China Economic and Security Review Commission Told Export Controls Isolated US

Economics Professor Mary Lovely, who studies multinationals' operations in China, told the U.S.-China Economic and Security Review Commission that the trade war didn't make the U.S. less reliant on China, and that export controls designed to isolate China have not been effective, either. She noted that China is still the top exporter to the U.S., and their goods make up 17% of U.S. imports. The Commission met online Jan. 28.

Lovely acknowledged that China's involvement in the economy can damage market economies' ability to compete in manufacturing, even as the number of people working in Chinese manufacturing has been dropping for nine years. “I worked on solar equipment. China became the dominant player in five to seven years. Comparative advantage doesn’t change that fast! It had to be government action,” she said. The World Trade Organization is far too slow to be effective in this regard, she said, and suggested a rapid response mechanism, similar to the one in USMCA over labor violations, may be needed.

About 60% of exports from China to the U.S. before the trade war were from foreign multinationals, and were mostly components for U.S. producers, she said.

However, she did note that supply chains have shifted to Vietnam, Thailand Mexico to some degree to avoid tariffs, with roughly 30% less imported, by value, of goods on the Section 301 list. “The Section 301 tariffs covered hundreds of products that have no relation to national security. Simultaneously, the US implemented a host of export controls and sanctions. These actions raised costs and limited markets for US manufacturers, who either absorbed these costs or passed them through to their customers. Such collateral damage should not be denied, but rather limited to actions that are likely to provide security or other compensations for the American public,” Lovely said, in her written testimony posted online. She said that better targeting of tariffs or export controls, based on threat assessment, would reduce the collateral damage.

She also said that tightening export controls and foreign investment would increase the pressure to steal technology, so the U.S. needs to coordinate with other countries to punish theft. “If we won’t buy from you, you’re not going to sell to Japan or Germany,” she said. “This is where we’ve really been lacking.”

Zack Cooper, a research fellow at the right-of-center American Enterprise Institute, agreed that the tariffs are too broad, and that targeting companies that stole technology is crucial. “We should use targeted collective pressure within the China system,” he said, such as convincing allies to ban purchases of products that use stolen technology. “In the Trump administration the use of broad-based tariffs, it provides no incentive for actors in the Chinese system to act according to international standards because we’re going to penalize them regardless,” he said.

Commissioner Michael Wessel, to whom Cooper was responding, expressed skepticism there are any good actors, given the Communist party's intervention with companies.