Since joining the World Trade Organization in 2001, China has offered an economic grand bargain with two contradictory faces.
One face outwardly offers soaring and seductive promises of an emerging global economic order that will become more open and equitable as nations increase trade and commerce with China. Witness Chinese President Xi Jinping, who at the 2017 World Economic Forum in Davos, Switzerland, gushed at how “mankind has become a close-knit community of shared future” while assuring that “China is committed to a fundamental policy of opening-up and pursues a win-win opening-up strategy.”
The other face speaks inwardly to China’s ultimate geopolitical intentions. As the 13th National People’s Congress met this February to install Xi as effectively president for life, Xi vowed “to fight the bloody battle against our enemies” — including any nation that obstructs the “Chinese dream of national rejuvenation” — “with a strong determination to take our place in the world.”
Far too many countries, including the United States, have ignored the contradictions of China’s grand bargain on the assumption that China would liberalize economically and politically.
Unfortunately, this starry-eyed assumption has proved false. Benefiting enormously from a more open global economy to drive its own industries, the Chinese government and Communist Party have only tightened their grip on power, brutally suppressing dissent at home and pursuing policies abroad that are a far cry from the responsible global stakeholder that Xi describes.
The American people can see China’s malevolent economic behavior most clearly in its theft of our intellectual property. Chinese theft of American IP alone costs the United States nearly $600 billion annually, eclipsing the combined profits of the top 50 companies on last year’s Fortune 500 list.
Stealing American IP, in turn, advances Beijing’s “Made in China 2025” initiative to eventually dominate global exports in 10 critical sectors — namely, artificial intelligence and next-generation information technology, robotics, new-energy vehicles, biotechnology, energy and power generation, aerospace, high-tech shipping, advanced railway, new materials, and agricultural machinery. These targets reveal China’s goal for the near-total displacement of advanced U.S. manufacturing.
The United States can no longer afford to blindly accept the Chinese economic grand bargain.
President Trump has gone further than any previous commander in chief to create an opportunity to rebalance our economic relationship with China. His administration has rightly pushed the boundaries available under current law by invoking Section 301 of the Trade Act of 1974 to impose penalties on Chinese theft of American IP.
As the U.S. delegation negotiates with China over trade, Congress should further strengthen America’s position by making China’s unwillingness to deal on issues of substance as painful as possible.
That’s why next week I will introduce the Fair Trade With China Enforcement Act to guard the American people against China’s nefarious influence on national and economic security, directly targeting China’s tools of economic aggression.
The legislation would ban the sale of all sensitive technology or intellectual property to Chinese entities and impose a shareholding cap on Chinese investors in American corporations to prevent undue influence in corporate governance. This includes an earlier bill that Sen. Tom Cotton (R-Ark.) and I introduced to prohibit the federal government from purchasing or leasing telecommunications products from the Chinese firms Huawei and ZTE, given growing U.S. scrutiny about the dangers these companies pose to our critical information networks.
In addition, the legislation will propose to amend the 1984 income tax treaty with China to impose a withholding tax on Chinese entities earning investment and dividend income in the United States. The goal is to discourage Chinese behavior seeking to devalue currencies, price out American exports and drive capital imbalances that make our economy weaker and less stable.
The legislation would also impose duties on Chinese capital goods in the sectors targeted by the “Made in China 2025” plan — and encourage our allies to do the same — to ensure that American buyers do not inadvertently finance China’s long-term efforts to displace our manufacturing.
Finally, it will use tools created by the new tax reform law to raise taxes on the foreign income of multinational corporations if they enter into vulnerable “joint ventures” with Chinese firms.
The details of our ultimate deal with China matter greatly. The Chinese government and Communist Party are playing the long game, and we should, too.
We must protect American workers from China’s economic attacks and be willing to impose costs if Beijing refuses to restore balance to our trade relations. Strong and coordinated action by the United States and its allies can outlast China’s two-faced global mercantilism.