Regulatory policy

Does the United States have a China policy?

With Congress enacting industrial policy legislation intended to help America bring production of semiconductors and other advanced products home, where does that leave global industrial policy? Biden administration in China? Above all, where is the development of comprehensive industrial policies to counter China’s targeting of all economic production and predatory violation of trade laws?

Unfortunately, our government does not speak with one voice. For now, our China policy looks like a crazy quilt, with real progress coupled with other areas of regression.

On the policy of highest visibility, sweeping tariffs on Chinese exports to offset China’s blatant subsidization, dumping and theft of intellectual property, the Biden administration has resisted industry pressure to reduce tariffs as a (false) anti-inflation measure. Tariffs mostly remain in place, partly to counter China’s commercialism and partly as leverage for some sort of eventual big deal that never seems to come.

More Robert Kuttner

For the most part, the administration has also resisted industry pressure from solar energy users to find a way around the Uyghur law on the prevention of forced labor. The Xinjiang region of China, home to the Uyghurs, produces around 50% of the world’s polysilicon supply. Last week, the UN Commission on Human Rights published its long-delayed report on the human rights crackdown in Xinjiang, documenting widespread abuses, including “patterns of torture”.

According to industry sources, US Customs complied with the law and blocked more than three gigawatts of solar panels at the border. That could quadruple by the end of the year, forcing users to find other sources of supply and increasing pressure on Beijing to end its persecution of Uyghurs.

But other parts of the US government, notably the Commerce Department, tend to go along with industry’s wish to be soft on China. The Wall Street Journal recently released an investigative report documenting weak enforcement of export controls on sensitive products.

According to Log, of the $125 billion in total U.S. exports to China in 2020, authorities required a license for less than half a percent. And of that fraction, the Commerce Department approved 94%, or 2,652, of technology export applications to China. The bottom line: “The United States continues to send China a range of semiconductors, aerospace components, artificial intelligence technologies, and other items that could be used to advance Beijing’s military interests.”

Another amicable agreement recently concluded with Beijing allows very light audits on Chinese companies sold on American stock exchanges. The China Securities Regulatory Commission and the US Public Company Accounting Oversight Board (PCAOB) have signed a cooperation agreement on the inspection of audit working papers of Chinese companies listed in the United States.

The PCAOB is an industry-dominated body known for its light-touch regulation. Under legislation enacted in 2020, Chinese companies that fail to comply with US accounting standards must be delisted from US stock exchanges. When the recent deal was announced, Goldman Sachs issued a statement calling it a “regulatory breakthrough” and touting that the risk of Chinese companies being delisted is now significantly reduced.

Chinese policy cuts across multiple government agencies, each with its own agenda, often operating at cross purposes.

Adding to the complications are recent congressional trips to Taiwan, which achieve no constructive purpose and only serve to annoy Beijing. Our military containment of an increasingly aggressive China operates within its own realm, largely disconnected from economic stakes.

And given China’s continued reliance on enormous power and coal production – it now emits around 60% more carbon dioxide than America and the EU combined – common interests on the climate remain a fantasy. The great market sought by some Chinese doves seems more distant and improbable than ever.

Meanwhile, the Chinese government has serious problems itself. Its strategy of using province-wide lockdowns to contain COVID has had dire consequences for both China’s own economy and China’s role as a global supplier. For reasons that remain somewhat mysterious, it has still failed to properly vaccinate its elderly population. As a result, supply chain bottlenecks persist.

A good idea was proposed during testimony to the US-China Commission by researcher Shehzad Qazi of China Beige Book International: Congress should require companies in critical industries to disclose a full list of their suppliers to the Department of Commerce, in order to create a China Supply Chain Dependency Tracker.

Bottom line: Chinese policy cuts across multiple government agencies, each with its own agenda, often operating at cross purposes. Beijing is very adept at playing against each other. It may not be a bad idea for the United States to have a more cohesive and cohesive China policy, with a senior official acting as a coordinator.