House Select Committee Leaders Say Private Sector Needs to Assess China Import Risk

House Select Committee on China Chairman Rep. Mike Gallagher, R-Wis., said he wants U.S. companies that source from or have operations in China to "take off the golden blindfolds, and assess the risk." Gallagher and the committee's ranking member, Rep. Raja Krishnamoorthi, D-Ill., were speaking at an event hosted by Punchbowl News on July 20.

Gallagher also acknowledged that moving manufacturing from China to Vietnam or India is not simple, but said he thinks for goods like cell phones, "that process needs to begin now."

Gallagher also said he doesn't understand what the Biden administration means when it says it wants "de-risking" in the Chinese-U.S. economic relationship, and he wonders what the distinction is between that, strategic decoupling, and diversifying.

"I still think there's a bit of muddled thinking around that effort," he said.

Krishnamoorthi said import dependence on China for active pharmaceutical ingredients, electric vehicle batteries, rare earths, critical minerals and solar panels is all a "huge concern."

"They have a chokehold" somewhere in the supply chain for all those goods, he said. He noted that China recently imposed export restrictions on gallium and germanium. He said that action is driving a German producer to start gallium production, and that Chinese firms will lose business as a result. "Diversifying, to me, also means having an insurance supply; having other redundant places where you can source these materials, so you're not solely reliant on China," he said. He said the private sector is moving in that direction more and more.

However, Krishnamoorthi complained that China has been successful in playing the U.S. and its allies off each other, punishing one country's firm and favoring another. He said that Airbus and Boeing had agreed that they would not "give away our secrets to building our airplanes" as they open factories in China. The U.S. dropped its World Trade Organization-authorized tariffs on EU goods in 2021, but said a permanent end to the Airbus-Boeing dispute is predicated both on a permanent agreement on subsidies and on agreement to protect their industries from Chinese competition that they say is a result of oversubsidization and other trade abuses (see 2106150021).

"That agreement lasted all of 10 seconds," Krishnamoorthi complained, saying he knows that Airbus agreed to more technology transfer when it established a second facility in China. He said as a result, a Chinese civil aircraft manufacturer will eventually drive out Airbus and Boeing from its market and compete with the aircraft manufacturers around the globe.

Boeing is the No. 1 exporter in the U.S.

So Krishnamoorthi said countries need to do better at collaborating on diversifying supply chains out of China, and he said private companies are going to have to talk to each other to understand what sourcing vulnerabilities they have. He said, "even among competitors, potentially," but did not address the anti-trust implications that could have.