman Cotton. Senator Menendez.
Senator Menendez. Thank you, Mr. Chairman. I am glad that
we are having this second hearing on the U.S.-China economic
competition. Since the last hearing, I introduced with a number
of my colleagues the America LEADS Act. This bill seeks to do
four things: one, invest in American competitiveness; two,
invest in American alliances and partners; three, invest in our
values; and, four, invest in our economic statecraft to ensure
China pays a price for its predatory actions.
America LEADS provides a comprehensive strategic approach
for addressing the new competitive U.S.-China relationship and
to define policies and allocate critical resources that combine
and mobilize all aspects of U.S. national power, starting with
the recognition that American competitiveness starts with
investments here at home in our workers, our education, in
science and technology and innovation. Further, this bill is
driven by a need to retool the U.S. economy and workforce to
compete in the 21st century.
So with that as a preface as to how I look at this, I would
like to ask Dr. Hart and Mr. Houseman, would you agree that any
serious approach to the China challenge has to start with
reinvesting in our domestic sources of competitiveness?
Mr. Houseman. Yes, Senator. It is this concept of, you
know, as you indicated in your legislation, where putting in
$350 billion into workers, entrepreneurs, and the manufacturing
community will kind of create this virtuous cycle, basically,
of, you know, reinvesting in plants that many of these domestic
manufacturers have--as has been kind of pointed out, these
plants were built oftentimes in the 1960s. I look back at the
hard hat of the paper mill I used to work out that was built in
the late 1940s, and, you know, upgraded its infrastructure over
time. But that lack of domestic investment ultimately led to a
plant closure about a decade ago yesterday.
And so we think about this as like these sorts of
innovative competitiveness environments where, if we provide
those direct investments to our manufacturers, both in today's
technology and for future technologies, we will have an
opportunity to really engage.
Ms. Hart. Thank you, Senator Menendez, for the question.
Absolutely, good defense is great. Good defense is important.
But you do not win a game by only playing defense. You have to
play offense as well, and that is what those smart investments
are all about.
Senator Menendez. Let me ask you both--I think you may have
had a chance to look at the legislation--what do you think is
missing from our bill? What did we get right? What did we get
wrong? How can we improve it? Any suggestions in that regard?
Mr. Houseman. I would say that the key piece is there, as I
indicated in the testimony, the MEP program, the Manufacturing
Institutes, those sorts of expansions of those programs create
these hubs of innovation, just the same as, you know, Silicon
Valley started with one or two companies and then expanded out.
That wealth of knowledge gathers other wealth of knowledges.
And investing into these communities, I would say the one thing
that really would be impactful is ensuring that we invest in
communities such as that have been hollowed out in the
deindustrialization in part because of China's advance in
manufacturing.
Ms. Hart. Thank you. Senator Menendez, the piece that I
think we are all waiting to see is how well these initiatives
are resourced. I really commend you for pushing forward the
bill in 2020 to invest, and I believe initially proposed $1
billion in providing 5G alternatives to Huawei. And my
understanding is that was whittled down to less than $100
million, perhaps over a 5-year timeframe. And it is great to
pick a step forward, but we need to be serious about what we
are investing in and how well do we want to equip American
workers, American companies, to fight a good offense against
our biggest peer competitor. That requires real resourcing, not
small ball resourcing.
Senator Menendez. And I appreciate that comment because in
view of what China is doing resourcing their initiatives, it is
significant competition.
I have only got a few seconds left, but let me just ask
you, it seems to me that if we really want to be able to
challenge China, not only confront it but to challenge it, we
are going to need partners--the EU, Australia, Japan, and
others. And when you put all the economies of these countries
together, now we have a real fighting chance against China.
You know, how would you recommend that we broaden the set
of partners willing to work with us to address the real
national security and economic threats that China poses?
Ms. Hart. Thank you. So, briefly, the first thing we can
and should do is work together to document what China is doing,
and then once we have shared broad agreement on exactly what
China is doing, then we can identify shared agreement on how we
will respond as a unified group.
Senator Menendez. Well, thank you, Mr. Chairman, for your
courtesy. I see Congressman Hurd there. Always appreciate his
insights and advice, and I look forward to continuing to work
with you, Mr. Chair, on this issue.
Chairman Cotton. Thank you.
Senator Smith.
Senator Smith. Thank you, Mr. Chair and Ranking Member
Cortez Masto. It is great to be with you. This is a really
interesting panel, and I want to start with an issue that I
think is primarily a trade issue, though not exclusively..
I am really proud to represent Minnesota's Iron Range where
three-fourths of the new iron in this country is mined, thanks
to the great American companies and great American workers led
by the United States Steelworkers.
You know, it is interesting to think, because we have so
much--we struggle sometimes--we say ``competing with China,''
yet our United States steelmakers are more efficient, they are
cleaner, and they are more innovative than Chinese producers.
Yet we still have--China has no great natural advantages when
it comes to manufacturing steel, yet because of their massive
subsidies and unfair trade practices, we end up getting
screwed, frankly.
And so I just am looking at you, Mr. Houseman. Could you
talk a little bit about what lessons we have learned over the
last few years about how we can stop these unfair trade
practices, what we need to do differently, and how we can
really leverage our competitive advantage when it comes to
steel particularly?
Mr. Houseman. Great, thanks. I would say there are two
things. One is we have to kind of engage in a multilateral
effort to capture it, basically contain China's overcapacity
related to steelmaking. Just this year, the OECD mentioned in
reports that there are over 63 million tons of expansion of
Chinese firms into Southeast Asia. These are new plants being
put into the Southeast Asia region, and they are going to then
start to expand and displace domestic market share in those
home countries, but then very likely target the U.S. market as
well.
We are seeing actually this year, with China's capability
to reinvest and get restarted as quickly as they have, they are
not hitting production levels that have not been seen before in
steelmaking.
And so for our workers in Iron Range in part it has
increased some pricing for iron ore, and they have been working
to restart there. But the inverse is that our members here, our
domestic industry makes about 100 million tons in a given year,
but a lot of those facilities, you know, they need that
commitment to buy American in large infrastructure projects to
get goods out on the ground, rebuild the steel, and that would
create that whole virtuous cycle, both from our traditional
blast furnaces to our electric arc furnaces.
Senator Smith. Right, right. Well, and I know you all often
speak a lot about it is mined, melded, and made in America. It
is the whole package, and that, I think, gets a little bit to
some of the interesting supply chain issues that you all are
talking about.
I just have a couple more minutes, a minute or so, but let
me turn to Ms. Hart. I was quite interested in the point that
you made about how in the last several years in the Trump
administration actually China has really sort of doubled down
on their practices. Could you just go into a little bit more
detail about what lessons we have learned, as we think about
how we go forward, what lessons we have learned.
Ms. Hart. Sure. You know, the biggest takeaway that I have
from the past 4 years is that taking China on unilaterally does
not work, and it also forces American consumers, workers, and
companies to carry water and pay costs for the entire global
community. Every problem that we have about Chinese economic
policy is not just a U.S. problem; it is a global problem. And
it is not fair to ask the American people to carry costs for
fixing that problem for the entire global community instead of
spreading that out and sharing it.
You know, we see that where the U.S. joins common cause
with other Nations, we can have a much bigger impact in a way
that works well for the United States. So to follow up on the
steel conversation, you know, one of comparative advantages our
industries have is that we are much cleaner than China. There
are much lower carbon emissions. That is a great comparative
advantage. The European Union is starting to talk about carbon
border adjustment measures. If we had an agreement in place
whereby the European Union only purchased steel that met
certain climate targets and ours naturally did and China did
not, then that would, you know, make progress toward addressing
some of our problems with China in a way that works together
with our allies, benefits American workers, and also addresses
our climate goals as well. There are great opportunities out
there as long as we think smartly about who we want to work
with and how we can take care of American citizens at the same
time.
Senator Smith. Right, right. That is great. Thank you very
much.
Chairman Cotton. All right. We will move into a second
round of questions. I want to address export controls. As our
economic competition with China intensifies, Government
agencies that have traditionally prioritized commerce and
facilitating commerce, like the Commerce Department's Bureau of
Industry and Security, have often been thrust onto the front
lines of national security. The BIS has done good work over the
past 4 years to update our export controls to deal with China,
but I believe there is more still to be done.
Mr. Scissors, what do you view as the most urgent
priorities for BIS over the coming weeks and months in dealing
with Chinese technology transfer efforts?
Mr. Scissors. Thank you, Senator. I am not as complimentary
toward BIS as you just were, in particular because this is an
area--we are having a pretty bipartisan panel here, to the
credit of the Senators on the Committee. Export control
legislation was absolutely bipartisan, and we identified at
that time more than a dozen foundational and emerging
technologies that we wanted to update our export controls for.
The foundational ones as we needed updated controls, the
emerging technologies we needed new export controls, and we
have got implementing regulations for 2 of those 14 in 2\1/2\
years. Most people do not think of the Department of the
Treasury as being really rabidly anti-China. They got their
implementing regulations for the FIRRMA bill as attached to the
NDAA done by the end of 2019. We are at the end of 2020, and we
still do not have the export control regulations.
So the top thing I want from nominees at Commerce, at BIS,
the Under Secretaries, the Assistant Secretaries, is a
commitment that says we are going to get this done in 2021.
There is just no reason at this point that we do not have
export control implementing regulations put in, and then they
can be evaluated. They are not going to be perfect, but at
least we can see them.
And the reason I think that is overwhelmingly important is
if you restrict Huawei or ZTE or another Chinese telecom
company, the Chinese will just create a new one to substitute
for it. If we actually succeed in putting Huawei out of
business, Huawei's assets would end up in another company with
a slightly different name, and we would have exactly the same
problem. That is the idea of State control over key sectors of
the economy.
We need to focus on technology and sectors, not particular
end users. The Congress knows that. It passed export controls,
and we have not gotten a benefit out of that because the
Department of Commerce has not done it. So that is my
overwhelming priority for 2021.
Chairman Cotton. You make a good point that right now our
export control system mostly bars specific Chinese individuals
or entities from acquiring technology rather than the transfer
of technology in general. I take it that you believe that
entity-based approach to export controls does not work given
the realities of how the Chinese Communist Party operates, Mr.
Scissors?
Mr. Scissors. Yes. I mean, of course, if a company
commits--Huawei is up in Federal court on multiple criminal
charges, but we are still giving them export licenses. So, of
course, punishing a company like Huawei, if we believe they are
guilty of criminal activity, is important. But that is not an
export control activity. That is a rule of law activity. We are
not controlling exports to China by preventing them from going
to Huawei and allowing them to go to Fujian Micro or another
company, you know, who imports semiconductors.
So I do not want to, you know, ban every Chinese sector
from trading with the United States, but in technologies we
want to control, as the Congress tried to designate in 2018,
you cannot just restrict one Chinese company. You know very
well, Senator, that civil-military fusion means if a technology
is seen as important for the military, it goes throughout the
military production complex. It is not limited to one firm. If
those firms are engaged in criminal activity, punish them, but
technology has to be controlled on a sector basis.
Chairman Cotton. So given those points, Mr. Scissors, do
you think we should shift our export control process away from
the Commerce Department and toward an agency or department
whose statutory and cultural and historic mission is more
geared toward national security rather than fostering commerce?
Mr. Scissors. I think we should be actively thinking about
it. I think if the Secretary nominee, if the Deputy Secretary,
the Under Secretary for BIS, the Assistant Secretaries, they
all come in and they say, oh, yeah, exports, we really need to
promote exports, we really need to promote exports, there is
nothing wrong with that, of course, but not advanced technology
exports to the People's Republic of China. That is a carve-out.
Exports to Germany, lower technology exports to India, all of
those things are fine.
If Commerce nominees are not willing to explicitly commit
to changing the culture at Commerce, to changing the primary
goal, it needs to go someplace else that is not so devoted to
the business community. I love the business community, but for
advanced technology in China, they cannot be making American
policy.
Chairman Cotton. All right. Thank you, Mr. Scissors.
Senator Cortez Masto.
Senator Cortez Masto. Thank you. Let me jump back to
technology and the use of technology for clean energy jobs. I
know, Mr. Houseman, United Steelworkers is a founding member of
the BlueGreen Alliance, which brings together the labor and
environmental organizations to solve environmental challenges
in ways that create and maintain quality jobs and build a
stronger, fairer economy.
One of the falsehoods that I find--and you take it to task
in the manufacturing agenda portion of the report--is the
notion that you cannot have good jobs and a clean environment.
So I would love for you to engage in this conversation, because
I think there are opportunities here to not only create jobs,
add to our economy by the use of the technology that also
creates this clean environment in this green economy. Would you
elaborate on that a little for the workforce here and what we
need to do to transition the workforce to these jobs of the
future?
Mr. Houseman. Sure. I think one of the key things that
America led on something, the Clean Air Act, way before many
other countries. And as China has industrialized, they have not
held those same standards as us. And so this idea that we have
already set some standards and, you know, we have put our
industry in a place where going forward into a clean energy
economy, we are already well positioned. And so this idea of
taking our plants, who have already done a significant amount
of investment to reduce emissions and reduce greenhouse gases,
is it put us into the right place to leap forward. And it is
just a matter of making sure that we have those investments,
that the Federal investments help guide and encourage that sort
of--those pillars, and also recognizing that we have certain
humanitarian concepts here in the U.S. like labor rights and
decent wages and a right to health care, these sorts of basic
things that we need to emphasize and establish. And that is
why, you know, increasing R&D funding, these sorts of programs,
and establishing the permanent labor jobs workforce programs in
the Office of the Secretary, all of these areas to transform
our industry and responsibly mine, recycle, all of these
pillars that are a part of the BlueGreen Alliance's
manufacturing agenda, give us kind of like a North Star
direction for these sorts of investments.
Senator Cortez Masto. Thank you. So, Representative Hurd,
there was an opinion piece you put in USA Today, and it is
titled, ``It Is Not Realistic To Cut U.S.-China Economic Ties.
We Should Compete and Win Instead''. And one of the areas that
you focused on was our workers need new skills, and you said in
there, ``Washington should also be working to streamline legal
immigration so that America continues to be the beneficiary of
the decades-long `brain drain' of the rest of the world.''
Can you elaborate on that? Because I think there is this
part about having the best and the brightest to really
innovate, to be there on the forefront, for the very reason
that we have all just talked about. But there is also room
here--right?--for our workforce to grow, and everybody grows
with it.
So, Representative Hurd, can you expand on that a little
and your thoughts on that comment?
Mr. Hurd. Sure. If the Chinese Government wants to steal
our technologies and incorporate them into their own products,
why don't we steal their engineers? You know, if you are going
to be an AI researcher, I want you to come to the United States
of America and participate and help American companies. If you
are a quantum researcher, let us get you here as quickly as
possible.
We have benefited from that global brain drain for so long.
Let us continue that. And there is a way to do that in a smart,
safe way. We know that the Chinese Government is putting
pressure on Chinese nationals that are coming to U.S. schools
in order to learn and then come back and use technologies in
the United States. We can address that at the same time while
being open.
I guarantee you if we give a Chinese quantum researcher the
opportunity to flourish in the United States of America or go
back and work for a repressive regime like the Chinese
Communist Party, we are going to win out. And so we can do both
things at the same time, protect our Nation and make sure that
we are vetting students properly, but also being open to make
sure that we are attracting the talent that we need.
Senator Cortez Masto. Well, I have only got a few seconds
left, but I am curious on how we ensure that we are putting
that balance in place and still addressing what you also talked
about, the intelligence piece of that. How do we protect our
intelligence? How do we lead in this space and then also
recognize that, as we have seen over the years, China is really
infiltrating and trying to steal a lot of our information? So
how do find that dynamic and how do you bring in academia and
everyone else around to understand and educate them to be able
to find that balance?
Mr. Hurd. Chairman, if I could have 15 seconds to answer
that? So I will take it. So I think our universities----
Chairman Cotton. Yes, you may.
Mr. Hurd. The FBI is doing a good job of trying to educate
universities on how the Chinese Government is trying to
leverage the universities. So the FBI needs to continue that
and grow that program.
Two, if you are able to--if a Border Patrol agent is able
to detect that someone who is coming across the border
illegally is actually an astrophysicist, then I think we have
some pretty good tools in order to catch that.
So vetting applicants is not difficult. We know how to do
that. And we have just got to make sure that when people are
applying for F-1 visas, the student visas, that if they are
coming from certain States, there may be additional scrutiny.
This is not something new, but it is just a policy that needs
to be put in place so that we are protecting national security,
but we are staying open at the same time.
Senator Cortez Masto. Thank you.
Chairman Cotton. Thank you. I want to address data and
companies like TikTok and WeChat. For nearly 2 years, we have
known about PRC efforts to collect information and manipulate
public discourse through applications like TikTok and WeChat.
Their corporate parents, like any company is China, is not
truly private. It is obligated to provide user data to PRC
intelligence agencies at any time as a result of their 2017
national security law. And among other things, these
applications can promote, they can minimize, or they can block
content posted by Americans based on their assessment of its
effect on China's image and interests.
They also capture large amounts of personal and proprietary
information, not just of Americans but also of Chinese subjects
when they leave their country and seek to participate in the
discourse of the free country that they are visiting.
Representative Hurd, what is the risk these applications
could present to privacy and free speech of Americans,
especially considering China's 2017 law and the opaque
governance and ownership structures of these and similar
companies?
Mr. Hurd. Thank you, Chairman. I think the real concern
about TikTok--so why does data matter? Data matters because it
trains algorithms, and if you have a better algorithm, you're
going to be able to produce something at the end. So the
Chinese Government does not care about civil liberties. They do
not care about privacy. And so they are always going to have
more data in order to train these algorithms.
So now the national security threat of TikTok is not that
you are doing some silly dance and sharing that with your
friend. It is that now the Chinese Government has appended data
on locations, faces, in order to better train those algorithms.
And those tools that they are using, we know they are using it
to put the Uyghurs, their ethnic minority, into concentration
camps. We know that they are trying to keep track of
dissidents, and they are improving those algorithms for
different faces, for different attributes, and they are
exporting that to other regimes.
That is why the TikTok threat is nefarious, and then they
can improve these tools, and if more people are using the
tools, more control.
Chairman Cotton. Does an application like TikTok
potentially give access to all the data on one's device in
addition to just the videos one uploads or the other data
inside that app?
Mr. Hurd. So it can, and that is why looking at the--any
American company that is using an application in China has to
give its source code to the Chinese Government in order for it
to be reviewed. Guess what? That is not a similar thing that we
do here in the United States of America, in order to test that
reality.
So, yeah, there is no such thing as an impenetrable device,
and so if you are able to put tools on that device, you are
going to be able to get information off of that device. And so,
yes, it could be a threat.
Chairman Cotton. Thank you.
Mr. Scissors, did you want to respond to this?
Mr. Scissors. I agree with Representative Hurd, and I agree
with the thrust of your question. Just to put a little point on
it, the Administration, I think for good reasons, brought up
TikTok and WeChat and in the Administration and in the
Congress, more broadly the idea of Chinese apps as something we
need to evaluate, we should not just take for granted, as we
had for years. But we have not actually seen any action. Many
deadlines have passed about this solution or that solution.
So I think it would be really useful for Congress, because
this Administration is leaving and without taking action on
TikTok, WeChat and so on, for Congress to say what is our
primary concern? Is our primary concern--and you have
identified several. Is our primary concern a national security
concern that these are on devices of people who have national
security information? Or is a civil liberties concern? Or is it
an economic concern with loss of data?
And so I do think these applications should be restricted,
but I do not have a sense from the Trump administration of what
the real fear is? Is it national security? Is it economic and
so on? And I think Congress has a role here to direct U.S.
policy in one of those directions.
Chairman Cotton. Ms. Hart.
Ms. Hart. Sure. Thank you. You know, the big piece that is
missing is comprehensive privacy legislation. We need to have
standards to clarify what is acceptable and what is not
regarding American citizens and their private data. Once we
have that in place, then it will be much easier to do what
Derek is talking about and identify what is the problem with
all apps, be they U.S. apps, Chinese apps, or from other
Nations. And, critically, that process will also make it
possible to have common approaches between the United States,
Europe, Japan, and other allies, because we do not want to
just--if banning TikTok is the answer, it is not enough to do
that in the United States. That should happen in Europe and
Canada and Japan and in other Nations as well. We want to see
the United States working together with allies and partners
instead of alone.
Chairman Cotton. All right. Thank you. I have run over
time, so I will turn it back to Senator Cortez Masto.
Senator Cortez Masto. Thank you, Senator Cotton.
I could not agree more with you, Dr. Hart, and that is why
I have introduced comprehensive privacy legislation. We need to
finally do something about it for the very reasons that you
just talked about.
But let me jump into foreign interference because this is
another area where I am concerned--and many of my colleagues
are--about the growing foreign interference that we have seen
in our elections and our public discourse. We have written
legislation, I have written legislation around this space and
oversight letters to address the Chinese Government's attempt
to influence our media, our FinTech, and our schools. We have
talked about it. We have seen that with Russia.
So let me ask you, because I know you have done some
research in this area, what has your research shown about the
Chinese Government and its attempts to influence our public
discourse? And what specifically can Congress do about that?
Ms. Hart. Thank you so much for the question. You know, as
someone else has mentioned before me, the interference attempt
reaches through multiple platforms, multiple audiences. There
are Confucius Institutes and other initiatives that work
through universities. There are attempts to sway think tank
reports, to sway U.S. media reporting. This is a many-headed
Hydra, and the most important thing that we can do to push back
is transparency and exposure to help American citizens,
universities, companies understand exactly what is happening,
where information is coming from, and who they are dealing
with.
For example, American universities likely would not admit a
PLA officer who is hiding that affiliation in order to register
in their university and serve as a guest scholar, but they
often do not have that information. They do not know who it is
that they are letting in. So we need much bigger capacity to
assess who we are granting, considering granting visas to, to
allow them to come into our country.
American companies often struggle to do the due diligence
to figure out who is the final beneficiary beyond the layers of
shell companies to the company that is trying to source their
technology or do deals with them. And American citizens need to
understand when they see information from think tanks, from
NGO's, from the U.S. media, is that an independent American
voice, or was there some kind of Chinese funding involved?
My think tank, the Center for American Progress, has called
for the U.S. Congress to require all nonprofits to declare any
Chinese Government or other foreign funding on their 990 Forms.
We have also called for the United States to require any
foreign State propaganda actor to have to put a massive
disclaimer on propaganda material in the United States.
If I wanted to run for elected office and I wanted to put
campaign ads out, I would have to put a big label stating,
``Paid for the Campaign of.'' But that kind of label does not
apply on foreign Government propaganda from China or elsewhere.
Those are all steps that we can take. You know, I believe
strongly that transparency is the sunlight and sunlight is the
best disinfectant, and we can do a lot by revealing what China
is doing and helping American citizens make better decisions.
Senator Cortez Masto. I saw, Mr. Scissors, you were shaking
your head. Would you agree with Dr. Hart's comments?
Mr. Scissors. Melanie and I know each other well, so I
should clarify that I was shaking my head in agreement. I
usually shake my head at Melanie in disagreement, but in this
case it is agreement. Yes, absolutely, the first step--we want
to arm our people with information, and I do not want to repeat
what Melanie said, but the U.S. Government itself does not
recognize Chinese actors. I will give an example in my own
field. We classify investment going in and out of the country
wrongly. If a Chinese subsidiary is set up in Ireland, we act
as if it is Irish. If we invest in the Caymans and it is ending
up in China, we act as if we have invested in the Caymans. So
you can imagine--and these are U.S. Government agencies with
lots of money and lots of time and lots of people working for
them. You can imagine that ordinary people have no way to do
this.
So, again, it is another boring step, providing
information, but it will identify the further action that we
need to take. I do not mean to say that this is the only thing
we should do, but the first step is to identify actors as
Chinese. And I will say that I am not an expert at all on
Russia, but the Chinese have a lot more money. And so the first
foreign actor I want to identify is our Chinese actors. There
are other foreign actors who are going to try to cause trouble,
but I do not think it is at the scale of China. I would be very
surprised if it was. So step one, make the Chinese label
themselves properly, and then we will figure out what to do
from there.
Senator Cortez Masto. Thank you. I notice my time is up.
Thank you very much.
Chairman Cotton. Thank you.
I have one final set of questions I want to ask. It is not
often that we have a member of Congress testify in front of us,
and especially a member of Congress who is a former clandestine
officer at the Central Intelligence Agency. So I want to take
the opportunity to ask him a question about the way China
conducts espionage against the United States. It has been
recently reported that Christine Fang, who operated at the
direction of the Chinese Ministry of State Security, spent 2011
to 2015 befriending various American politicians, including
mayors and members of Congress, through campaign fundraising,
networking, and social relationships. She apparently managed to
gain proximity to significant power. I think the case
demonstrates China's strategy not only for targeting people who
are in the Federal Government who have access to classified
information, but also those who might at some point in the
future later in their political careers rise into those
positions, even if it takes years or decades to bear fruit.
Representative Hurd, from your experience working as a CIA
officer, what can you tell us about China's influence
operations targeted toward elected officials?
Mr. Hurd. So the Chinese intelligence services are--so the
way you recruit a spy and steal secrets, it is the same no
matter where you go. You spot, assess, develop, recruit, turn
over. And the way the Chinese do it, each phase of that process
is done by a different officer. And they look at what they
consider to be intelligence as something that we might consider
to be public source information.
There is no way that the U.S. intelligence services would
be looking at a city councilperson somewhere overseas. That
just would not happen. If we go back to the 2016 election--and
this is not a criticism of Federal law enforcement. When a
political party was hacked, it did not immediately rise to the
top of the agency and say, hey, something is happening,
something is happening, because we would never care about
another political party overseas.
And so in this case, the fact that Fang Fang was focusing
on folks at a lower level and then got close to a member of
Congress that had access and was ultimately serving on the
House Intelligence Committee should concern us all. And my
frustration is--your earlier question, Ranking Member, what can
Congress be doing? I have sat in CI, counterintelligence,
briefings about these threats, and all members of Congress need
to recognize the concern of the Chinese Party. And what I love
about this hearing today is you have a diversity of ideas, and
we all recognize the threat. That has not always been the case
even in the House Permanent Select Committee on Intelligence.
And so we need to make sure other members have been briefed
on these tactics that the Chinese Government is using. I know
that the Chinese Party uses honeypot operations because of my
time in the CIA. However, in no briefing since I have been in
Congress has there been anyone talk about these activities that
we have seen happening out in California. That should scare us
all because the only way that we can protect ourselves and
recognize the threat is if we know what has already been done.
And so this is textbook Chinese Government, and if they
start using--you know, if the Chinese are great at seeding
operations, the Russians are best in the world in
disinformation. And the Chinese are learning about
disinformation operations from the Russian. And as Mr. Scissors
said, they have the money. You put those two things together,
and they are going to be incredibly powerful.
Chairman Cotton. Representative Hurd, if the CIA or, for
that matter, most Western intelligence services would not
target a city councilman or a county commissioner or a State
legislator, hoping they ascend the political ladder in their
future, what is it about the Chinese Communist Party that they
do target such local and State officials?
Mr. Hurd. They have a long-term approach. Why did they
agree to the Brits to let them have Hong Kong for 95 years?
Because they were fine taking it back after 95 years, right?
And so they have this perspective, a long-term approach, and
they are willing to play the long game. They are willing to
invest years in an operation that may or may not bear fruit,
and it is just they are willing to take that risk and put that
time because they have a long-term plan. I think it is part of
just their culture and how they have operated.
Chairman Cotton. Thank you, Representative Hurd. That
concludes my questions.
Senator Cortez Masto, any further questions from you?
Senator Cortez Masto. No, other than to say thank you. This
has been so enlightening. I so appreciate everyone today this
morning. And, Senator Cotton, thank you for having this
hearing.
Chairman Cotton. Thank you, Senator.
I want to thank all of our witnesses once again for joining
us. The hearing will now come to a close, and I also want to
note that if any other Members of the Committee would like to
submit questions for the record, those will be due by December
23rd.
So thank you all again for joining us. This hearing is
adjourned.
[Whereupon, at 10:53 a.m., the hearing was adjourned.]
[Prepared statements supplied for the record follow:]
PREPARED STATEMENT OF CHAIRMAN TOM COTTON
This hearing will come to order. Welcome to today's meeting of the
Economic Policy Subcommittee, which is open to questions from all 25
Members of the Banking Committee.
As a reminder, Members will be addressed in order of seniority on
this Subcommittee followed by seniority on the larger Committee.
I'd like to thank Senator Cortez Masto, her staff, and all the
Committee staff for helping pull this together.
We have an exceptional roster of witnesses today. I'd like to
introduce them briefly.
The Honorable Will Hurd has served as a member of the House of
Representatives for 6 years, where he has been a leader on national
defense and security issues. Most notably, he has served on the House
Intelligence Committee as the ranking member of its Subcommittee on
Intelligence Modernization and Readiness.
Derek Scissors is a resident scholar at the American Enterprise
Institute, where he focuses on the Chinese and Indian economies and on
U.S. economic relations with Asia. He produces a wealth of handy
resources related to China, notably the China Global Investment Tracker
and the China Beige Book.
Dr. Melanie M. Hart is a senior fellow and director of China policy
at the Center for American Progress. Her most recent work focuses on
developing a comprehensive U.S. strategy toward China, analyzing the
domestic political factors driving Chinese foreign policy, tracking
Chinese industrial policy, and assessing China's intentions toward the
world.
Finally, Roy Houseman is legislative director for the United
Steelworkers, North America's largest industrial union. In that
capacity, Mr. Houseman oversees congressional affairs and works to
improve wages, hours, and conditions for the Steelworkers' 1.2 million
members and retirees.
Thank you all for testifying. And thanks to our audience for tuning
in to our second hearing on this topic, ``U.S.-China: Winning the
Economic Competition''.
By now, it has dawned on many that the United States and China are
at the beginning of a long economic competition. The big question now
is whether we plan to fight or surrender.
Thankfully, many people want to stand and fight, and we've made
great strides in the past few years by, for example, strengthening
oversight of foreign investment in the United States, tightening export
controls of sensitive technology, and imposing sanctions on malign
actors like Huawei.
Despite these welcome actions, great challenges remain. The Wuhan
virus pandemic has exposed the great extent to which we depend on the
goodwill of the CCP to access essential goods, such as personal
protective equipment and medicine.
And each day, it seems, brings fresh revelations of ostensibly
American companies kowtowing to China, whether it's Apple TV admitting
it won't stream content critical of China. or massive hedge funds like
Bridgewater Associates encouraging Americans to invest in Chinese
companies so they can [QUOTE] ``have a stake in both sides'' of the
next Cold War.
Clearly, not everyone has woken up to the threat that China poses
to our country--or perhaps they're awake to the threat, and are hedging
their bets. There are even warning signs that the next Administration
could roll back much of the progress we've made the past few years, in
an attempt to return to the failed dream of engaging and accommodating
China.
But of course, winning our competition with China isn't a partisan
issue. I've been fortunate to work with my Democratic colleagues on a
number of important initiatives, from these hearings with Senator
Cortez Masto, to my bill to restore semiconductor manufacturing in
America with Minority Leader Schumer. I hope next Congress this body
will continue to build on the good work we've done already, on a
bipartisan basis.
Hearings such as this are opportunities for us to explore new ideas
at greater length, with top experts. So I'm looking forward to hearing
what our witnesses have to say.
One final note, for the record: over the past year, my staff have
been hard at work on a report that addresses this very issue of
competition with China--and how to win. That report is nearing
completion, so I hope you'll all pick up a copy once it is released in
the new year.
Thanks again. Now, I'll turn it over to the Ranking Member for her
remarks.
PREPARED STATEMENT OF SENATOR CATHERINE CORTEZ MASTO
Thank you, Senator Cotton, thank you to our witnesses.
I'm glad to be here today to talk about a point of bipartisan
agreement: that China is a strategic competitor on the global stage.
And as we talk about what that means, I think it's important for us to
think not only about what that means for our current moment, but for
the decades to follow.
Competition with China affects every sector--how we innovate, how
we do business, how we tackle climate change, how we trade with other
Nations, how we protect our national security, and how we're able to
impact the world around us. We have an opportunity now--in the midst of
this horrible pandemic--to use this point of bipartisan agreement to
invest in our ability to compete, not just today, but tomorrow too.
At key moments in history, when faced with overwhelming
challenges--the Great Depression, putting the first man on the moon--
this country has risen to the challenge. I am looking forward today to
talking about how we can make sure we have the right tools and right
plan to do that again.
China's economic activity makes up a growing share of our global
economy. Some of that has been good for this country--we've added jobs
and reduced the price of goods by expanding trade with China.
But in other cases, it has not worked out well. In too many cases,
Beijing has taken our technology, undercut our domestic manufacturing
base, and created an unfair playing field for our companies and our
workers.
We have seen this competition play out in Nevada in multiple ways.
At our military bases, leaders have repeatedly expressed concern about
Chinese Government attempts to spy on the sensitive training that
occurs there. I've heard similar concerns from leaders in other
sectors--forced technology transfer and industrial espionage.
In the critical mineral sector, we've seen a different but equally
important aspect of the competition play out. While China has invested
in developing the ability to extract and process critical minerals that
are essential to many of our emerging technologies, we in the United
States have underinvested in those capabilities. In Nevada, that has
left important opportunities for economic growth untapped. Of course,
we must pursue these opportunities in environmentally and socially
responsible ways, but by failing to invest in these key sectors, we are
giving Beijing the advantage and hurting ourselves.
But in Nevada we also see another aspect of our relationship with
China. We have strong cultural and economic ties to China. We have a
diverse Asian American community in Las Vegas, with a vibrant Chinese
American population. Our world class casinos and resorts attract more
than 200,000 tourists from China annually. That is good for Nevada and
it is good for China.
So I believe we must approach our relationship with China with a
clear-eyed commitment to doing what's best for the American people, but
also with balance and attention to the nuanced nature of our
relationship.
We need to be able to compete, and look for opportunities to
cooperate. We need to be able to call out the Chinese Government where
we disagree, while still respecting the rights and freedoms of people
in China and of Chinese Americans here at home.
I see three parts to our response to economic competition with
China.
First, we must invest at home. I've led bipartisan bills like the
ACCESS BROADBAND, SPEED, and Moving FIRST Acts to strengthen our 5G and
broadband infrastructure and our emerging tech sector. We must ensure
we are investing in innovation to bolster our manufacturing industry,
especially in the sectors that will create the jobs of the future, like
clean energy.
I joined my colleagues on the Senate Democrats' Special Committee
on the Climate Crisis over the past 2 years, where we heard from
stakeholders about the opportunities a clean economy can unlock for
domestic manufacturing. I look forward to talking more about some of
these opportunities today.
We also must protect and support our most important asset--our
people. I am a longtime advocate for collective bargaining rights,
supporting safe and fair workplaces and the growth of good paying jobs
in Nevada, and throughout the country. I am also proud to say today
that I am joining my colleagues Senators Schumer, Menendez, and others
in cosponsoring America LEADS, which is the most comprehensive China
legislation to date, and makes significant investments in the resources
our workers, entrepreneurs, researchers, and manufacturers need to get
ahead and stay ahead.
Second, we must rebuild our relationships with our allies and
partners, so we can face the China challenge together. We will not win
in this competition on our own. President Trump has rightfully
identified some of China's unfair trade practices, but he has gone
about addressing them in a way that has hurt Americans.
That is why I've advocated for stronger enforcement mechanisms in
trade agreements, including in U.S.-China trade negotiations and
questioned the Trump administration on their strategy of alienating our
closest allies in an increasingly globalized economy.
Third, we must ensure we have the Government structures to
adequately address this challenge. Competition with China does not fit
neatly into committee jurisdictions or bureaucratic organizational
charts.
That is why I've been working with my colleagues to build an
informal bipartisan working group to ensure we are talking across
committees about these challenges. And I am exploring legislation for
the next Congress to work with the Executive branch around similar
issues, especially on emerging technology.
Finally, we are in a unique moment right now. So many of us are
hurting from this horrific pandemic. We are working to pass another
COVID relief package, which we sorely need. But I also see an
opportunity in this moment for us to really double down, to make
investments not just to get us over this short-term challenge, but to
set us up to lead in the 21st century.
I am grateful to our witnesses who are here today to talk about the
current state of this competition and the policy tools we need to
address it.
Melanie Hart from the Center for American Progress, whose expertise
on China's industrial policies and thoughtful work on crafting
responses will offer us valuable insights into what a balanced but
strong response looks like.
Roy Houseman from United Steelworkers, whose work to elevate and
advance policies that help American workers will offer us valuable
insights today on how we can continue to invest our economic future.
______
PREPARED STATEMENT OF REPRESENTATIVE WILL HURD OF TEXAS
Senator Cotton, Ranking Member Cortez Masto, thank you for holding
this timely hearing and for inviting me to testify today. As a former
CIA officer and a member of Congress on the House Permanent Select
Committee on Intelligence, I've seen how the Chinese Government
threatens global supply chains, steals American intellectual property
and economically bullies smaller countries. 2020 brought this reality
to every American household.
We in Congress were the first to recognize the potential for China
to replace the United States as the most important economy in the
world. Investigations into China's Thousand Talent program and its Belt
and Road program initiated in Congress. Congress has long led the fight
for human rights in China, first by focusing attention on what China is
doing in Tibet, and then by raising concerns about China's horrific
treatment of its Muslim Turkic population.
I am trained to look beyond the obvious and it has been clear to me
for a long time that China is playing a long game to become the sole
world hegemon. It is past time for the United States to put in place a
comprehensive strategy of dealing with China.
I am not suggesting a containment strategy like how we contained
the Soviet Union because our interdependence with China is so much
greater.
We know what does not work. As we look at the history of the U.S.
and China relationship, we have a clear picture of actions which failed
to produce the desired results. Economic interdependence with China and
encouraging China to become part of the global economic structure did
not create a genuine market economy nor reform China's political
system. This Administration's aggressive use of the sanction policy
also failed to change the behavior of Chinese communists and made them
more entrenched and threatening towards their neighbors.
Instead, the first step is for all branches of Government, the
private sector and academia to accept that China, despite its trappings
of a capitalist system, like the Shanghai Stock Exchange, is an
authoritarian society which is ruled by an unreformed Communist Party.
The CCP does not tolerate dissent, imprisons dissidents, and builds
concentration camps for those it wants to ``reform.'' These actions
need to be met with a foreign policy and national security strategy
where one of its planks is based on a simple principle: Be nice with
nice guys and tough with tough guys.
The second step is to define clear goals--what do we want our
competition to achieve? During the Cold War, the objective was to
contain and possibly reduce Soviet influence, not a regime change.
Right now, the U.S. is an underdog in this global competition
because we dismantled our Cold War apparatus that fought the Soviets on
the airwaves, in the media, and in institutions of higher learning. In
this case, we also have a sophisticated technological adversary which
has already made significant inroads in our free, open, and democratic
society in a way the Soviets never did. We do have leverage because our
economy is the largest market for Chinese made goods. Congress and the
new Administration must focus on trade policies that incentivize
structural changes in China's economy and its treatment of foreign
companies and investors. Simply, we need reciprocity. If American
companies and investors are unable to do something in China, then
Chinese companies and investors should be unable to do those same
things here.
Our second weapon is the American people--they don't want to buy
products made by slave labor or watch movies produced in Chinese
provinces which engage in horrific behavior towards its citizens. And
while I oppose cutting off academic and other ties with Chinese people
because I believe that Chinese students and academics studying and
teaching here can see for themselves the benefits of living in a free
society, we need to institutionalize screening of such visa applicants
to weed out those with connections to the CCP and PLA.
Every American voter should care about this struggle because we
face a potential future where Mandarin and the yuan, not English and
the dollar, dominate the global economy. Whoever wins this generation-
defining struggle will not just affect our economy but will shape the
rest of the century for the entire world.
Thank you again for having me at today's hearing, and I look
forward to your questions.
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PREPARED STATEMENT OF DEREK SCISSORS
Resident Scholar, American Enterprise Institute
December 16, 2020
American economic competition with China may be more silver lining
than dark cloud. Chinese competitiveness is likely to decline, due to
aging, debt, and poor long-term choices affecting rural areas and
innovation. As a more broadly innovative and soon to be younger
country, the U.S. has better economic fundamentals and can have them
indefinitely.
This happy baseline however, makes for poor incentives. Beijing's
are clear: try to offset declining competitiveness through more
predatory policy. In particular, use subsidies and (coercive) transfer
of intellectual property to undermine national and corporate rivals.
Meanwhile, American incentives are muted. With better fundamentals and
much more wealth, the U.S. has room to make further mistakes, such as
continued leveraging and unwillingness to take costly measures to
respond directly to China.
This is seen in needed policies, which will be controversial. Some
observers celebrate large budget deficits not causing higher interest
rates, but $1 trillion spent with no sustained return is still a bad
idea. Ideally, borrowing would fund research and human capital
improvements--education and health--with future payoffs. Better China
policy may be more politically feasible. Neither bilateral trade
deficits nor long-term climate cooperation, for example, matter much to
competitiveness. Instead, subsidies and intellectual property (IP) are
vital. The U.S. should:
1. Steadily increase Federal research and development spending,
which has been underemphasized for decades, through the 2020s.
2. Experiment with education programs aimed at boosting labor
productivity, since education is a major advantage over China.
3. Document Beijing's harmful behavior with regard to
competitiveness, featuring subsidies, IP transfer, and capital
flows.
4. Using this, apply countervailing duties much more broadly to
subsidized Chinese production.
5. Implement the export control reform passed in 2018.
6. Ban business with Chinese firms benefiting from stolen or coerced
IP.
7. Evaluate the competitiveness impact of growing American capital
flows to China, possibly restricting flows in a select set of
industries.
China Starts Sinking
The People's Republic of China (PRC) is presently taking over the
world, the same way the Soviet Union did in the 1960s and Japan did in
the 1980s. Its economy is large, it grew rapidly in the past, and there
is controversy over its trajectory. There should be less. Since Xi
Jinping became General Secretary of the Party, the PRC has shown little
interest in procompetition, proproperty rights reform. Without that,
Chinese competitiveness will unavoidably decline.
The debt situation is familiar. At the end of 1997, outstanding
credit was 109 percent of GDP. Eleven years later, it was 139 percent.
Eleven years after that, in 2019, it was 259 percent. \1\ The
equivalent American figures are 186 percent, 240 percent, and 254
percent of GDP. Here, China has indeed caught up. Beijing acknowledges
that the era of fast growth is over, and aging will require more
Government spending. The only way to maintain or improve the
contribution of capital to economic growth is to cut State bank lending
to State-owned enterprises, whose debt easily exceeds $20 trillion. A
cut is certainly not Xi's intention. \2\
---------------------------------------------------------------------------
\1\ Bank for International Settlements, ``End-of-Year Credit to
Nonfinancial Sector From All Sectors at Market Value--Percentage of
GDP--Adjusted for Breaks'', updated December 7, 2020, https://
www.bis.org/statistics/totcredit.htm?m=6%7C380%7C669.
\2\ Jia Chen and Nan Zhong, ``Debt Burden of State-Owned
Enterprises Decreases in 2018'', China Daily, October 24, 2019, https:/
/www.chinadaily.com.cn/a/201910/24/WS5db10417a310cf3e355723dd.html; and
Frank Tang, ``Xi Jinping Calls for China's State-Owned Enterprises To
Be `Stronger and Bigger', Despite U.S., EU Opposition'', South China
Morning Post, November 3, 2020, https://www.scmp.com/economy/china-
economy/article/3108288/xi-jinping-calls-chinas-state-owned-
enterprises-be-stronger.
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Demography will eclipse debt as a drag. According to the U.N.,
Japan's media age was 22.3 years in 1950 and 37.3 in 1990, when its
stagnation set in. In 1980, with reform under way, China's median age
was 21.9. In 2020, it is estimated at 38.4, a slightly worse path than
Japan's. By 2015, Japan's median age was 46.4; in a generation, China's
is forecast to be 47.2. \3\ The 2022-2035 period will see the fastest
aging, the age 65+ cohort expanding by close to 100 million within a
roughly stable population. \4\ As retirees exit and unemployment
shrinks, labor market reform will be easier, but it will not save
productivity in the face of this kind of contraction.
---------------------------------------------------------------------------
\3\ World Population Prospects, ``Median Age of the Total
Population (Years)'', United Nations, Department of Social Affairs,
2019, https://population.un.org/wpp/DataQuery/.
\4\ Xizhe Peng, ``Coping With Population Ageing in Mainland
China'', Asian Population Studies, November 4, 2020, https://
www.tandfonline.com/doi/full/10.1080/17441730.2020.1834197.
---------------------------------------------------------------------------
Land is an underrated problem. The PRC imports commodities such as
iron ore to a far greater extent than its economic size requires. One
reason is a ban on private land ownership, which Xi has had years to
change and refused. \5\ Agriculture imports are the world's largest at
$133 billion in 2019, crude oil imports were $100 billion more than
that. \6\ Rural Chinese do not control their farming choices and cannot
sell their land. Related to this is education, where rural attainment
badly lags urban. \7\ As a result, official 2019 disposable income per
capita was just $2,300. \8\ The number reflects 550 million rural
citizens still held back in contribution to competitiveness.
---------------------------------------------------------------------------
\5\ Ian Johnson, ``Barred From Owning Land, Rural Chinese Miss
Spoils of Country's Success'', New York Times, September 28, 2019,
https://www.nytimes.com/2019/09/26/world/asia/china-land-rights-
farming.html.
\6\ United States Department of Agriculture, Foreign Agricultural
Service, ``China: Evolving Demand in the World's Largest Agricultural
Import Market'', September 29, 2020, https://www.fas.usda.gov/data/
china-evolving-demand-world-s-largest-agricultural-import-market; and
Daniel Workman, ``Top 15 Crude Oil Suppliers to China'', World's Top
Exports, http://www.worldstopexports.com/top-15-crude-oil-suppliers-to-
china/.
\7\ Qianer Liu and Yuan Yang, ``Online Classes Exacerbate China's
Rural-Urban Education Gap'', Financial Times, April 29, 2020, https://
www.ft.com/content/18455abf-d683-48f1-a6ed-b97bf3fc162e.
\8\ National Bureau of Statistics of China, ``Statistical
Communique of the People's Republic of China on the 2019 National
Economic and Social Development'', February 28, 2020, http://
www.stats.gov.cn/english/PressRelease/202002/t20200228_1728917.html.
---------------------------------------------------------------------------
Innovation to the rescue? The Party hopes so. \9\ In contrast to
other factors, innovation trends are positive. Annual research and
development (R&D) spending is rising as a share of GDP. So are Chinese
patents granted in the U.S. (grants in China are not useful
information). \10\ But it is difficult under ideal conditions for
innovation to carry such a large economy in the face of aging and high
debt. Innovation conditions are not ideal, due to the insistence on
huge State quasimonopolies in more than a dozen major industries. To
illustrate, the PRC has 10 companies in Fortune's top 50. Seven are
guaranteed a degree of monopoly power and have little reason to
innovate. \11\
---------------------------------------------------------------------------
\9\ Reuters, ``China Will Step up Technology Innovation To Drive
Growth: President Xi'', August 24, 2020, https://www.reuters.com/
article/china-economy-xi/china-will-step-up-technology-innovation-to-
drive-growth-president-xi-idINKBN25K1BP.
\10\ OECD Data, ``Gross Domestic Spending on R&D'', 2020, accessed
December 8, 2020, https://data.oecd.org/rd/gross-domestic-spending-on-
r-d.htm; and United States Patent and Trademark Office, ``Calendar Year
Patent Statistics (January 1 to December 31)'', https://www.uspto.gov/
web/offices/ac/ido/oeip/taf/reports-stco.htm.
\11\ Fortune, ``Global 500'', 2020, https://fortune.com/global500/
2020/search/.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Other witnesses may examine U.S. competitiveness in more detail.
The World Economic Forum identifies key American strengths in internal
labor mobility, availability of venture capital, and scientific
publications, among others. \22\ The near-elimination of very large net
petroleum imports in 15 years is both a signal of and a minor input to
long-term competitiveness. \23\ In a comparison to China, the U.S.
leads almost across the board, with the most sizable advantage in the
crucial measure of labor productivity. Related, mean years of schooling
in the U.S. is 5.5 years higher than in the PRC and it would take
decades to close the gap. \24\
---------------------------------------------------------------------------
\12\ Bank for International Settlements, op. cit.
\13\ Board of Governors of the Federal Reserve System (U.S.), ``M2
Money Stock'', retrieved from Federal Reserve Bank of St. Louis,
December 7, 2020, https://fred.stlouisfed.org/series/M2.
\14\ Table 19-4 in National Bureau of Statistics of China,
``Annual Data'', http://www.stats.gov.cn/english/Statisticaldata/
AnnualData/; and ``Financial Intermediation--Money Supply at National
Bureau of Statistics of China'', https://data.stats.gov.cn/english/
?cn=A01.
\15\ World Bank, ``GDP per Person Employed (Constant 2017 PPP
$)'', March 1, 2020, Accessed August 13, 2020, https://
data.worldbank.org/indicator/SL.GDP.PCAP.EM.KD?locations=US-
CN&view=chart.
\16\ World Population Prospects, op. cit. Interpolated.
\17\ Paul Heney, ``Global R&D Investments Unabated in Spending
Growth'', R&D World, March 19, 2020, https://www.rdworldonline.com/
global-rd-investments-unabated-in-spending-growth/.
\18\ CGTN, ``China's Spending on R&D Rises to 2.23 percent of its
GDP in 2019'', August 28, 2020, https://news.cgtn.com/news/2020-08-28/
China-s-spending-on-R-D-rises-to-2-23-of-its-GDP-in-2019-TjJCRYE6t2/
index.html.
\19\ Total citations net of self-citations, U.S./China and China/
U.S. from Scimago Institutions Rankings, ``Scimago Journal & Country
Rank'', 2000, 2018, and 2019, https://www.scimagojr.com/
countryrank.php.
\20\ UNCTAD Stat, ``Trade in Services, Values, Shares, and Growth,
Annual'', UNCTAD Stat, ``Merchandise: Total Trade and Share, Annual'',
UNCTAD Stat, ``Exports and Imports of Total Services, Value, Shares and
Growth, Annual'', https://unctadstat.unctad.org/wds/ReportFolders/
reportFolders.aspx; and UNCTAD Stat, ``Exports and Imports of Goods and
Services, Annual, 1980-2013 (Discontinued)'', https://
unctadstat.unctad.org/wds/TableViewer/tableView.aspx?ReportId=25116.
\21\ UNCTAD Stat, ``Foreign Direct Investment: Inward and Outward
Flows and Stock, Annual'', https://unctadstat.unctad.org/wds/
TableViewer/tableView.aspx?ReportId=96740.
\22\ Klaus Schwab, ``The Global Competitiveness Report 2019'',
World Economic Forum, 2019, http://www3.weforum.org/docs/WEF-
TheGlobalCompetitivenessReport2019.pdf.
\23\ Independent Statistics & Analysis, ``Petroleum & Other
Liquids'', United States Energy Information Administration, November
30, 2020, https://www.eia.gov/dnav/pet/hist/
LeafHandler.ashx?n=pet&s=mttntus2&f=a.
\24\ United Nations Development Programme, Human Development
Reports, ``Human Development Index (HDI)'', http://hdr.undp.org/en/
data.
---------------------------------------------------------------------------
But the better team still loses when it call the wrong plays. For
two decades, policies important for economic competitiveness have been
made more for political convenience. At the end of 1999, public debt
was 13.4 percent of household net worth. At the end of 2019, it was
19.6 percent. \25\ The economy did not become more dynamic during this
time--it was not the borrowing for long-term return always touted by
advocates of deficit spending. In a further sign of ill health, the
discount rate the Federal Reserve offers banks has not passed 3 percent
since 2008. \26\ If growth can only be achieved through leveraging, it
will stop. The only question is how soon.
---------------------------------------------------------------------------
\25\ Board of Governors of the Federal Reserve System (U.S.),
``Households and Nonprofit Organizations; Net Worth, Level'', retrieved
from Federal Reserve Bank of St. Louis, December 7, 2020, https://
fred.stlouisfed.org/series/TNWBSHNO and United States Department of the
Treasury, Fiscal Service, ``Federal Debt: Total Public Debt'',
retrieved from Federal Reserve Bank of St. Louis, December 7, 2020,
https://fred.stlouisfed.org/series/GFDEBTN.
\26\ International Monetary Fund, ``Interest Rates, Discount Rate
for United States'', retrieved from Federal Reserve Bank of St. Louis,
December 7, 2020, https://fred.stlouisfed.org/series/INTDSRUSM193N.
---------------------------------------------------------------------------
What China Will Do
Xi's been General Secretary for 7 years, he's not suddenly going to
become a market reformer. Barring internal failure or external
confrontation, the policy path is set. The fiscal deficit will remain
large--as a share of GDP, it was larger than ours in 2019. Bank lending
will continue to outpace nominal GDP, as it has since 2002. \27\
Leveraging will thus worsen. Land rights will be limited, keeping rural
Chinese poor. On the labor side, the two-child policy has had little
impact to now and cannot boost competitiveness for two decades. \28\
Labor mobility will increase, improving educational attainment for
rural migrants, but that will also be slow.
---------------------------------------------------------------------------
\27\ Xinhua, ``China's Fiscal Revenue Growth Slows Amid Tax
Cuts'', February 20, 2020, http://www.xinhuanet.com/english/2020-02/10/
c_138771503.htm; and National Bureau of Statistics of China, ``Annual
Data'', http://www.stats.gov.cn/english/Statisticaldata/AnnualData/.
\28\ Jing Yu and Yiwei Hu, ``Is China Seeing a Baby Boom Five
Years Into Two-Child Policy?'' CGTN, October 29, 2020, https://
news.cgtn.com/news/2020-10-29/-Five-years-into-two-child-policy-China-
s-birth-rate-is-declining-UYIc05CtLa/index.html.
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The PRC will continue to spend heavily on innovation, with some
success. But the aversion to competition will blunt innovation in
industries where State firms are mandated to play the leading role.
This undercuts expectations from 10-15 years ago that China would come
to respect foreign IP. With innovation nonetheless becoming more
important economically, theft from and coercion of foreign IP holders
will be intense. It's possible to identify some targets. Beijing will
focus on IP transfer in sectors and products where the State leads and
results are obviously lagging, as seen with chipmakers Tsinghua
Unigroup and Wuhan Hongxin recently. \29\
---------------------------------------------------------------------------
\29\ Yusho Cho, ``Tsinghua Unigroup Default Tests China's
Chipmaking Ambitions'', Nikkei Asia, November 18, 2020, https://
asia.nikkei.com/Business/China-tech/Tsinghua-Unigroup-default-tests-
China-s-chipmaking-ambitions; and Guoping Luo and Yelin Mo, ``Wuhan's
Troubled $18.5 Billion Chipmaking Project Isn't as Special as Local
Officials Claimed'', Caixin Global, September 4, 2020, https://
www.caixinglobal.com/2020-09-04/wuhans-troubled-185-billion-chipmaking-
project-isnt-as-special-as-local-officials-claimed-101601504.html.
---------------------------------------------------------------------------
The incentive for more predatory behavior in IP extends to more
predatory behavior generally. Intense subsidies have cost the PRC a
great deal financially but have generated technology, industrial, and
employment benefits, due in part to the complete lack of foreign
response. They result in China's preferred outcome: the costs of
limited competition being imposed globally while its benefits go
disproportionately to Chinese entities. Limiting State intervention in
favor of the market, in comparison, would save money but extend
dependence on foreign companies. Barring durable and serious foreign
retaliation, there is no reason for Beijing to curb subsidies.
Complementing its attempts to be more independent are louder
attempts to use others' dependence as a weapon. These are not new, but
the PRC's greater willingness to be open about them is an important
signal of future behavior for dependent countries and companies.
Australia is currently facing a series of Chinese trade sanctions, in
part for enforcing its own laws. A number of Governments have boasted
of billions in Chinese loans and investment, which will only
materialize under difficult conditions, either in terms of costs or
ownership of prized assets. \30\ The past year or two has seen some
American financials possibly becoming dependent on the China market,
with total U.S.-to-PRC capital flow exceeding $900 billion. \31\
---------------------------------------------------------------------------
\30\ Jonathan Kearsley et al., `` `If You Make China the Enemy,
China Will Be the Enemy': Beijing's Fresh Threat to Australia'', Sydney
Morning Herald, November 18, 2020, https://www.smh.com.au/world/asia/
if-you-make-china-the-enemy-china-will-be-the-enemy-beijing-s-fresh-
threat-to-australia-20201118-p56fqs.html; and Jason Koutsoukis and
Cecilia Yap, ``China Hasn't Delivered on Its $24 Billion Philippines
Promise'', Bloomberg Quint, July 26, 2018, https://
www.bloombergquint.com/global-economics/china-s-24-billion-promise-to-
duterte-still-hasn-t-materialized.
\31\ Antonio Coppola et al., ``Redrawing the Map of Global Capital
Flows: The Role of Cross-Border Financing and Tax Havens'', July 2020,
https://globalcapitalallocation.s3.us-east-2.amazonaws.com/CMNS-
Paper.pdf; and Derek Scissors, ``American Funding of China Is Becoming
Dangerous'', American Enterprise Institute, December 2020, https://
www.aei.org/wp-content/uploads/2020/12/American-Funding-of-China-Is-
Becoming-Dangerous.pdf.
---------------------------------------------------------------------------
What America Should Do
Changing American policy to compete with China will be
controversial. Since the end of the cold war, fiscal and monetary
policy has often looked like an exercise in buying short-term
popularity. A large budget deficit was justified from 2008-2010 and in
2020-21. Excluding those years, Federal debt since 1990 has still risen
over $9 trillion. Little of it was invested in the future in any
meaningful sense; there was no economic or strategic justification for
borrowing. The discount rate has never returned to 1990 levels. Low
interest rates value the present over the future, making it difficult
to raise productivity and thus competitiveness. \32\
---------------------------------------------------------------------------
\32\ Ernest Liu et al., ``Low Interest Rates, Market Power, and
Productivity Growth'', NBER Working Paper 25505, National Bureau of
Economic Research, August 2020, https://scholar.princeton.edu/sites/
default/files/ernestliu/files/lms-2020-revised-final.pdf.
---------------------------------------------------------------------------
That's a 30,000 foot view; closer to the ground is no better.
Defense R&D was lower in absolute terms--forget inflation and economic
growth--in 2019 than 1990. Interest on the debt is often said to be
low. It was $190 billion higher in 2019 than 1990, while nondefense R&D
was only $33 billion higher, the opposite of procompetitiveness
spending. \33\ The Government must not boost individual companies or
bring particular products to market. But development spending is only
0.3 percent of GDP and should return to near 0.7 percent, as seen in
the 1980s.
---------------------------------------------------------------------------
\33\ Office of Management and Budget, ``Historical Tables'',
https://www.whitehouse.gov/omb/historical-tables/; and American
Association for the Advancement of Science, ``Historical Trends in
Federal R&D'', https://www.aaas.org/programs/r-d-budget-and-policy/
historical-trends-federal-rd.
---------------------------------------------------------------------------
Human capital, featuring education and health, is vital to
competitiveness. A healthy population is not measured by spending; they
may even be negatively related. In 2019, Federal health care spending
was $1.2 trillion, with research, training, and occupational safety
only $42 billion of that. More spending to improve health would be
superior to paying to treat ill health. Federal education outlays have
been rising, but totaled only $115 billion in 2019. It will certainly
be a challenge to make greater education spending valuable in raising
productivity, but competing with China makes it at least worth an
attempt.
Direct Responses to China
Enhancing economic competitiveness is unavoidably slow. If the
U.S.-PRC rivalry is at its most intense in 2035, there's time. If the
threat from China peaks in the 2022-2028 period, though, more urgent
action is required. The 2030s may see lower tension than the 2020s
because Chinese demographic deterioration will become stark and Xi will
be increasingly weak or have departed (he would be 74 at the 2027 Party
Congress). If the greater danger is over the next 8 years or so,
reacting directly to Beijing on competitiveness is correspondingly more
important.
There are generally three China camps: (i) the status quo is fine;
(ii) sanctions will best improve America's position; or (iii)
separation will best improve America's position. Endless talk aside,
the first view remains dominant, as seen in the widespread
unwillingness to bear sizable costs to change the status quo. If that
continues, so will loss of jobs and companies, while some sectors
continue to benefit. On sanctions, President Trump's tariffs, if
sustained, can narrowly boost American competitiveness over Chinese.
But they have not been accompanied by any other meaningful sanctions,
probably due to the President's overemphasis on bilateral goods trade.
\34\
---------------------------------------------------------------------------
\34\ Continued sales to Huawei are telling. Office of Public
Affairs, ``Chinese Telecommunications Conglomerate Huawei and
Subsidiaries Charged in Racketeering Conspiracy and Conspiracy To Steal
Trade Secrets'', United States Department of Justice, February 13,
2020, https://www.justice.gov/opa/pr/chinese-telecommunications-
conglomerate-huawei-and-subsidiaries-charged-racketeering; and Linda
Hardesty, ``Intel Receives Commerce Dept. License To Sell to Huawei'',
Fierce Wireless, September 22, 2020, https://www.fiercewireless.com/
regulatory/intel-receives-commerce-dept-license-to-sell-to-huawei.
---------------------------------------------------------------------------
While Xi remains in power, it will be more productive to partly
separate the two economies. \35\ Outside of competitiveness, this will
reduce both benefits being provided to the People's Liberation Army and
indirect U.S. support for worsening Chinese repression. Decoupling can
also improve our relative competitiveness in advanced technology, in
Covid-related and other critical products, and in many ordinary goods,
in light of pervasive Chinese economic distortions
---------------------------------------------------------------------------
\35\ Derek Scissors, ``Partial Decoupling From China: A Brief
Guide'', American Enterprise Institute, July 2020, https://www.aei.org/
wp-content/uploads/2020/07/Partial-decoupling-from-China.pdf.
---------------------------------------------------------------------------
The first step is the same for all serious China policies: better
document the subsides Beijing employs (regulatory protection as well as
financial support), the sectors and firms involved in IP theft and
transfer, the end users of the huge amount of American investment in
the PRC, and so on. Countervailing duties (CVDs) against subsidies can
easily exceed 100 percent. With better documentation, the scope of CVDs
can be greatly expanded, improving relative American competitiveness
here and blunting some of the advantages granted by China's subsidies.
This may encourage the PRC's other partners to follow suit, when
shipments originally intended for the U.S. hit their markets.
Technology transfer that boosts Chinese competitiveness should be
sharply curbed by finally implementing the export control reform passed
by Congress in 2018. Most important to competitiveness are ``emerging
technologies'' as designated by that legislation. \36\ Further, Chinese
entities that have benefited from illegal IP transfer should not be
permitted to do any business with American partners for a period
suiting the value of the IP. Finally, U.S. funds flowing into China
should be evaluated for competitiveness effects--is the return for
American investors worth the capital being provided to the PRC? This
will almost certainly vary by sector and end user. A large
competitiveness loss would warrant limitations.
---------------------------------------------------------------------------
\36\ Lindsay B. Meyer et al., ``Commerce Releases Long-Awaited
Proposed Rulemaking for `Foundational Technologies' but Significant
Questions Remain'', Venable LLP, August 28, 2020, https://
www.venable.com/insights/publications/2020/08/commerce-releases-long-
awaited-proposed.
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These actions would involve the Congress, United States Trade
Representative, International Trade Commission, and departments of
Commerce, Justice, and Treasury, at least. To actively improve American
competitiveness versus China requires a comprehensive strategy and
costly implementation. Or we can just hope for the best. That will
probably work by 2035 or 2040, but passive policy will leave the next
15 years painful for many more companies and workers.
______
PREPARED STATEMENT OF MELANIE HART
Senior Fellow and Director for China Policy, Center for American
Progress
December 16, 2020
Chairman Cotton, Ranking Member Cortez Masto, and distinguished
Members of the Subcommittee, thank you for the opportunity to testify
before you today.
The global economy is entering a period of great change. The fourth
industrial revolution is beginning to unfold. Digital networks are now
fast enough to enable a previously unimaginable array of devices to
work in concert, ushering in new applications such as self-driving cars
and AI-powered manufacturing. We do not yet know exactly what this
revolution will bring, but we know it will involve fundamental change.
Chinese leaders view this transition as their Nation's strategic
opportunity. Chinese President Xi Jinping frequently states that ``the
world is undergoing profound changes unseen in a century.'' Beijing
sees the United States drifting, squandering its resources, and
allowing its comparative advantages--the advantages that China cannot
match--to atrophy. In the 20th century, the United States invested
unswervingly in the foundations of its own power, building the world's
leading innovation economy. But since the early 2000s the United States
has faltered. Instead of investing in its own competitiveness, it
coasted on investments made decades ago. Now, as a new industrial
revolution dawns, the United States is losing its edge.
Meanwhile, Beijing has sought to beat the United States at its own
game: investing in the foundations of its own domestic economic power
the way the United States did in previous decades. Beijing knows
drifting Nations do not prevail in industrial revolutions. Chinese
leaders see a once-in-a-century opportunity to catch up to and
potentially surpass the United States, and they are dedicating massive
resources to achieve that goal. In addition to making smart investments
modeled on previous U.S. success, Beijing is also deploying market-
distorting industrial policies to siphon technical know-how from the
United States, tilt global markets in China's favor, and speed the
catching-up process. When measured in domestic purchasing power,
China's GDP already surpasses that of the United States. Beijing's
ultimate aim is to reshape the global economic order, bringing about a
system in which China is the dominant economic and technical power and
the Chinese Communist Party determines which firms, technologies, and
ideas succeed in global markets.
If China prevails, there is a risk the United States and the world
will be less free, less prosperous, and less safe. The United States
does not need to engage China in a Cold War to avoid this outcome.
However, it does need to put its own ideas on the table
internationally, advocate for that vision, reassert global leadership,
and rectify a pattern of serious missteps at home. \1\ On the economic
front, the U.S. has a near-term opportunity to respond to this
challenge in ways that will put our Nation on a path to prosperity for
decades to come. To prevail, the U.S. must do two things effectively:
(1) double down on its own comparative advantages--the advantages that
China cannot match; (2) build a broad global coalition to effectively
counter and neutralize China's predatory behavior.
---------------------------------------------------------------------------
\1\ Melanie Hart and Kelly Magsamen, ``Limit, Leverage and
Compete: A New Strategy on China'', Center for American Progress, April
2019.
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This testimony will cover four main points:
1. Over the past two decades, China prioritized investing in the
foundations of economic power; the United States did not. That
is why China is now our peer competitor.
2. In addition to investing at home, Beijing deploys predatory
industrial policies that siphon off U.S. technology advantages
and boost Chinese firms over their American competitors.
3. Beijing is responding to the Trump administration's policies by
doubling down on both the domestic investment and predatory
aspects of its economic strategy.
4. The United States must do two things to compete at full strength:
invest in its own comparative advantages; form broad coalitions
to neutralize China's predatory behavior.
Investment Disparities Erode U.S. Innovation Edge
For decades, Beijing has funneled State resources into building the
foundations of economic power: education, infrastructure, R&D, and
higher-end manufacturing capabilities. During the same time period,
U.S. investments in its own foundations have remained relatively flat.
That disparity plays a critical role in the declining U.S. edge vis-a-
vis China.
Research and Development: For decades, the United States has been
the world's largest R&D spender, and those investments gave it an edge
in global innovation. However, the United States has not adjusted its
R&D strategy to keep up with rapid technology developments, and China
is now on track to surpass the United States and may have already done
so. Total global R&D spending tripled from 2000 ($722 billion) to 2017
($2.2 trillion), growing an average 11 percent per year. \2\ Over that
same time period, China's R&D spending grew an average 17 percent per
year while U.S. spending grew just 4.3 percent per year. In 2000, the
U.S. spent $268 billion on R&D, dwarfing China's $33 billion. By 2010,
China had narrowed the gap (spending $213 billion) but was still
substantially behind the U.S. ($408 billion). In 2015 China surpassed
Europe as the world's largest R&D spender. Between 2015 and 2017 the
remaining U.S.-China spending gap shrunk by 40 percent. As of year end
2020, China may now have surpassed the United States.
---------------------------------------------------------------------------
\2\ R&D spending data from National Science Board, ``The State of
U.S. Science and Engineering 2020'', January 2020, available at https:/
/ncses.nsf.gov/pubs/nsb20201/global-r-d.
---------------------------------------------------------------------------
China rapidly caught up to the United States because U.S. spending
as a percentage of GDP has remained relatively flat: it was 2.6 percent
in 2000 and 2.8 percent in 2017. The world entered the digital era, but
the United States did not change its R&D investment strategy. China did
not make the same mistake.
Infrastructure: A similar pattern is playing out in public
infrastructure. While China invests in a world-class system, the United
States forces its workers and companies to make do with aging
infrastructure built in and designed for the 1960s. Since the early
1990s, the United States has spent an average 2.4 percent of its GDP on
public infrastructure (roads, rail, telecommunication, utility,
airport, and seaport projects). In contrast, most European Nations
spend 5 percent of their GDP per year. In recent years, in the face of
rising global economic competition and the digital revolution, U.S.
infrastructure spending actually decreased. The American Society of
Civil Engineers gives the overall U.S. public infrastructure system a
D+ rating.
In contrast, China spends an average 8.5 percent of its GDP on
public infrastructure per year. In response to the COVID crisis,
Beijing rolled out a stimulus program that pledges to invest $1.4
trillion in high-tech ``new infrastructure'' projects through 2025. The
goal is to speed the Nation's deployment of next-generation digital
infrastructure systems, particularly 5G mobile communication networks,
AI-empowered manufacturing, high-speed rail, EV charging systems, and
internet-of-things application. If these programs are even partially
successful, they will give Chinese firms an edge over their American
counterparts and boost productivity across the Chinese economy.
The United States would not send its military into today's battles
with Cold War weaponry, but it sends its workers into 21st century
economic competition with 20th century infrastructure. That is a gift
to Beijing.
Last year Senator Cortez Masto supported two critical bills that
aim to address U.S. infrastructure deficits: the ACCESS BROADBAND Act
and the Moving and Fostering Innovation to Revolutionize Smarter
Transportation (Moving FIRST) Act. Those bills represent good steps
forward, but more work is needed to equip our Nation for success.
Predatory Policies Boost China at U.S. Expense
The other half of Beijing's strategy is a collection of market-
distorting industrial policies. In the early stages of China's reform
and opening, it provided low-cost manufacturing for foreign firms. That
approach forced China to rely on other Nations for high-end technology.
In Beijing's view, that position brought insufficient profit margins
and unacceptable security risks. China aimed to catch up to the United
States and other leading innovation Nations and supplant them at the
top of global value chains. If it relied solely on capacity-building
strategies such as smart investments in education, R&D, and
infrastructure to do so, it would still be many decades away from
success. Beijing decided to speed the process by deploying three
powerful Chinese assets to boost China at U.S. expense: (1) China's
massive domestic market; (2) Beijing's ability to control access to
that market, either shutting foreign firms out or forcing them to pay
concessions to gain access; (3) massive State funds, which Beijing
deploys through subsidies and State bank loans to boost favored Chinese
firms over their American competitors. Beijing leverages those assets
to achieve the following goals:
Technology and production transfers: Beijing controls access to the
Nation's massive domestic market, and it leverages that control to
coerce foreign firms into transferring critical technology to Chinese
partners and moving their production operations to China. When foreign
firms do not agree to those transfers, Beijing does not allow them to
sell their products in China. When they do, Beijing leverages those
transfers to move Chinese firms up the value chain. For example, in
2005 Beijing issued local content regulations requiring wind farms to
source at least 70 percent of their components from domestic suppliers.
At that time, no such suppliers existed in China, so foreign wind
companies trained Chinese manufacturers to serve as their suppliers in
order to meet the quota. Beijing funneled subsidies to the Chinese
manufacturers, enabling them to rapidly build capacity and edge the
foreign firms--their original technology donors and customers--out of
China and then the global market.
In recent years, market access requirements are more frequently
conveyed via closed-door deal-making that is harder to track. For
example, in the aviation sector, aircraft manufacturers that do not
form a joint venture or move assembly operations to China are less
likely to win contracts from China's State-owned carriers. \3\ In the
electric vehicle sector, Beijing is dropping explicit joint venture
requirements but foreign firms seeking to operate without a Chinese
partner are reportedly running into problems acquiring licenses.
---------------------------------------------------------------------------
\3\ Keith Crane et al., ``The Effectiveness of China's Industrial
Policies in Commercial Aviation Manufacturing'', Rand Corporation,
2014.
---------------------------------------------------------------------------
State-directed market displacement: Beijing directs Chinese firms
to displace foreign competitors in critical technology markets and
provides targeted State support to help them achieve their goals. Some
aspects of that process are shockingly transparent. The Made in China
2025 Key Technology Roadmap lists market-takeover targets for 10
sectors that Beijing views as critical to the Nation's economic
competitiveness: information and communication technology (ICT);
advanced machine tools and robotics; aerospace technology; ocean
engineering; advanced rail; new energy vehicles; electricity equipment;
agriculture equipment; new materials; biopharmaceutical and medical
equipment. \4\ For each sector Beijing identifies high-priority sub-
sectors, assigns a take-over target, and funnels State resources to
Chinese firms to help them achieve it. For example, in mobile
telecommunications equipment, the roadmap calls for Chinese firms to
capture 75 percent of China's domestic market by 2020 and 80 percent by
2025. Globally, it calls for Chinese firms to capture 35 percent of the
global market by 2020 and 40 percent by 2025. To meet the domestic
target, Beijing ordered China's State-owned mobile operators to source
70 percent of their 4G network equipment and 90 percent of their 5G
equipment from Huawei and ZTE. \5\ China has the largest domestic
mobile market in the world, and Beijing gives Huawei and ZTE protected
access. That protection gives Huawei and ZTE massive sales revenues,
economy of scale, and deployment experience that foreign firms cannot
match, all benefits that Huawei and ZTE can then leverage to expand
their global market presence. In the first half of 2020, Huawei and ZTE
captured just over 40 percent of all global telecom equipment market
revenues. Beijing's champions are meeting their take-over targets ahead
of schedule.
---------------------------------------------------------------------------
\4\ U.S.-China Business Council, ``Unofficial USCBC Chart of
Localization Targets by Sector Set in the MIIT Made in China 2025 Key
Technology Roadmap'', available at https://www.uschina.org/sites/
default/files/2-2-
16%20Sector%20and%20Localization%20Targets%20for%20Made%20in%20China%202
025.pdf.
\5\ Melanie Hart and Jordan Link, ``There Is a Solution to the
Huawei Challenge'', Center for American Progress, October 2020,
available at https://www.americanprogress.org/issues/security/reports/
2020/10/14/491476/solution-huawei-challenge/.
---------------------------------------------------------------------------
Deterring enforcement: The above-mentioned policies artificially
increase global economic dependence on China, which Beijing then
leverages to deter other Nations from pushing back. For example,
earlier this year, as European Nations considered whether to ban Huawei
from their 5G networks, Beijing threatened to retaliate by blocking
Nokia and Ericsson from shipping components from their manufacturing
centers in mainland China to their overseas buyers. \6\ In May 2019,
shortly after the Trump administration announced its intention to add
Huawei to a Commerce Department entity list, Chinese President Xi
Jinping signaled that Beijing could retaliate by blocking U.S. access
to rare earth shipments from China. \7\
---------------------------------------------------------------------------
\6\ Liza Lin, Stu Woo, and Lingling Wei, ``China May Retaliate
Against Nokia and Ericsson If EU Countries Move To Ban Huawei'', Wall
Street Journal, July 20, 2020.
\7\ James T. Areddy, ``Xi Jinping Flexes China's Trade Muscle With
Visit to Rare-Earths Hub'', Wall Street Journal, May 21, 2019.
---------------------------------------------------------------------------
U.S. Investment Deficits Continue as Beijing Doubles Down
Unfortunately, the Trump administration did not make meaningful
progress on the China challenge. On the investment front, it did not
prioritize critical U.S. R&D and infrastructure investments to enable
the United States to compete at full strength; on the trade front, the
Administration's phase one trade deal did not take meaningful action to
address China's predatory industrial policies. The Administration did
target certain beneficiaries of those policies, such as Huawei and ZTE.
However, the Trump administration too often acted alone instead of
building a broad coalition of Nations to take joint action alongside
the United States, and it did not adequately plan for or hedge against
the downside effects of its policies. One result: in the semiconductor
sector, some third-country firms are reacting to the Huawei entity
listing by designing U.S. semiconductors out of their products, and
U.S. semiconductor revenues are declining. \8\
---------------------------------------------------------------------------
\8\ Antonio Varas and Raj Varadarajan, ``How Restricting Trade
With China Could End U.S. Semiconductor Leadership'', Boston Consulting
Group, March 9, 2020, available at https://www.bcg.com/en-us/
publications/2020/restricting-trade-with-china-could-end-united-states-
semiconductor-leadership.
---------------------------------------------------------------------------
Meanwhile, Beijing is doubling down. If the Trump administration's
goal was to force Beijing to abandon its economic and trade policies,
that effort has officially failed. Last month Chinese leaders issued a
communique signaling the direction they plan to take their Nation
during the 14th Five-Year Plan period, which will run from 2021 to
2025. \9\ The communique states that Chinese development is occurring
within a ``profound adjustment in the international balance of power,''
code for U.S. decline. Chinese leaders pledge to ``successfully fight
the tough battles for key and core technologies'' and to exploit
China's massive domestic market to turn ``China into a trade
powerhouse.'' The communique does not signal a change in China's
economic strategy. Instead, three themes suggest that Beijing is
ramping up its ambitions, particularly on the technology front:
---------------------------------------------------------------------------
\9\ For a superb English translation, see: Center for Security and
Emerging Technology (CSET), full translation of the ``Proposal of the
Central Committee of the Chinese Communist Party on Drawing up the 14th
Five-Year Plan for National Economic and Social Development and Long-
Range Objectives for 2030'', available at file:///C:/Users/Melanie/
AppData/Local/Temp/t0237-5th-Plenum-Proposal-EN-1.pdf.
Dual circulation: The communique echoed Chinese President
Xi Jinping's call to prepare the Chinese economy for further
decoupling from the United States and other major economies,
and to do so in a way that works best for China. What this
actually means in practice is still unclear, but the United
States should expect more efforts to replace U.S. high-tech
---------------------------------------------------------------------------
products with home-grown Chinese versions.
Independent controllability: The communique states that
China aims for secure supply chains with ``independent
controllability,'' which is another code word for boosting
domestic suppliers and either shutting foreign companies out of
China's market or forcing them to hand over proprietary data
and source codes.
Strategic emerging industries: The communique rehabilitates
this term, which Beijing used to designate high-priority
sectors prior to the launch of the Made in China 2025 plan. The
communique lists most of the sectors covered under the 2025
plan, with one notable addition: green energy. The original
Made in China 2025 plan focused more narrowly on energy-
efficient vehicles and electricity equipment; the new
communique broadens that out to include new energy, new energy
vehicles, and green and environmentally friendly products.
Going forward, Beijing's industrial policies may become
increasingly difficult to track. In June 2019, during the heights of
the Trump administration's trade war, Chinese Vice Premier Liu He
visited the Chinese Academy of Sciences and told the Nation's top
researchers to maintain a ``low profile'' in their work. \10\
---------------------------------------------------------------------------
\10\ Zhou Xin and Wendy Wu, ``China's Leading Scientists Advised
To Keep a Low Profile in Their Work as U.S. Steps up Pressure on Tech
Firms'', South China Morning Post, June 24, 2019.
---------------------------------------------------------------------------
Beijing appears to have taken two big lessons from the Trump era:
do more, faster; do it quieter, so the United States and other Nations
struggle to identify exactly what China is doing and how they should
react.
It Is Time To Compete at Full Strength
The United States has woken up to the fact that China is now a
major peer competitor. It has woken up to the fact that victory is not
assured. But the United States has not yet rallied around a single,
coherent strategy for success. Beating the drums of a new Cold War is
not the answer. Beijing can beat those drums just as loudly and
effectively as Washington can. Instead, the United States should focus
the majority of its resources on strengthening its own comparative
advantages, the advantages that Beijing cannot match: our democratic
values, our open innovation system, our allies and partners, and the
boundless potential of the American people. The United States has
allowed all of these advantages to atrophy, but we still have time to
turn the trend lines around. Specific steps include:
Launch a National Competitiveness Initiative: The United States
needs to treat this challenge as a ``Sputnik moment'' and rally around
a National Competitiveness Initiative that makes key long-term
investments in its comparative advantages. That should include making
high-quality postsecondary education affordable for all Americans,
rebuilding workforce development infrastructure, making moonshot
investments in national R&D, and investing in productive public
infrastructure. The America Labor, Economic competitiveness, Alliances,
Democracy and Security (America LEADS) Act gets these fundamentals
right, but urgent action is needed to resource these initiatives.
Make targeted investments to reduce U.S. supply chain dependence on
China and speed time to market for disruptive innovations: Targeted
public investments are needed to maintain the existing U.S. innovation
edge and help U.S. firms overcome the market barriers Beijing has
created through decades of distortionary industrial policy. For
example, U.S. semiconductor firms are highly reliant on exports to
China to generate revenue for R&D, and Beijing is hoping to replace
U.S. chips with home-grown alternatives. Beijing has not yet succeeded,
but the United States should not bet on Chinese failure. Instead, the
U.S. should make targeted investments in domestic semiconductor R&D and
fab capacity to maintain and grow the U.S. innovation edge and reduce
U.S. reliance on overseas manufacturing facilities and export revenues.
The American Foundries Act of 2020, which Senator Cotton supported
earlier this year, is a great step forward, but more funding is needed,
not only in semiconductors but also in other critical sectors such as
5G.
Form a coalition of Nations to push back against Beijing's
predatory economic policies: When the United States frames the China
challenge as a Cold War, the U.S. stands and fights alone. That
strategy benefits China at U.S. expense, because it undercuts one of
the biggest advantages we have: other Nations share our concerns. When
China distorts global markets that is not just a U.S. problem. That is
a global problem. When the United States takes unilateral action to
address a global problem, we carry water for other Nations and pay
unacceptable costs. That is exactly what happened with the Trump
administration's trade war. It is time to pivot to a new approach, one
that builds a broad global coalition, minimizes the costs to the
American people, and puts China on its back foot. The United States
should start with critical high-tech sectors: that is where China is
focusing its efforts, and that is where we share clear common interests
with allies in Europe, Asia, and the Americas. The U.S. should
immediately:
Form a coalition of democracies to develop common
principles and standards for digital technology governance. The
European Union is already reaching out to propose forming a
transatlantic technology alliance that could ``form the
backbone of a wider coalition of like-minded democracies'' on
high-tech issues. \11\ This outreach presents an ideal
opportunity for the United States to change course and work in
concert with other Nations instead of standing alone.
---------------------------------------------------------------------------
\11\ Sam Fleming, Jim Brunsden, and Michael Peel, ``EU Proposes
Fresh Alliance With U.S. in Face of China Challenge'', Financial Times,
November 29, 2020.
Form a coalition of Nations to assess how Beijing's direct
and indirect subsidies harm global markets--starting with
mobile telecommunications--and devise appropriate trade
remedies. \12\
---------------------------------------------------------------------------
\12\ For more detail on all 5G recommendations, see: Melanie Hart
and Jordan Link, ``There Is a Solution to the Huawei Challenge'',
Center for American Progress, October 2020.
Conduct a comprehensive review to assess how Beijing uses
credit to advantage Chinese firms over their competitors, and
engage the G7 industrialized democracies to develop new rules
---------------------------------------------------------------------------
limiting those actions.
Form a coalition of export credit agencies to support
vendors seeking to compete against Huawei and the loans Chinese
State banks offer its customers.
Engage the key 5G standardization partners--the European
Union, Japan, India, and South Korea--to improve leadership
transparency and diversity at the ITU.
Push the ITU to adopt the O-RAN fronthaul interface as a
common global standard.
Thank you and I look forward to your questions.
______
PREPARED STATEMENT OF ROY HOUSEMAN
Legislative Director, United Steelworkers
December 16, 2020
Chairman Cotton, Ranking Member Cortez Masto, Members of the
Subcommittee, thank you for the opportunity to testify on the topic of
economic competition between the U.S. and China. I commend the
Committee for uplifting the voice of organized workers in this
discussion and our International President Tom Conway gives his
regards.
The United Steelworkers is the largest industrial union in North
America, representing workers throughout the manufacturing sector. We
also represent a growing segment of health care, public sector, and
even tech workers. This diversity in profession creates a strength in
understanding the impacts that China's economic competition will play
on workers in America.
With 2\1/2\ weeks left in one of the most consequential years in
modern history, it is hard to see past the 7 day average of 2,400 plus
Americans dying daily from the COVID-19 pandemic. Our first effort must
be to invest in the basic infrastructure necessary to make Americans
feel safe. That starts with passing an immediate COVID-19 relief bill
for the 10.7 million American's currently laid off, aid for the long
term unemployed (3.9 million) and those that are not in the labor force
and need a job (7.1 million). \1\ We also need to immediately invest in
a regulatory framework that ensures workers feel safe returning to
work. OSHA and MSHA standards for workers dealing with a pandemic are
sensible to anyone who has stood shoulder to shoulder in a processing
plant or who have had to go through a lock out, tag out procedure.
---------------------------------------------------------------------------
\1\ https://www.bls.gov/news.release/pdf/empsit.pdf
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The Senators on this Subcommittee have the power to help guide a
22-trillion dollar economy to either success or ruin. The union urges
you to use your individual power to influence the lives of every
American and act to stop the economic bleeding from this pandemic. The
country needs direct aid to where it is needed most, and from the
union's perspective that starts with the real mothers and fathers of
this country--the American worker.
With an all hands-on-deck approach to a vaccinated country ongoing,
the existing challenges we faced prepandemic related to the Nation's
infrastructure, labor force, and international competitiveness, will
only become clearer.
In preparing the testimony it stuck me as interesting a simple
comparison of market share and how as a society we have reacted to it.
Last week 48 States and the U.S. Government filed an antitrust suit
against Facebook for anticompetitive behavior. Using the legal tools
available to them, Federal and State resources will coordinate to
address monopoly against a firm with 60.52 percent of all social media
site visits in the United States. \2\ What if the press, Government,
and society had the same concern about the monopoly over the metals,
materials, and manufacturing concentration controlled by the Chinese
Communist Party? What examples would they find? Below are a few
examples.
---------------------------------------------------------------------------
\2\ https://www.statista.com/statistics/265773/market-share-of-
the-most-popular-social-media-websites-in-the-us/
Steel--China now accounts for 51.3 percent of global steel
production--a figure that also doesn't capture production by
Chinese-owned or affiliated companies in other countries. \3\
---------------------------------------------------------------------------
\3\ https://foreignpolicy.com/2020/05/19/dont-let-china-steal-
your-steel-industry/
Aluminum--China's share of global output of the most widely
used metal touched 57 percent in May. \4\
---------------------------------------------------------------------------
\4\ https://www.reuters.com/article/us-metals-aluminium-ahome/
column-covid-19-will-tilt-aluminium-axis-further-towards-china-andy-
home-idUSKBN23V2SN
Rare Earths--China not only holds 35 percent of the world's
entire rare earth supply, but accounts for 70 percent of global
production. \5\
---------------------------------------------------------------------------
\5\ https://thehill.com/opinion/energy-environment/529229-us-
dependence-on-china-for-rare-earth-minerals-is-a-disaster
Rail--China Railway Rolling Stock Corporation (CRRC), which
by their calculation, controls roughly 83 percent of the global
---------------------------------------------------------------------------
rail market.
Fiber Optic Cable--China's production reached 61.6 percent
share of the global total in 2019. \6\
\6\ https://www.globenewswire.com/news-release/2020/09/25/2099120/
0/en/Global-and-China-Optical-Fiber-Preform-Industry-Report-2020-
2026.html
This is the threat of monopoly power by a country and the U.S.
Government should respond in kind through a mix of policies and
investments that recognizes State-controlled economic power must be met
with reciprocal State responses.
Infrastructure
We need to respect the vision of previous Congresses and Presidents
and renew that sense of American ambition for the ideal. That requires
addressing our crumbling infrastructure in a way the ensures maximum
domestic job creation. In 2019, the U.S. spent just 2.5 percent of our
GDP on infrastructure, down from 4.2 percent in the 1930s. \7\ That
decline in spending takes on an outsized role as we try to interconnect
with the global economy. China has recognized the value of
infrastructure interconnectedness in its domestic renewal. China has
spent roughly 8 percent of its GDP on infrastructure since 2010, which
is significantly higher than the 4 percent average of the next ten
biggest spenders and clearly that of the U.S. \8\
---------------------------------------------------------------------------
\7\ https://www.infrastructurereportcard.org/covid-status-report/
\8\ https://www.cfr.org/blog/boost-flagging-growth-china-doubles-
down-its-least-productive-sector
---------------------------------------------------------------------------
While some may debate about China ``catching-up'' to other
industrial countries, it's hard for union workers that make the
manufactured goods and basic materials for infrastructure to feel like
more could be done to maintain a U.S. ``lead.''
Take for example rail infrastructure: China has laid over 15,000
miles of high-speed rail. \9\ Enough rail to travel from Washington,
D.C., to Las Vegas, Nevada, nearly 6\1/2\ times. All the while China
has successfully made high speed rail competitive with road and air
transport for distances up to around 745 miles, which is just shy of a
one-way trip from Washington, D.C., to West Memphis, Arkansas. \10\
---------------------------------------------------------------------------
\9\ https://openknowledge.worldbank.org/handle/10986/31801
\10\ https://www.railway-technology.com/features/high-speed-rail-
in-china/
---------------------------------------------------------------------------
As mentioned earlier on rail manufacturing CRRC is a State-owned
enterprise (SOE) in rail with roughly 83 percent of the global rail
market. The SOE has made a concerted effort to penetrate the U.S.
market. Congress recognized the threat that State-owned enterprises in
rail can cause for domestic national security and domestic
manufacturing by putting up barriers to transit procurement with the
passage of the Transit Infrastructure Vehicle Security Act. However,
barriers can only be one aspect to a strategy to compete against China.
We will need to make strategic investments in our rail infrastructure
and manufacturing facilities and commit long term resources to push
back against this sort of monopoly power.
Another example is our water infrastructure. Getting our goods
across the globe will require investment in our ports and our ship
building capability.
After the Reagan administration ended construction subsidies for
U.S. shipyards, Asian shipyards, which did not see their Governments
end shipyard subsidies, overwhelmed the global market. In 12 years, the
U.S. went from the biggest commercial shipbuilder in the world to no
longer producing vessels for international trade. \11\ In turn the
number of U.S. flagged vessels sailing in the international trade has
crashed from 183 ships in 1992 to 82 as of December 2017. \12\ This
impacts U.S. manufacturers up and down the supply chain who would have
produced the steel, parts, and materials for merchant marine ships.
---------------------------------------------------------------------------
\11\ https://www.forbes.com/sites/lorenthompson/2019/06/05/philly-
shipyards-struggle-signals-jones-act-isnt-enough-to-secure-u-s-sealift/
#33060ea64b30
\12\ https://www.transportation.gov/testimony/state-us-flag-
maritime-industry
---------------------------------------------------------------------------
This lack of Federal manufacturing focus has put us behind the game
for future shipping needs. Congress must engage on tomorrows heavy
manufacturing needs to capitalize on the growth of new industries like
offshore wind. Recognizing previous leader's sensible policy decisions
to maintain domestic ship building capacity for security purposes the
Jones Act is a guide stone for Congressional intervention in
shipbuilding to combat the economic power of China's shipbuilding. \13\
In 2018, 43.2 percent of the new ships in the world were built in
China. For example, a shortage of ships that can install wind turbines
the size of the Chrysler Building (1,046 feet) could come as early as
2022. \14\ The signals are there, all it takes is the will of the most
powerful democratically elected leaders in the world to act.
---------------------------------------------------------------------------
\13\ http://global.chinadaily.com.cn/a/201904/28/
WS5cc507a2a3104842260b8d78.html
\14\ https://www.bloomberg.com/news/features/2019-05-13/offshore-
wind-will-need-bigger-boats-much-bigger-boats?sref=HEwoTbCT
---------------------------------------------------------------------------
Manufacturing for the Future
What actions can we take to uplift our manufacturers and put us on
a path of renewal in our country? It is our union's belief that when we
work collectively we can build a better society. This takes
transformational investments not just in the physical infrastructure to
move people and goods but the domestic manufacturers who want to not
just maintain but capture domestic and international market share.
Our union takes an all of the above approach to building the next
generation of manufacturers. For example, USW is a founding member of
the BlueGreen Alliance, a partnership between the country's leading
environmental and labor organizations. This year the Alliance put
forward a manufacturing agenda that creates a north star of policy,
that if broadly enacted would set the country down a path of renewal
and improved competition with our economic competitors like China.
Focusing on five pillars that is an aggressive strategy to address the
climate emergency head on, while reinvesting in our manufacturers all
the while achieving net zero emissions economywide by 2050. \15\
---------------------------------------------------------------------------
\15\ https://www.bluegreenalliance.org/resources/manufacturing-
agenda-a-national-blueprint-for-clean-technology-manufacturing-
leadership-and-industrial-transformation/
---------------------------------------------------------------------------
The USW is also a founding partner in the labor-management
partnership the Alliance for American Manufacturing, which has been a
vital partner in setting the agenda for American manufacturing and
ensuring the policies that Congress debates maximize domestic job
creation.
These partnerships have created a broad front and plethora of
policies that can create a virtuous comparative advantage, that
recognizes the dignity of the American manufacturing worker and will
allow the country to succeed in the future.
The union and our partners strongly support the advancement and
improvement of domestic procurement provisions like Buy America. But
our members alone don't just support these policies. American voters
overwhelmingly support Buy America policies. In fact, 80 percent
support ``requiring that all taxpayer-funded infrastructure projects
use American-made goods and materials.'' \16\
---------------------------------------------------------------------------
\16\ ``National Survey of 1,200 Likely 2020 Voters General
Election'', The Mellman Group & Public Opinion Strategies. Conducted
Mar. 20-28, 2019 for AAM.
---------------------------------------------------------------------------
Using taxpayer dollars to buy American made goods is a vital
commitment to our manufacturers. We need to tighten our procurement
rules to ensure American content is put into the goods our Government
buys. We've seen dramatic successes in our foundries for example with
the expansion of Buy America into our Drinking and Clean Water State
Revolving loan fund programs. It's time to expand on these successes
into other major Federal infrastructure programs and close loopholes in
the application of existing Buy America laws.
But more can be done. Expanding our Manufacturing USA network is
another one of those investments. The 14 Manufacturing USA Institutes,
for example, conducted nearly 500 major applied research and
development projects of high priority to broad industry. These efforts,
two thirds of which aided manufacturing firms should be expanded.
Legislation like the LEADS act by Senator Schumer and Menendez contains
these sorts of expanded investments.
We should also expand the Manufacturing Extension Partnership (MEP)
program. A network made up of the 51 MEP Centers has led to American
firms creating or retaining 114,650 manufacturing jobs, generating
$15.7 billion in new and retained sales and realizing $1.5 billion in
cost savings in fiscal year 2019. \17\ We should build on this success
with not just continued investment but expansions in Federal spending.
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\17\ https://www.nist.gov/system/files/documents/2020/08/23/MEP-
Annual%20Report-FY19-v8-19-FINAL-WEBv2.pdf
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We will also need to invest in the critical minerals and materials
that our country and allies need to press against market monopoly and
ensure equal competition. The dramatic rise in China's industrial
capacity in steel, aluminum, and other metals has had a dramatic impact
on American workers. American aluminum smelting capacity has decreased
from 23 smelters in 1998 to 6 today. While China's rise in aluminum
production is a factor so is the lack of domestic investment in these
plants. We have to create the right incentives to upgrade these
facilities. For example, a 2017 Department of Energy Study found that
there could be 34 percent energy savings opportunity in the U.S.
Aluminum manufacturing sector using current technologies. \18\
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\18\ https://www.energy.gov/sites/prod/files/2019/05/f62/Aluminum-
bandwidth-study-2017.pdf
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Titanium is another prime example; titanium sponge is an unwrought
form of titanium and the U.S. saw the last plant capable of titanium
sponge production close this year. The plant based in Henderson,
Nevada, needs at least a $150 million investment to update processes
and ensure long term competitiveness. While there are continued efforts
to study approaches to increase titanium sponge investments right now
the country faces the prospect that they are completely beholden to
overseas production for a product that is vital to our military.
Finally, workers and their employers benefit from a mutual respect
that collective bargaining can provide. This means updating our labor
laws to reflect the value that an organized labor force can bring to
the table. The Economic Policy Institute has highlighted that unions
increase productivity through a variety of channels. They reduce
turnover and, hence, firm-specific skills are retained. Moreover, the
lower turnover makes it economically rational for employers to provide
more training to union-represented employees, increasing employee
skills and productivity further. \19\
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\19\ https://www.epi.org/publication/how-unions-can-help-restore-
the-middle-class/
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Unlocking this potential requires an update to our labor laws to
ensure workers do not face unnecessary hurdles to collective bargaining
with their employer. That is why the USW supports comprehensive labor
law reform.
Unions provide a significant role in training in the manufacturing
workforce. United States Steel and USW have contract language which
incorporates training coordinators. These training coordinators work
with management to ensure workers ``receive sufficient training to
allow for all reasonable opportunities to progress within the workforce
and maximize their skills to the greatest extent possible.'' \20\ For
manufacturing employers who often have specialized equipment that
require hands-on experience, the Federal Government should provide
resources to foster hands-on training coordinators, which would provide
new hires with the tools and experience necessary for specialized
training at manufacturing facilities.
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\20\ https://uswlocals.org/system/files/2018-uss-usw-pm-bla-
printer.pdf
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Finally, the U.S. is sorely lacking in allocating adult worker
training resources. When compared to other countries in the
Organization for Economic Cooperation and Development (OECD) the U.S.
is among the worst of all 37 countries in job training programs in
comparison to the size of our economy. Public spending is less than
half the spending levels of Australia, Canada, and the U.K., and one-
sixth the level of spending compared to Germany.
Trade
Winning the economic competition with China requires a thoughtful
and meaningful approach to trade policy as well. The union has long
raised the alarm regarding China's rise since our opposition to the
U.S. permanently normalizing trade relations with the country in 2000.
Since that time the growth of the U.S. trade deficit with China between
2001 and 2018 was responsible for the loss of 3.7 million U.S. jobs,
including 2.8 million manufacturing jobs lost due to the growth in the
trade deficit with China. \21\
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\21\ https://www.epi.org/publication/growing-china-trade-deficits-
costs-us-jobs/
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As a union which has supported a large number of the 205
antidumping and countervailing duty remedies slapped against firms in
China for illegal trade practices we have to find additional ways to
contain these illegal trade practices. \22\ Each of those orders
represent not just a recognition that China is committing illegal
trading practices but also a recognition that over a 3 year period of
time a domestic industry lost jobs, had to cut benefits and lost market
share in an uncompetitive way. Ensuring our trade laws are responsive
to domestic industry and catch illegal efforts sooner will ensure
workers and their employers do not face 3 years of decline before the
Government will act.
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\22\ https://usitc.gov/sites/default/files/trade_remedy/documents/
orders.xls (excel sheet).
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This also means addressing issues like global industrial
overcapacity and participating in a trading regime that empowers
workers and does not inadvertently allow China to set the rules.
The union sees a growing creep by academics and policy experts to
encourage the incoming Administration to join the Trans-Pacific
Partnership (TPP). Often ``experts'' try to highlight the agreement as
containing China but our union has taken a close look at this effort to
contain China and the TPP was an abject failure. Setting aside the fact
that six of the countries in the TPP already have trade agreements with
China, the rules of origin that the TPP contained were a barn door
sized access for China's manufactured goods. The Ways and Means
committee minority report on the TPP in 2014 highlighted that depending
on the rules, 35 percent of a vehicle would had to originate in the TPP
zone, meaning up to 65 percent of a vehicle's components could come
from outside the party countries like China. \23\ When compared to the
USMCA rules which are set for 75 percent, American manufacturing
workers stand a fighting chance at competing for market share in auto
parts.
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\23\ https://waysandmeans.house.gov/sites/
democrats.waysandmeans.house.gov/files/documents/
TPP%20Issue%20Analysis%20-%20Autos.pdf
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We also need to engage in an honest conversation about labor and
environmental rules in our trade agreements. The final USMCA agreement
recognized the need for rapid response to plant level labor violations
with our trading partners but more must be done. Wages, hours, and
working conditions are the most important day to day for workers in the
U.S. and they need to be respected internationally. We need to see our
trade agreements not be a downward spiral on working people here in the
U.S. or wherever a multinational corporation starts production.
The same goes for environmental standards. Future trade agreements
need to contain China's pollution with the recognition that those
improved environmental standards isolate leakage of pollution like
carbon. We also cannot continue down a path that permits foreign
countries to poison their land, air, and people for economic gain.
Conclusion
The economic competition between the U.S. and China will be a
generational rivalry. The United Steelworkers believes our country with
the proper investments, planning, and commitment to our most powerful
asset--the American worker--will be how we succeed in that rivalry.
Thank you and I look forward to answering any questions.