House Ways & Means Committee Holds Hearing on U.S.-China Trade and Competition

Last week, the House Ways and Means Committee held a hearing titled “U.S-China Trade and Competition.” The hearing was spurred by the late January passing of Phase 1 of a widely anticipated trade deal with China, and testimony was focused on evaluating the potential costs and benefits of the agreement.

Chairman Richard Neal (D-MA) opened the hearing by emphasizing the economic toll that the ongoing trade war has put on the American economy, particularly in the manufacturing and agricultural industries. He noted that Phase 1 of the agreement provides more significant and structural commitments than were previously in place between the two countries and shows potential for further phases to be implemented in the future.

Ranking Member Kevin Brady (R-TX) praised the agreement as progress towards a fair U.S.-China trade policy, noting that it takes steps to protect U.S. intellectual property and implement specific timetables and accountability measures towards the Chinese government. He also spoke of a potential Phase 2, which would focus more on privacy issues, Chinese government subsidies, and cross-border data fields.

Below is the full list of witnesses that testified:

• Tim Stratford, Managing Partner, Covington and Burlington LLP Beijing Office (and former Assistant U.S. Trade Representative for China Affairs, 2005-2010)
• Thea Lee, President, Economic Policy Institute (EPI) and Commissioner, U.S.-China Economic and Security Review Commission
• L. Rafael Reif, President, Massachusetts Institute of Technology (MIT)
• Owen Herrnstadt, Chief of Staff, International Association of Machinists and Aerospace Workers (IAM)
• Tim Dufault, Dufault Farms, Crookston, MN
• Richard Guebert Jr., President, Illinois Farm Bureau

Stratford voiced concerns that Phase 1 does not do enough to address the systemic issues that have prevented a cohesive trade deal from being implemented in the past, including the vast differences between the economic structures of the two countries. Due to the ongoing trade war, China has not seen the U.S. as being as reliable of a trading partner as originally thought and is taking steps to become self-sufficient. As a result, Stratford noted, opportunities for U.S. companies in China are diminishing as Chinese companies seek domestic outlets instead.

Herrnstadt echoed some of these concerns, noting that the aerospace and manufacturing industries in China are huge competitors of their American counterparts. U.S. companies have also been harmed by the forced transfer of technology to China; Herrnstadt noted that companies must typically either comply with transfer demands or be shut out of the market.

Although Lee saw the trade agreement as a welcome shift from the “inaction” of previous administrations, she also called it a “squandered opportunity” to address problems like industrial subsidies, overcapacity of Chinese markets, and worker’s rights. The agreement sets ambitious two-year targets but focuses too much on privacy and technology and not the protection of U.S. producers, Lee argued. Both Herrnstadt and Lee were in favor of aggressively pursuing a Phase 2 of the trade agreement to include stronger language about technology transfer and the protection of worker’s rights.

Reif emphasized the need for the U.S. to increase investment in research and technology. China has an increasingly strong artificial intelligence program and is making huge developments in research. In order to remain competitive, universities need to put more funding into attracting high-achieving U.S. students and attracting and retaining top researchers from around the world.

Dufault and Guebert, who are both farmers, spoke on the suffering of the farm economy. They reported that in the first year of the trade war, exports for wheat and soybeans were cut in half. Hundreds of family farms have gone bankrupt, and those still in business are facing uncertainty about the future of their businesses as they are forced to increase their borrowing. Although the trade agreement includes trade mitigation payments, Dufault noted that this cannot alleviate the long-term consequences that farmers are facing as competitors (like Canada) step in to fill the void. Guebert was more optimistic about Phase 1, stating that farmers will continue to be patient and look forward to the reduction of tariffs on agricultural commodities and increased opportunities to expand into the Chinese market.

To view the hearing in full, click here: https://waysandmeans.house.gov/legislation/hearings/us-china-trade-and-competition.