The Senate recently passed a bill intended to bolster America’s technological and industrial capacity as we compete against China. The bill, called the U.S. Innovation and Competition Act, began as a serious, bipartisan effort to meet one of our country’s greatest challenges.
But in one of those “only in Washington” moments, a bill written to make our country more competitive with China now includes an amendment that will do exactly the opposite.
This legislation is fundamentally important because winning our contest with China is vital to our future. This country has the largest economy in the world, the best armed forces and the most robust science and technology ecosystem, but China is using all the tools available to an authoritarian government to try to overtake us. We must use all those in a free democratic system to prevail.
To do that, we need a multifaceted long-term strategy. China certainly has one. Our strategy must include a tax and regulatory regime that encourages innovation, job creation and manufacturing in America; an industrial policy that includes subsidies to foster the development of the most advanced science and technology; a modern, highly trained and focused military; full engagement from our intelligence and diplomatic communities; and a robust plan to combat China’s unfair trade practices.
The Trump administration recognized the threat and focused on an across-the-board response. The Biden administration seems to be continuing this effort.
The Senate legislation would achieve some of what is needed. It calls for $200 billion to bolster scientific and technological innovation, $52 billion to rebuild our capacity to make semiconductors, and a supply-chain resiliency program to bring manufacturing of personal protective equipment, medicines and other key products back to this country.
It would also establish an office for technology and innovation at the National Science Foundation to channel money into the development of artificial intelligence, semiconductors, robotics and high-performance computing. These provisions represent a bold answer to President Xi Jinping’s Made in China 2025 plan to dominate these industries of the future.
Regrettably, however, at the last moment, the Senate appears to have caved to pressure from corporate lobbyists and included, in an otherwise laudable bill, a China-friendly amendment titled the Trade Act of 2021.
The amendment would harm U.S. interests in three important ways: It would cut tariffs on medical supplies needed in a pandemic; reauthorize the so-called Miscellaneous Tariff Bill to cut tariffs on Chinese and other imports; and amend our enforcement laws in a way that will make it more difficult to battle predatory trade practices by our foreign competitors.
All this will make it easier for Chinese manufacturers to take American jobs and keep the United States dependent on China as the source for products critical to national security like semiconductors and personal protective equipment.
The tariffs President Donald Trump imposed to combat the forced transfer of technology from American firms to Chinese ones as a price of doing business in China and other market-distorting Chinese trade practices are a critical component of this strategy.
The notion that all tariffs are bad is foolish and counterproductive. They have been an effective tool of economic policy since the beginning of the Republic. They can offset unfair subsidies by foreign governments and industrial policy; break reliance on foreign suppliers; and raise import costs, thus encouraging companies to bring jobs back to this country. To the extent that tariffs might raise consumer prices (which is itself debatable), that is a small price to pay to achieve a strong manufacturing base and secure access to critical supplies.
The amendment would cut tariffs on broad categories of protective gear and other medical products — some of the very goods that are the focus of the Innovation and Competition Act’s provisions aiming to strengthen manufacturing capacity here. In other words, while the overall bill seeks to encourage P.P.E. production in the United States, the trade amendment would undermine that goal by making it cheaper to import protective gear from China. Further, the categories of products in the amendment are far broader than health-related; indeed, the 114 tariff lines cut include such odd items as certain drinking alcohol.
In addition, by renewing the Miscellaneous Tariff Bill, the Senate bill would undercut our ability to compete with China. The Miscellaneous Tariff Bill was originally meant to help manufacturers by reducing tariffs on parts that would be included in products made in the United States. Unfortunately, it degenerated into a lobbyist-driven giveaway and its renewal would reduce almost 2,300 tariffs with an estimated loss of revenue of more than $1 billion a year. Over 40 percent of the tariff reductions would benefit material imported from China, and a majority are for finished items.
Finally, the most problematic and counterproductive part of the proposed Trade Act amendment is language that would gut a provision that President Trump used to impose tariffs on Chinese goods in 2018. The Trump administration helped American companies, through a program of exclusions to what are known as Section 301 tariffs, transition from reliance on Chinese suppliers.
The amendment would reopen this process — and worse, make it much more likely that a company would be granted an exclusion that would discourage it from bringing back jobs and capacity to America. The Senate bill would erect nearly insurmountable barriers to any effective use of Section 301 and fairly quickly lead to the elimination of most of the Trump tariffs.
This is all good news for Washington lawyers and lobbyists but not for America’s workers or long-term competitiveness.
As if this capitulation to China is not enough, the trade amendment would also effectively surrender sovereignty over our own trade policy to the World Trade Organization by permanently weakening Section 301 unless the United States first wins a multiyear litigation before that body.
The state planners in China are surely concerned about the research and technology sections of the Senate bill, but they must be positively gleeful that it would effectively drop the existing Section 301 tariffs and eliminate much of the threat of future tariffs altogether.
It’s now up to the House of Representatives and President Biden to save us from this folly. The House should perfect the provisions of the Senate bill that restructure and enhance federal support for science and innovation and strip out those that weaken our trade laws and encourage Chinese imports.
After the bill’s passage in the Senate, President Biden praised it. But unless the House succeeds in reshaping it, he should veto this legislation and send it back to Congress for another try.
Robert E. Lighthizer was the U.S. trade representative in the Trump administration and the deputy trade representative in the Reagan administration.
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