China blowback looms for Schumer's Innovation and Competition Act
By: PHELIM KINE and GAVIN BADE (POLITICO)
Democrats go MAGA with a neoliberal twist. Innovation doesn't have much value without the ability to produce. Depending on China to produce those innovations is how we got into this mess. The resilience and sustainability of the US producing economy really is on the line. Democrat's neoliberal favoritism for the global financial sector will hamper any progress on that front. And, as usual, Democrats are trying to take tariffs off the table.
Of course, Republicans will wring their hands over access to the Chinese market. Republicans seem to have forgotten that the United States is the largest market on the planet. Republicans are yuan smart and dollar foolish. And Republicans will cave to China in a heartbeat when CitiBank and Goldman Sachs gives the marching order.
Let's see if MAGA Democrats or MAGA Republicans can sell out the United States faster. There's going to be a lot of insider trading. The political competition would make Phil Gramm proud.
S E E D E D C O N T E N T
After months of discord and delay, the House will soon be moving ahead on Senate Majority Leader Chuck Schumer's China-targeted $250 billionU.S. Innovation and Competition Act, bolstered by a bipartisan consensus that the U.S. government needs to act decisively to better compete with China.
But Beijing isn't taking this lying down: Its officials have warned that reprisals are coming, should the bill become law, and experts caution that the effect could be severe on key U.S. economic sectors.
Schumer and House Speaker Nancy Pelosi earlier this month began to remove hurdles to USICA's consideration, hoping to advance it through the House and put it on President Joe Biden's desk "as soon as possible." The bill passed the Senate with bipartisan support in June.
Beijing has promised retaliation if the bill makes it through Congress but has not given specifics. China experts say those reprisals may include deliberate disruptions in imported parts' supplies for U.S. manufacturers and curbs on Chinese purchases of U.S. exports. With supply chains already strained to the breaking point, Beijing's response could test Biden and Chinese leader Xi Jinping's resolve to create a less-rancorous U.S.-China relationship.
"Given our mutual dependency, it's impossible to completely insulate [U.S.] businesses and consumers from [Chinese] reprisals in the near term," said Sen. Todd Young (R-Ind.), whose Endless Frontier Act, designed to "outcompete China'' in emerging technologies, was incorporated into Schumer's bill in May. "Ultimately passing USICA and ensuring U.S. leadership in these critical areas is the best way we can insulate our businesses and consumers in the longer term … and demands that we assume some risk in the short term."
USICA integrates multiple China-targeted bills — the Endless Frontier Act, the Strategic Competition Act of 2021 and the Meeting the China Challenge Act among them — into one massive 2,276-page piece of legislation. It's designed to preserve a competitive technological edge over China through the injection of tens of billions of taxpayer dollars for various initiatives, including U.S. semiconductor manufacturing and "buy American'' requirements for federally funded infrastructure projects.
"We have been clear publicly and privately with [China's government] that we intend to strengthen our own competitive hand, and the investments outlined in this legislation do just that," a senior administration official told POLITICO.
But USICA also includes multiple provisions that specifically address Chinese threats to the U.S. economy, including state-directed intellectual property theft, forced technology transfers and malicious cyberattacks on U.S. government and corporate entities. The bill's reach extends to a ban on government agency purchases of Chinese manufactured drones as well as prohibiting the use of government hardware to download TikTok, the Chinese video social network platform.
U.S.-based business groupings view Chinese retaliation as unavoidable and are bracing for it with a mixture of dread and resignation. "China is becoming much more aggressive. … They will go all the way to win," said a representative of a business organization linking Chinese and U.S. companies, who asked to remain anonymous for fear of angering Chinese interests.
A spokesperson for a China-focused D.C.-based international business association expressed hope for a moderate Chinese response in the interests of a longer-term improvement in the U.S.-China relationship: "If it's not muted, [retaliation] will be calibrated, meaning not excessive, though the rhetoric may be."
Retaliation is likely to be more subtle than an imposition of fresh tariffs, given the recent efforts of U.S. Trade Representative Katherine Tai and her Chinese counterpart, Vice Premier Liu He, to untangle the U.S.-China trade relationship. Tai has announced the U.S. will reopen a process to allow U.S. firms to seek exemptions from tariffs on certain Chinese imports and will restart talks with China on its failure to comply with conditions of the Phase One U.S.-China trade deal implemented in January. "Another round of tariff wars" is unlikely, said Kelly Ann Shaw, a former senior trade adviser to President Donald Trump. "Trade talks are occurring in a separate lane."
Instead, the Chinese government is likely to signal its anger by tapping the brakes on select exports essential to key U.S. industries, such as the automotive sector. Such intentional disruption of targeted supply chains will allow Beijing to retaliate with a degree of plausible deniability while avoiding the blunter weapon of an escalating series of tit-for-tat tariffs.
"China does not have many ways to hurt the U.S. now without damage to itself, but reducing the flow of strategic inputs for electrical vehicles would be a possible avenue for retaliation," said Mary Lovely, senior fellow at the Peterson Institute for International Economics. "China could use those supply chains to try to inflict pain, and [because] the Chinese leadership sees the West as moving to reduce their dependence on China, adding uncertainty about Chinese supply won't be overly costly for China because the U.S. policy direction is mostly set."
Such retaliation should come as no surprise. The Chinese government has bristled at USICA since it passed the Senate in June. The foreign affairs committee of China's National People's Congress slammed USICA on June 9 as an attempt to "contain China's development under the banner of 'innovation and competition.'"
Victor Gao Zhikai, chair professor at Soochow University and a frequent echo of Chinese government positions, two days later described USICA as a geopolitical "Tonya Harding syndrome — whacking the kneecaps of China trying to put China out of commission." Gao warned that the blowback from USICA includes "a real possibility that down the road the China market is completely closed off for U.S. manufacturers."
In August, the Chinese ambassador to the U.S., Qin Gang, complained that USICA was one of 260 bills circulating in Congress "with negative China content" that if passed would "hijack China-U.S. relations and gravely damage America's own interests."
Qin's staff has already acted to derail USICA with an arm-twisting campaign designed to rally U.S. business organizations, companies and executives to lobby against its passage and other China-targeted legislation on Capitol Hill. Those tactics included warnings that those bills pose a threat to corporate revenues or market share.
The Chinese Embassy in Washington declined to comment on how China will respond to USICA's passage. But the official rhetoric from Beijing telegraphs a targeted response.
"When China says 'tit-for-tat,' it means 'tit-for-tat,'" said Min Ye, associate professor of international relations at Boston University. "China's [retaliatory] policy tools include purchasing orders, targeted sanctions against individuals and companies or a pause on ongoing [bilateral] dialogues."
Schumer, however, says he's not bothered by the threat of Chinese retaliation to his bill. "No one will stand in the way of America strengthening our innovation capacity and domestic production so that we can launch a new era of leadership," he said in a written statement to POLITICO.
The House has yet to pass the anchor of its legislative package — the Ensuring American Global Leadership and Engagement Act — and Pelosi has given no indication when that may happen.
Staff with Pelosi and Schumer spent Thanksgiving week on preliminary plans for a conference committee to discuss the bill, said two aides with knowledge of the talks. But they have yet to settle on a schedule for the meeting or when the conferees from each chamber will be named.
Lawmakers will need to move fast if they are to pass the China bill, raise the debt ceiling, approve annual defense spending and address Biden's reconciliation spending package — all items on the agenda before the end of the year.
Despite the recent virtual meeting between Biden and Xi to stabilize the relationship, the trend lines are pointing toward a frosty winter.
"The political headwinds in the United States are blowing in a hawkish direction, which means that both the administration and Congress are going to continue to push for tough policies on China, especially as we head into the 2022 election year," said Shaw, who is also a partner in global law firm Hogan Lovells' international trade practice. "How the United States and China plan to manage their relationship moving forward without it totally falling off a cliff is an open question and one that a lot of people are concerned about."
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China depends upon US innovation. So, naturally, that's what MAGA Democrats are promoting. Without factories to produce those innovations, neoliberal Democrats will need to sell out the United States as they have all along.
Neoliberal politicians have a proven track record of turning common sense into a shit show. Wonder if India can produce the iPhone 69?
Just a few things. The seed speaks of "forced transfer of technology". I have travelled in at least 17 different countries in my life, and never got into any trouble or problems because I have always believed in "When in Rome....". That doesn't mean I've had to imitate, it just means to respect. China doesn't "force" any foreign enterprise to turn over their technology. I see nothing wrong in its requiring that to be part of the price of doing business in China. If any foreign enterprise doesn't want to comply with Chinese rules, it simply doesn't have to do business in China. Easy, is it not?
I wonder if America really is, and if it is, whether it will remain the biggest market in the world. Now that China has eradicated abject poverty, and there is a fast-growing middle class that is already probably larger than America's, has more billionaires than America does, the situation may well differ.
The fact that China has not fulfilled its phase 1 trade intentions, could possibly be linked to America's using the "Tonya Harding" method (a description I myself made and even posted on this site more than once already) to contain and damage China, continuing to "blacklist" and to promote its allies to pressure China (Didn't Harris do that recently in Asia?) as it does with the "Four Eyes" and the Quad and threaten to rekindle a "Cold War" (notwithstanding America's protestations otherwise) by nuclearizing the seas around China, contravening its promises respecting the One China Policy, interfering with China's domestic policies and demonizing China and America expects "business as usual" from China?
Personally, I really believe that the people of the USA and the people of China would be a lot better off if "cooperation" (the word used by Xi in his recent video-link with Biden) were ACTUAL instead of "competition" (with a concern that it does not lead to "confrontation" as stated by Biden while in fact America is hypocritically being confrontational instead of just competing).
The dispute is over licensing and royalties on intellectual property. In the United States a developer of technology holds a monopoly on the intellectual property for a number of years to recoup the cost of development. The issue is not the transfer of technology; the issue is not paying royalties for using intellectual property. China is taking the benefit of the development without contributing to the cost of the development.
China seems to think so. And China is aggressively protecting its access to the United States market.
The underlying issue is the United States' dependence on imports. US capital investment is being directed toward foreign manufacture for export into the United States. US capital investments need to be directed toward domestic manufacture and export out of the United States.
Replacing China as the foreign manufacturer doesn't address the problem of US dependence on imports. It's the flow of US capital investment out of the country that needs to be corrected.
China doesn't want US capital investment redirected toward manufacture in the United States because that would weaken access to the US market. China depends upon revenue generated by exporting to the United States. While the United States has become overly dependent upon imports, China has become overly dependent upon exports. The United States correcting its internal producing economy will naturally cause problems for China because China has become overly dependent upon exports.
But that cooperation will cost both parties something. China avoiding licensing technology and paying royalties is not cooperative. China attempting to manipulate capital investment in the United States is not cooperative. China using uncompetitive advantages to retain access to the United States market is not cooperative.
The United States has allowed itself to become dependent upon imports. That places the United States at a cooperative disadvantage. And China is aggressively protecting its advantage resulting from US dependence on imports.
Should America increase its self-dependence by bringing the jobs back home, America will most likely have to make a drastic increase in the minimum wage as well, or else instead of eradicating poverty, will probably increase it and maximize the income gap - but maybe that's what America wants to do.