[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]
CHINA'S PREDATORY TRADE AND
INVESTMENT STRATEGY
=======================================================================
JOINT HEARING
BEFORE THE
SUBCOMMITTEE ON TERRORISM, NONPROLIFERATION, AND TRADE
AND THE
SUBCOMMITTEE ON ASIA AND THE PACIFIC
OF THE
COMMITTEE ON FOREIGN AFFAIRS
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTEENTH CONGRESS
SECOND SESSION
__________
JULY 11, 2018
__________
Serial No. 115-149
__________
Printed for the use of the Committee on Foreign Affairs
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COMMITTEE ON FOREIGN AFFAIRS
EDWARD R. ROYCE, California, Chairman
CHRISTOPHER H. SMITH, New Jersey ELIOT L. ENGEL, New York
ILEANA ROS-LEHTINEN, Florida BRAD SHERMAN, California
DANA ROHRABACHER, California GREGORY W. MEEKS, New York
STEVE CHABOT, Ohio ALBIO SIRES, New Jersey
JOE WILSON, South Carolina GERALD E. CONNOLLY, Virginia
MICHAEL T. McCAUL, Texas THEODORE E. DEUTCH, Florida
TED POE, Texas KAREN BASS, California
DARRELL E. ISSA, California WILLIAM R. KEATING, Massachusetts
TOM MARINO, Pennsylvania DAVID N. CICILLINE, Rhode Island
MO BROOKS, Alabama AMI BERA, California
PAUL COOK, California LOIS FRANKEL, Florida
SCOTT PERRY, Pennsylvania TULSI GABBARD, Hawaii
RON DeSANTIS, Florida JOAQUIN CASTRO, Texas
MARK MEADOWS, North Carolina ROBIN L. KELLY, Illinois
TED S. YOHO, Florida BRENDAN F. BOYLE, Pennsylvania
ADAM KINZINGER, Illinois DINA TITUS, Nevada
LEE M. ZELDIN, New York NORMA J. TORRES, California
DANIEL M. DONOVAN, Jr., New York BRADLEY SCOTT SCHNEIDER, Illinois
F. JAMES SENSENBRENNER, Jr., THOMAS R. SUOZZI, New York
Wisconsin ADRIANO ESPAILLAT, New York
ANN WAGNER, Missouri TED LIEU, California
BRIAN J. MAST, Florida
FRANCIS ROONEY, Florida
BRIAN K. FITZPATRICK, Pennsylvania
THOMAS A. GARRETT, Jr., Virginia
JOHN R. CURTIS, Utah
Amy Porter, Chief of Staff Thomas Sheehy, Staff Director
Jason Steinbaum, Democratic Staff Director
Subcommittee on Terrorism, Nonproliferation, and Trade
TED POE, Texas, Chairman
JOE WILSON, South Carolina WILLIAM R. KEATING, Massachusetts
DARRELL E. ISSA, California LOIS FRANKEL, Florida
PAUL COOK, California BRENDAN F. BOYLE, Pennsylvania
SCOTT PERRY, Pennsylvania DINA TITUS, Nevada
LEE M. ZELDIN, New York NORMA J. TORRES, California
BRIAN J. MAST, Florida BRADLEY SCOTT SCHNEIDER, Illinois
THOMAS A. GARRETT, Jr., Virginia
------
Subcommittee on Asia and the Pacific
TED S. YOHO, Florida, Chairman
DANA ROHRABACHER, California BRAD SHERMAN, California
STEVE CHABOT, Ohio AMI BERA, California
TOM MARINO, Pennsylvania DINA TITUS, Nevada
MO BROOKS, Alabama GERALD E. CONNOLLY, Virginia
SCOTT PERRY, Pennsylvania THEODORE E. DEUTCH, Florida
ADAM KINZINGER, Illinois TULSI GABBARD, Hawaii
ANN WAGNER, Missouri
C O N T E N T S
----------
Page
WITNESSES
Derek Scissors, Ph.D., resident scholar, American Enterprise
Institute...................................................... 11
Robert D. Atkinson, Ph.D., president, Information Technology and
Innovation Foundation.......................................... 24
Mr. William Alan Reinsch, Scholl chair in international business,
Center for Strategic and International Studies................. 50
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
The Honorable Ted S. Yoho, a Representative in Congress from the
State of Florida, and chairman, Subcommittee on Asia and the
Pacific........................................................ 6
Derek Scissors, Ph.D.: Prepared statement........................ 14
Robert D. Atkinson, Ph.D.: Prepared statement.................... 26
Mr. William Alan Reinsch: Prepared statement..................... 53
APPENDIX
Hearing notice................................................... 76
Hearing minutes.................................................. 77
The Honorable Brad Sherman, a Representative in Congress from the
State of California: Material submitted for the record......... 78
Written responses from the witnesses to questions submitted for
the record by the Honorable Ted S. Yoho, a Representative in
Congress from the State of Florida, and chairman, Subcommittee
on Asia and the Pacific........................................ 86
CHINA'S PREDATORY TRADE AND INVESTMENT STRATEGY
----------
WEDNESDAY, JULY 11, 2018
House of Representatives,
Subcommittee on Terrorism, Nonproliferation, and Trade
and
Subcommittee on Asia and the Pacific,
Committee on Foreign Affairs,
Washington, DC.
The subcommittee met, pursuant to notice, at 2:00 p.m., in
room 2172 Rayburn House Office Building, Hon. Ted Poe (chairman
of the subcommittee) presiding.
Mr. Poe. The subcommittees will come to order. I want to
thank everyone for their patience. As you know, we were in the
middle of votes when this scheduled hearing was supposed to
start. Without objection, all members may have 5 days to submit
statements, questions, and extraneous materials for the record,
subject to the length limitation in the rules. I now recognize
myself for my opening statement.
No nation on earth has benefited more from the post-war
world order than China. From freedom of the seas to free
markets to free exchanges of ideas, China has harnessed the
international system built by the U.S. and its allies to become
a major world power.
In the last 30 years with the global economy, more than 800
million in China have come out of poverty. But despite these
achievements, China does not want to play by the rules. Rather
than help preserve the global system that allowed China to grow
rapidly, it is exploiting its vulnerabilities to gain a
strategic edge over competitors.
China has no intention of becoming an equal partner in the
world community. They do this by cheating. Just as the Chinese
Communist Party does not want rivals at home, it wants to fix a
global system that ensures its dominance and no other country.
This includes surpassing the United States as the leading
economic, political, and military power.
To achieve economic dominance, China has resorted as I have
said to cheating. This includes enacting policies such as
stealing intellectual property from the United States and other
countries, forcing transfers in exchange for market access to
technology, imposing discriminatory licenses on foreign
companies while subsidizing competing Chinese companies that
try to operate throughout the world, and intentionally
investing in American companies to acquire sensitive U.S.
technology.
Beijing is also intentionally overproducing steel and
aluminum to drive down prices--we call that dumping--to make it
harder for competing producers to remain profitable.
Ultimately, billions of dollars and millions of jobs in the
United States have been lost because China cheats. China has
shown no sign of changing its course. Instead, it has launched
two major schemes to strengthen its economy and expand its
control of the global economy.
First, through its Made in China 2025 plan, China is
attempting to become the leader in high tech industries. To do
this China is subverting the free market by imposing quotas and
state subsidies to prevent competition and gain self-
sufficiency. It is also prioritizing the takeover of foreign
tech companies through state-owned enterprises. Combined with
state-sponsored cyber theft, China hopes to monopolize high
tech innovation and production at the expense of the United
States' national security and its allies and their national
security.
Second, China has launched the ambitious Belt and Road
Initiative. Chinese officials claim the project is intended to
strengthen trade across Africa, Asia, and Europe to revive and
modernize the ancient Silk Road. But in reality, the Belt and
Road is a debt trap for--debt, D-e-b-t--for vulnerable
economies that only benefit China. By providing massive loans
to high-risk markets China fools developing nations desperate
for investment into believing it's a win-win deal for
everybody.
However, 89 percent of the construction contracts go to
Chinese companies, not the company or country in which the
investment is made. Chinese workers and Chinese materials are
involved. Meanwhile, the host country is left paying the debt
when the projects go bust. Meanwhile, Beijing bribes and
coerces local governments ensuring Chinese influence. Bribery
is a national policy by the Chinese. This results in countries
being forced to side with Chinese interests are accepting a
Chinese military presence. Additionally, this practice fuels
corruption in struggling democracies.
China does not share our values. We have long since seen
this in their human rights records and now it is obvious in
their trade policies as well. We could spend a whole hearing
talking about the abuse and human rights violations of China
with its own people and different religious groups in China. In
2001 we encouraged China's inclusion in the World Trade
Organization. We thought China was evolving from the backward
political theories of the past and opening up a free market and
rule based. We were wrong. The liberalizing economic reforms we
expected never came, instead the government increased its
intervention in the economy.
So it is time we adapt our trade policies while working
with our allies to confront China's bad behavior. Beijing has
proven it is not a responsible partner and a fair player in the
global economy. It should suffer the consequences. This hearing
will help us decide what those should be.
China does have enormous potential as a massive population,
its history of innovation and trade dating back thousands of
years. It doesn't need to cheat. And then there is the issue of
the South China Sea where China is building islands to control
the commerce. China needs to be held accountable for its
behavior, not rewarded.
And I will now recognize the ranking member, Mr. Keating
from Massachusetts, for his comments.
Mr. Keating. Thank you, Mr. Chairman, for convening this
hearing today. It is timely.
For months now, tensions have been escalating with China
around their unfair trade practices and less than a week ago,
the Trump administration triggered a trade war. China's trade
and investment tactics have long been a major problem for U.S.
industries and American workers, and there hasn't been a whole
lot of success in reining in their multidimensional tactics for
taking advantage of American businesses and those of our
allies. So it is a tough problem. China has become the most
important trading partner of over 100 countries and they have
aggressively pursued investments around the world that will
link China with these countries for decades to come.
So today I hope to focus on what our options are. What do
we do to control and deal with this challenge and how can we do
a better job of doing more with what we can actually control?
What can we do to support our businesses that are under siege
by China's unfair tactics? What can we do to expand our own
economic opportunities around the world for American businesses
and American workers?
How we should use our multinational institutions to curb
the unfair model being applied by China around the world and
instead reward rules-based economic practices that the U.S. and
our own allies adhere to and which give businesses and
communities greater certainty and reliability for their
investments? We should take firm actions against China, but we
can and should also be advancing our own interests and making
the most of our own strengths.
This brings me to the role of our allies. The most recent
hearing we had in the TNT Subcommittee focused on Russia and
China and their nuclear arsenals. A consistent theme of that
hearing was that a major advantage that we have over both
countries is the strength of our alliances, an advantage they
don't have. And that is true in both the economic and security
arenas. We will be stronger the more we turn toward our friends
around the world and offer them alternatives to Chinese
investment. And the more that we foster economic ties that can
support shared values like labor rights, environmental
protections, and the rule of law, the better off we will be,
the better off the global economy will be.
Whether it is joining with our allies and responding
strategically to China's unfair practices or in being actively
engaged around the world to promote good governance, rule of
law, and responsible investments to spur growth in emerging
economies, we are stronger when we bring our own resources
together with those of our allies who are also committed to the
same ideals and goals that we share.
This is just one reason why I have been discouraged by
President Trump's penchant for imposing tariffs as the sole
means of trying to extract what he wants from other countries.
It is a blunt instrument that brings along with it a near
guarantee of retaliatory tariffs that simply turn around and
hurt Americans here at home. He has used them against our
allies and now he is using them against China. And, frankly, I
am skeptical this strategy will yield the results that American
workers and families deserve.
Americans don't deserve just any action, they deserve a
comprehensively strategic action that maximizes the possible
impact and brings with it the greatest possibilities of
likelihood of success. Where is this coordinated strategy with
our allies? What is the plan when hardworking Americans are
feeling the consequences of a trade war with China? What is the
plan when China is able to weather the tariffs longer than
Americans can absorb in those consequences?
China put together a comprehensive plan a long time ago for
how it is going to undermine U.S. business aggressively and
strategically and how it is going to invest in countries around
the globe including here in the U.S. And while it manipulates
the rules, it does so as the game goes on. The Trump
administration should not be pursuing one-dimensional trade
wars with China. If we are going to protect our own economic
and national security interests that are so vital to the well-
being and success of American families across this country, we
have to do so with a coalition.
So I look forward to hearing from the witnesses today
because it is critical that we think beyond this approach to
also consider the range of options the U.S. can employ to level
out the playing field and better protect U.S. interests in
light of China's unfair economic tactics.
And I yield back, Mr. Chairman.
Mr. Poe. I thank the gentleman from Massachusetts. I
recognize the chairman Ted Yoho from Florida, chairman of the
Asia and Pacific Subcommittee, for his opening remarks.
Mr. Chairman?
Mr. Yoho. I would like to thank Chairman Poe, Ranking
Members Sherman and Keating, and all the members of the
subcommittees for coming together to hold this joint hearing.
Ensuring that the United States can compete fairly with China
is one of the most important tasks in our shared jurisdiction
and it is good that we have come together today to give this
challenge the attention it deserves.
After years of growing concerns and months of heated
rhetoric, the tariffs unleashed on China on Friday marked a
definitive turning point in the U.S.-China trade relationships
from decades of failed attempts at constructive engagement to
coercion and confrontation on both sides. While the same can't
be said for other areas of the budding global fight over trade,
when it comes to U.S.-China trade many agree that the status
quo can no longer be held.
The problem has been diagnosed correctly. China has crafted
industrial policies designed to benefit them at other
countries' expense instead of providing mutual benefit. Trade
is not a zero sum game, but that is the approach that China
often takes. Beijing has implemented these policies through
trade and investment tactics designed to leach the benefits of
the global trading system without accepting its obligations.
This committee has played a role in highlighting this
threat. In one of the first hearings I convened as chair of the
Asia Pacific Subcommittee, Dr. Atkinson summarized the
challenge before us, testifying that rather than reform China
has doubled down on its unfair mercantilist strategies and is
now seeking global dominance in a wide array of advanced
industries that are key to U.S. economic and national security.
The threat is no longer a matter of debate but an accepted
fact.
Our hearing today turns on one of the only remaining areas
of disagreement, which tools should be used in response. The
imbalance in U.S.-China trade is about much more than the trade
deficit. The deficit was caused by a combination of market
forces and unfair practices in the past and present. The United
States and many other nations have been cheated for too long.
But now the biggest threat from China's predatory trade and
investment policy concerns the future. China's only response to
U.S. concerns has been an offer to buy more U.S. goods. We
should speak plainly. This is a ploy and a trap in an attempt
to trick the U.S. into claiming an easy but ultimately false
victory. A brief reduction in the trade deficit will do nothing
to solve the main challenges of the trade relationship. It
won't reduce long-term threat to the U.S. competitiveness in
advanced technologies. It won't reduce market access
restrictions. And it won't stop forced technology transfer or
blatant IP theft.
Xi Jinping and his cronies have made clear that they do not
intend to make any good-faith efforts to address these valid
concerns. Instead, they have decided to punish innocent U.S.
citizens and workers. Whether or not they are the right tool
for the job, U.S. tariffs are based on longstanding wrongdoing
from the Chinese side. China's tariffs are pure retaliation
designed to do nothing more than inflict pain.
Because Xi in China refused to do the right thing, that is,
compete fairly or begin to offer real structural changes in
their negotiations with the U.S., it appears that we will be
forced to use coercive measures which we don't want to do.
Targeted tariffs may well have a place in the suite of these
coercive measures, but tariffs alone won't counter Chinese
industrial policies, and untargeted arbitrary tariffs may well
end up being counterproductive and harmful to Americans.
China recently placed $34 billion worth of tariffs on U.S.
ag products that will hit soybean, beef, pork, and dairy
particularly hard. It is likely more will follow. A complete
response will require more, probably a comprehensive
combination of targeted economic sanctions on bad actors such
as the export ban on ZTE and maybe Huawei that Congress is
seeking to enforce through an NDAA provision, investment and
export restrictions, and upgraded protections for U.S.
intellectual property and innovation.
It is critical for the United States to address the full
scope of China's predatory trade and investment policies and
this hearing will help us make sure that the U.S. response does
not leave any critical tool by the wayside. I thank the
chairman for having this timely meeting and I yield back.
[The prepared statement of Mr. Yoho follows:]
----------
Mr. Poe. I thank the gentleman from Florida. The Chair
recognizes Ranking Member Brad Sherman from California for his
5-minute opening statement.
Mr. Sherman. Before I get tagged with being anti-China, I
will remind the subcommittee that I have been the least hawkish
member of the committee on issues of maritime items in the
South China Sea.
Now let's look at our trade deficit with China. Some $375
billion in goods, an 8 percent increase over what it was in
2016, a 450 percent increase over what it was 18 years ago when
we unfortunately granted it most favored nation status. That is
right. The trade deficit has grown $28 billion in the first
year of this administration.
Back in May 2000 when I voted against most favored nation
status for China, I said that the agreement was going to have a
terrible impact on American working families and on the balance
of trade. It turns out, for once, I was right. I also said we
needed an agreement that set targets for reducing the trade
deficit. We didn't get them. We are now told that this is
Trump's trade war. No, China declared war, trade war, on the
United States 18 years ago.
And before Democrats get carried away with the desire to
repudiate our position, remember that 65 percent of Democrats
voted no on MFN for China. We should not abandon that position
just because some Republicans or the White House have embraced
it. And I would point out that we should withdraw MFN--that in
2010, I introduced the Emergency China Trade Act which revoked
MFN for China with 6 months' lead time. It directed the
President to come back to us with a new trade agreement that
would reduce the trade imbalance to zero over a 4-year period.
Compared to that bill, Trump's efforts on China are timid,
weak, haphazard, and unplanned. And while Wall Street pays
economists to tell us that the trade deficit isn't a problem,
in fact we have lost 2 million American jobs. That is opioid.
That is alcohol abuse. That is suicide. That is abandoned
counties and small towns. And that is the election of Donald
Trump as President of the United States.
Those are the harms of our trade policy, a policy in which
China is allowed to have a 25 percent tariff on American cars
going into China while we have only a 2\1/2\ percent tariff on
Chinese cars coming into the United States. No wonder Tesla
feels that it needs to open up a factory in China.
And now, as the latest insult to the American people and
attack on American workers is this new social score detailed in
the Foreign Policy magazine. I would like to enter it into the
record.
Mr. Poe. Without objection, so ordered.
Mr. Sherman. China is going to give every one of its
citizens a social score. Bad social score you don't get a
passport. Bad social score you don't get a loan. Bad social
score, a host of other things can be taken away from you. There
will also be a social score for businesses, and lo to be a
business with a bad social score. What does it take to get a
good social score? You have to buy Chinese products.
So they are literally intimidating their citizens into
increasing the trade deficit with the United States and the
devastation that that causes, not to mention their theft of
technology and their demand for coproduction agreements. The
WTO rules are not well designed to deal with a country that has
a host of ways to increase the trade deficit with the United
States that are outside the WTO's purview. Whether it be the
social score, whether it be coproduction agreements, whether it
be theft of intellectual property, whether it be the fact that
the Chinese Government doesn't need to pass a regulation or law
which the WTO might look at, when they actually control the
boards of the major companies that might otherwise import
American machinery.
So, all of the decisions, major economic decisions in
China, are government decisions. The WTO doesn't deal with that
and the trade deficit increases, as does the harm to America.
And I haven't even had time to talk about how they repress
workers' rights in order to suppress labor costs and to
manipulate the currency. And I would need another 5 minutes,
Mr. Chairman, to review all the ways in which we do not have a
fair trading system with China. I yield back.
Mr. Poe. The gentleman yields. The Chair will not grant you
an extra 5 minutes to give your opinion. The Chair recognizes
other members for their opening statement. Each member may have
up to 1 minute.
Mr. Rohrabacher from California?
Mr. Rohrabacher. Thank you very much, Mr. Chairman. It is a
little disconcerting to hear our President be called weak and
when he is trying to do something that no other President has
tried to do, especially Bill Clinton who was President when you
voted for WTO and I was against it. Or did you oppose your
President?
Mr. Sherman. No, I didn't. I wish you would familiarize
yourself with my record.
Mr. Rohrabacher. Oh, I am sorry. You didn't oppose your
President then, or you did?
Mr. Sherman. On everything affecting China trade I have
opposed all administrations.
Mr. Rohrabacher. And also let us note that was 2000. I only
have 1 minute here. So that was 2000, it was Clinton who gave
us that free trade. And did Obama do anything for the last 8
years? Nothing like this President is doing. This President has
been getting right in their face and he is being aggressive on
the issue of everything you just brought up, but the fact the
guys on your party never brought it up.
So with those things said, let me note that China is----
Mr. Sherman. Will the gentleman yield?
Mr. Rohrabacher. I only got one--I have less than--I am out
of time right now. If you will grant me 5 more seconds because
of the interruption, China is a country of 1 million oligarchs,
no freedom, and they are corrupting the world. And those
million oligarchs who control that country with an iron fist
mean to do us harm and I am glad we have a President now who is
confronting that, unlike Clinton and Obama.
Mr. Poe. The gentleman's time has expired.
Mr. Rohrabacher. Thank you.
Mr. Poe. I suspect this will be a lively hearing.
Mr. Keating. The witnesses haven't even started.
Mr. Poe. Yes and you haven't got your turn yet.
Mr. Chabot recognized for 1 minute, the gentleman from
Ohio.
Mr. Chabot. Thank you. This committee, the Foreign Affairs
Committee, has been very engaged in responding to China's
nefarious activities and the more we examine the worse it
really looks. And over in the Small Business Committee, which I
happen to chair, we have examined Chinese cybersecurity threats
and probed the problems created by firms like the Chinese
telecom giant ZTE.
Whether we discuss intellectual property rights, the so-
called Belt and Road Initiative, technology transfers, trade,
or the Made in China 2025 plan, it is clear that Beijing
continues to enjoy the blessings of the rules-based
international order while routinely flouting its rules to gain
a competitive advantage. This is deeply unfair and also a
direct threat to our national security.
It has also come to my attention that Intel Corporation is
in talks to transfer advanced semiconductor technology to
Tsinghua Unigroup, which is a subsidiary of Tsinghua Holdings,
which itself is a wholly-owned subsidiary of Tsinghua
University and a public university with, oh by the way, direct
ties to the Chinese Government.
I have the NDAA conference so I will be in and out here,
but if the witnesses are able to address it I would love to
hear what they have to say. I yield back.
Mr. Poe. The gentleman yields back. The Chair recognizes
the gentleman from Virginia, Mr. Garrett.
Mr. Garrett. Thank you, Mr. Chairman. I want to associate
myself with the bulk of the remarks of my colleague from
California, Mr. Sherman, which I know is surprising to some
people. But I have to say that candidly, while certainly the
expected partisan barbs are in there and probably they would
have been had the shoe been on the other foot and I was
speaking to the other administration, that I think he is right
on the bulk of this and I think that Brad Sherman also gave an
incredibly insightful analysis of the Iran nuclear deal, the
JCPOA 5, 6 years ago to a mosque or to a synagogue in
California.
We need to stop with the partisan rankle for just long
enough to recognize that our job is to represent our
constituents in our respective districts but also the United
States of America, collectively, through our responsibility as
members of a Federal Government.
Now, ironically, I met with Virginia farmers before this
committee hearing and the farmers are taking it on the chin as
it relates to this whoever-you-want-to-blame-it-on trade war
that has been going on for generations by virtue of the fact
that that is one of the few areas where in fact we have a trade
surplus.
But the reality as stated by Mr. Sherman and candidly
echoed by the chairman and others is there is a 10 to 1
disparity as it relates to automotive tariffs, there is a 5 to
1 disparity as it relates to which direction the money is going
by virtue of the trade relationship between us and China, and
while I am reflexively anti-tariff when that is the tool that
has been used to bludgeon our workers for years, it seems the
most likely remedy might be found by virtue of having used such
tools ourselves.
So let's try to work across the aisle together and find
commonality and not ways to argue and get this right because it
matters to the people who we represent.
Thank you Mr. Chairman.
Mr. Poe. And the Chair finally recognizes the gentlelady
from Missouri, Mrs. Wagner.
Mrs. Wagner. Thank you, Chairman Poe and Chairman Yoho, for
organizing this hearing. And I thank our witnesses for being
here.
I am deeply concerned about the effect China's retaliatory
tariffs will have on farmers and ranchers and pork producers
and dairy producers and consumers all over my home state of
Missouri. Missouri is a trading state. Exports support 88,000
Missouri jobs and one out of every three rows of crops is grown
to export. China's 25 percent tariff on American soybeans will
hit Missouri hard. Our local newspapers and press are already
reporting that soybean farmers expect to sell their crops at a
loss.
It is abundantly clear that these tariffs will hurt good,
hardworking men and women and their families and I worry that
the escalating trade war will create winners and losers in
communities across Missouri. While I commend the President for
standing up to China's bullying trade practices, we need to
keep these things in mind as we go forward. I welcome your
thoughts on these concerns and I yield back.
Mr. Poe. The gentlelady yields back. I will introduce each
witness and then give them time for opening statements. Each
witness's written remarks will be made part of the record.
Dr. Derek Scissors is a resident scholar at the American
Enterprise Institute. Previously, Dr. Scissors was a senior
research fellow in the Asian Studies Center at the Heritage
Foundation and adjunct professor of economics at George
Washington University.
Dr. Robert Atkinson is the president of the Information
Technology and Innovation Foundation. Previously he served as
vice president of the Progressive Policy Institute.
And Mr. William Reinsch holds the Scholl chair in
international business at the Center for Strategic and
International Studies. He is a senior advisor at Kelley, Drye
and Warren, LLP, and previously he served for 15 years as
president of the National Foreign Trade Council.
Each of you will have 5 minutes. When you see the red light
come on in front of you, remember, stop talking.
And Dr. Scissors, we will start with you.
STATEMENT OF DEREK SCISSORS, PH.D., RESIDENT SCHOLAR, AMERICAN
ENTERPRISE INSTITUTE
Mr. Scissors. Thank you, Mr. Chairman. I apologize in
advance for being more boring than the committee has been to
now. It is a high bar for me to try to reach.
My written testimony is about Chinese investment and
construction in the U.S. and around the world. Last night we
got the first set of $200 billion 10 percent tariff list which,
you know, we will be talking about for the next few months. I
welcome any questions along those lines however you see fit,
but my time now is going to be spent on the Chinese economic
picture as it pertains to our relationship with them going
forward.
The first observation I want to make is that people talk
about China as still growing rapidly, basically because a
dictatorship in charge of the country says it is growing
rapidly, and I would urge you to be suspicious of that. China
is in fact an aging and highly indebted society at the moment.
To keep people happy when they will probably never become rich,
the party is cleaning up air, land, and water. They are making
some progress in that effort. They will pay good money and for
decades to come for environmental technology and for food
imports.
So there is an opportunity and we need to remember that as
the Representative from Missouri just reminded us. There is
less of a problem in one sense that for about 35 years the
Chinese Communist Party has emphasized jobs and it did so by
subsidizing its production to draw jobs from everywhere else.
It was predatory economic action for the sake of jobs in China.
Now the labor force is shrinking and aging and the Chinese
will be willing to import more and export less. Unfortunately,
they will only do that up to a point and the reason is they
have a very serious debt problem. I would say on a bipartisan
statement that our debt performance from 2009 to 2017 was bad
and China's was much worse. China keeps its domestic finances,
and this can be very technical and dull, but it keeps its
domestic finances walled off from its international finances
because if it doesn't money will pour out of the country even
faster than it is now.
Getting back to my first point about people who think China
is a powerhouse and is growing really rapidly, then why is
money leaving the country on a net basis every year? So because
of this risk the Chinese need money from a trade surplus and
this is something that many of my colleagues don't recognize.
Chinese say they are not trying to run a trade surplus. That is
not true. They need the foreign exchange from a trade surplus
to stabilize their balance of payments and without it they have
a possibility of a financial crisis of a certain kind.
Therefore, they are going to continue to run a trade surplus
and we are going to continue to have some of the problems that
we have with them now.
The worst situation with regard to China's economic future
concerns innovation. Growth is not going to come from China's
damaged land. It is not going to come from an aging population.
It is not going to come from their debt-ridden financial
system. It has to come from innovation. The party recognizes
this, but the party also really doesn't like competition as
several members have already stated. And in my opinion, without
competition you are not going to get much innovation.
So what do we get from that? We are going to get the
Chinese trying to buy technology to upgrade their innovative
capabilities and steal it whenever they can't buy it. I used to
think Chinese IP practices would get better over time, but
their economic mismanagement means I think they have more
incentive to steal technology and their practices are going to
get worse.
You know, to qualify this a little bit, China is not taking
over the world. The Belt and Road is something I know a fair
amount about, is far smaller than its hype but it has been
harming the U.S. The main harm used to be subsidies to take
American jobs. I think that will lessen over time. But the
coercing and stealing of American intellectual property, which
is the core of our comparative advantage, the core of what we
get benefits for in trade, is going to get worse because the
Chinese need that innovation quite desperately.
And I am going to make a statement which I wasn't going to
bother because the U.S. responses are long overdue, it sounds
very vague but here is a way to put it into context. I am
pretty sure I sat in this room 6 years ago when Chairman Ros-
Lehtinen held a hearing on Chinese IP practices and we all
agreed in a bipartisan fashion that we needed to respond to
Chinese IP practices. And here we are 6 years later and we all
agree again, but we haven't done anything that has worked.
My own recommendation at the time and continues to be that
we target Chinese companies specifically who have gained from
coerced or stolen IP and we target them internationally. Not
just banning them from U.S. business but applying global
financial sanctions. My concern with tariffs is that it targets
the guilty and the innocent together so you have no reason to
stop stealing. Go after the people who really commit the crimes
and go after them more strongly than perhaps a 10 percent
tariff, which I don't think is particularly effective in light
of Chinese subsidies.
There are many other possible steps we could take. I am
happy to talk about them, but I am actually going to stop here
and yield back my last 15 seconds.
[The prepared statement of Mr. Scissors follows:]
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Mr. Poe. Thank you, Dr. Scissors.
Dr. Atkinson, recognized for 5 minutes.
STATEMENT OF ROBERT D. ATKINSON, PH.D., PRESIDENT, INFORMATION
TECHNOLOGY AND INNOVATION FOUNDATION
Mr. Atkinson. Thank you, Chairman Poe and Ranking Member
Keating. I will take Derek's 15 seconds. I appreciate you
inviting me here today.
I think it is important to recognize that the problem with
China, in our view, is not so much the trade deficit, it is
that they have a contra-strategy to seek and attain global
technology dominance in a wide array of technology-advanced
industries that the U.S. specializes in. And unchallenged this
could and potentially is resulting in the loss of U.S.
competitive advantage in a wide array of industries that we
enjoy right now that provide high wages to American workers.
Technology acquisition is at the center of China's
strategy. They lag behind us in most industries and absent
cheating, as the chairman said, it is going to take them 20, 30
years to come close to catching up. They understand that and so
their entire strategy, the first part of it, is premised on
getting technology from foreigners by hook or by crook.
There is a recent study by the National Bureau of Economic
Research looking at joint ventures in China. This is one key
tactic they have. Between '98 and 2012 there were over 4,000
U.S. joint ventures in China. The study found that not only did
the Chinese JV partner gain substantial technological
capabilities, but so did other Chinese firms in the same
industry which isn't a surprise because that is exactly what
the Chinese want with joint ventures.
There has been a lot of talk about the fact that we don't
have a right to force China to roll back its 2025 ambitions. I
disagree with that--I agree with that. We don't have a right to
ask them to not advance technologically. Every country has that
right. What we do have a right to insist upon is that they do
it through fair practices, and right now the bulk of their
practices are unfair.
I would argue though that success is an incredibly daunting
task. They have several weapons that they are able to use that
we don't have. One of them is they can punish and they will
punish U.S. corporations with impunity. They know how to do
that. There is no rule of law. They can retaliate against U.S.
firms in pretty much any way they want to do. And secondly, it
has been raised before, the WTO provides little redress so much
of what China is doing is in the gray area of the WTO or even
in areas that the WTO protocols don't cover.
So what do we do? Number one, I agree with the Trump
administration. We have to focus on results-oriented trade.
This is not about winning a case or not winning a case. This is
about insisting upon a wholesale set of practices that they
change, which to me have to be around forced technology
transfer and IP theft, and then a significant reduction of
their industrial subsidy regime.
So what do we do, how do we do that? I think number one,
the best way we are going to be able to do that is we need a
coalition of the willing. We have to have our allies at our
side because they are hurt by China as well--the Japanese, the
South Koreans, the Europeans in particular, and the Canadians.
Not having those allies at our side makes this a much tougher
fight.
Secondly, even if we don't win, in other words winning
meaning rolling back their practices, getting the Chinese to
admit and roll back their practices, even if we can't do that
we need to put roadblocks in their way. One roadblock would be
obviously passing FIRRMA, having the President sign it, and
really taking a hard line on restricting Chinese investment in
the United States particularly in areas around innovation.
Second would be enacting a regime where we treat their
technology licenses in the U.S. the way we treat theirs.
We should limit science and technology cooperation with
China. It is not clear to me why we continue to cooperate. Dr.
Scissors mentioned a few things going after specific Chinese
firms that have benefited. So, for example, we should prohibit
Chinese firms that have stolen intellectual property from using
our banking and financial system. We should enact an antitrust
regime that is much tougher on the Chinese. So, for example,
U.S. DOJ does not take into account the fact that when state-
owned enterprises merge that is not covered by U.S. antitrust
law, whereas private sector mergers in other countries do that.
Lastly, we need on this, we need to, I would argue, set up
a new regime in the antitrust bureau to focus on foreign
government-led enabled antitrust violations. Subsidies, all of
these other practices, these would be, if the private sector
were doing them, antitrust violations. We should treat Chinese
firms that benefit from these as antitrust violators.
And lastly, we shouldn't let China gain the moral high
ground. That has been one of the most disconcerting things I
have seen when you have President Xi claim and have the media
agree that he is the defender of free trade when there is
nothing more ludicrous under the sun than that statement. We
need to be seen as the defenders of global free trade and we
can't let China have the high ground. I am sorry I don't
remember which member said this, but we didn't start the war,
the Chinese started the war. Mr. Sherman said that. We are just
now finally fighting back. So thank you and I look forward to
your questions.
[The prepared statement of Mr. Atkinson follows:]
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----------
Mr. Poe. Thank you, Dr. Atkinson.
Mr. Reinsch?
STATEMENT OF MR. WILLIAM ALAN REINSCH, SCHOLL CHAIR IN
INTERNATIONAL BUSINESS, CENTER FOR STRATEGIC AND INTERNATIONAL
STUDIES
Mr. Reinsch. Thank you very much. It is a pleasure to be
here. China's economic strategy is well known. It has been
discussed here at length. Rather than repeat that I want to
spend my time discussing what the United States might do about
it.
Mr. Poe. Could you pull the mike a little closer there?
Mr. Reinsch. Sure. How is that? Better?
And I begin with a fundamental principle. If a country has
an adversary and wants to stay ahead of them there are only two
ways--hold him back or run faster. Both strategies have their
limitations which is why the best approach is to pursue both.
Let me take them one at a time.
Holding the adversary back means denying him the means of
gaining advantage, if possible, while trying to leverage better
behavior. This has been the focus of the administration's
efforts thus far. We are attempting to deny China advantage
through investment controls and export controls, both designed
to impede the flow of critical technology beyond our borders.
Congress has recognized that the current CFIUS process does not
subject enough transactions to review and has moved to expand
its reach. Both versions now in conference are thoughtful and
carefully drafted. The administration has expressed its support
and I think its enactment would be a positive step.
Similarly, your committee has reported and the House has
passed legislation to reauthorize the Export Administration
Act. This is long overdue as you know and its enactment would
also be useful step. I caution the committee, however, against
a too broad expansion of controls. Maintaining control over the
crown jewels of our economy is important. Attempting to re-
control technologies that have already been released are not
critical and are available from multiple sources would
accomplish nothing and would do serious harm to our exporters.
In addition to investment review and export licensing,
devoting more resources to compliance and enforcement is
critical. The problem is not with large established companies
which know the rules. I am worried about the small start-up,
the proverbial two guys in the garage with a brilliant idea.
When a savvy Chinese investor offers them $100 million for
their company they may not know or care that such a transaction
would require CFIUS review or that any technology transfer
pursuant to it could require an export license. The government
does not currently do an adequate job of finding and monitoring
those situations and making sure innovators know what their
responsibilities are and that is something I think the
committee could constructively work on.
Leveraging better behavior is more complicated. As the
President has said, the Chinese are doing what is good for
them. Persuading them to do what is not good for them is a
heavy lift. I think there are some areas where agreement ought
to be possible and my statement cites a couple of them as an
example.
The most difficult problem to address is Made In China
2025. Here, we are asking China to restructure its economy into
a market-based system and effectively abandon its technology
competitiveness goals. Doing that would reduce the Party's
control of the economy and the society, which is the last thing
they will be willing to do. Many of the technologies at issue
involve aspects of the digital economy. For China these are not
trade issues. They are national security and public control
issues and they are not susceptible to resolution in a trade
negotiation.
The President is attempting to force changes through
tariffs. That is not likely to succeed for the reason I have
indicated. We are demanding that the Chinese do something that
will imperil the Party's control and it will certainly produce
a great deal of collateral damage in its wake. The better
approach is through building coalitions and I endorse what Rob
said, I won't repeat that ground.
I would also suggest that a more productive course would
also be to recognize the long-term battleground with China is
not in China but is in the United States and in third countries
where the playing field is level. We can deny them advantages
here and in the process give a boost to our own manufacturers
and innovators.
In third countries we cannot only compete with the Chinese
on more equal terms, we can also develop networks of rules and
standards that work to the advantage of Western economies. That
is what TPP was about. That is what TTIP is about, building
trading structures based on Western rule of law principles and
standards to which the Chinese will ultimately have to conform
if they want to access the very large market structures and
global supply chains that we are creating through those
agreements.
Beyond trade agreements there are some time-tested things
the United States can do: Let the Export-Import Bank function
as it was intended; use trade missions to promote American
products; aggressively defend American commercial interests in
third countries. If there is one data point I hope you remember
it is that 95 percent of the world's consumers are outside the
United States. Maintaining a competitive advantage over China
inevitably means beating them in third countries. If we cannot
do that we marginalize ourselves and yield leadership to China.
Finally, a few words about running faster. It is not my
primary topic but it is more important. The reality is that
holding the other guy back doesn't work all that well and I
speak from somebody who spent the Clinton administration trying
to do that. There are simply too many ways to get around the
steps we take. There are inevitable limitations also on what we
can do to control somebody else's economic policy.
What we can control is our own economic policy and if we do
it well we can surmount the Chinese challenge. In today's
totally globally-integrated economy that means more than pro-
growth macro policies and more than job creation. I have
suggested three things in the past which I will just list:
Training our workforce to meet the demands of the 21st century
economy; giving our companies incentives to stay here; and
promoting innovation. We are very good at promoting innovation.
We have a demonstrated record since the Lincoln administration
of targeting government resources in sectors that will define
global leadership in the future. That is what the Chinese
intend to do. We should remember that we thought of it first,
we can do it better, and we can do it without the massive
subsidies, the WTO-illegal subsidies that they plan to do, but
with expanded support for basic research, encouragement for our
private innovators, and immigration policies that encourage
smart people to study and stay here. Those are debatable.
Rob has made some other suggestions which I endorse also.
But the principle of running faster remains fundamental. Thank
you.
[The prepared statement of Mr. Reinsch follows:]
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----------
Mr. Poe. I thank the gentleman. The Chair will recognize
the gentleman from Florida, Mr. Yoho, for his opening
statements in the--started to say court. But the Chair will
reserve its 5 minutes.
Mr. Yoho. I don't want to see you in court.
Mr. Poe. Nobody did.
Mr. Yoho.
Mr. Yoho. Thank you, sir. China prefers to play a one-sided
trade agreement and the U.S. has been tolerant or worse,
negligent, as the trade inequity has built up to $350 billion
to $400 billion, somewhere in there. But China wants a zero sum
game in their favor and it is time for that adjustment. And
this is not a trade war recently started by President Trump.
This has been going on. President Trump has been bold enough to
say enough is enough.
The past seven Presidents have ignored the situation of
trade with China and that is how you accumulate a trade deficit
that large, and that is not talking about the intellectual
property theft. China cries foul when we go to intervene, well
too bad. That is welcome to capitalism. They want to maintain
their Communist form of government with its historically
terrible outcome, but realize, they realize they could not
compete in the world economy.
So they coyishly disguise a market economy, capitalism tied
with socialism with Chinese characteristics that still is
nothing more than a Communist pig painted with lipstick. They
want the benefits of capitalism, which incidentally is the
antithesis of Communism, because they like the money, but they
want to hide behind it--and I think this is just mind-boggling.
They want to hide behind a developing country status. They
want developing market status yet have a space program; nuclear
weapons; invested between $4 billion to $10 billion in their
One Belt One Road Initiative around the globe yet they claim
they are just getting by and need to maintain developing
country status. Sorry, President or Emperor Xi, you can't have
it both ways.
President Trump is the first American President to call the
trade deficit out not with rhetoric but with action and it is
time we adjust the trade imbalance and it is high time China
acts like a responsible trading partner. Stop cheating-
stealing-lying and start honoring the contract, the rule of
law, and how about acting honorably?
So with that rant I want to ask and I read all of your
testimonies ahead, how should we consider restricting access to
sensitive U.S. technology in these different scenarios? Dr.
Atkinson, you were talking about this. And I want to talk, Mr.
Reinsch, talk to you about the garage, you know, because what
do you do to prevent people from letting that go through if we
can't go through CFIUS, if it gets bypassed? So how do we
prevent the technological transfers?
Mr. Atkinson. Number one, there is a wide variety of actors
that use that. One of them is cybersecurity. So, you know,
doing a better job of making sure that American companies have
better cybersecurity is one way to do that. We testified in the
Senate recently on how, frankly, poorly we do with small
business cybersecurity. You look at what the SBA is doing in
that space, it is not very good, frankly.
Secondly, with the passage of FIRRMA we would hope that
there would be a big ramp-up on enforcement. One of the ways,
for example, right now the Chinese have set up a system of
technology accelerators so they have what is called an
accelerator or incubator high tech little platform in Silicon
Valley and it is funded essentially by the Beijing provincial
government. They have located it in Silicon Valley and my
belief is it is a vector of which they can take knowledge,
particularly these young entrepreneurs who need a little bit of
capital. We should just not allow that. There is a whole set of
things we could do around venture capital, around small-scale
investments, and I think FIRRMA is the vehicle by which we
could do that.
Mr. Yoho. So you think the CFIUS review is strong enough
for that?
Mr. Atkinson. I do think it is strong enough for that.
Mr. Yoho. All right. What about when we get into biomedical
research and the ag products? I have seen university professors
from the university I graduated from talking about doing a
sabbatical in China and they are going to pay them four to five
times what they are making here. And I asked them what they are
working on, and they said we are going to take our research and
go over there, and I said I don't think that is a good idea.
And so how do we block that? Because I brought that up in
an export control hearing that we had and they said, you know,
CFIUS doesn't really address that. Do any of you want to
comment how we can protect that intellectual property?
Mr. Reinsch. I can talk about that, Mr. Yoho. CFIUS does
not, the export control system does at least in theory. If they
want to do that they need an export license for the technology
they are going to transfer if that technology is controlled.
Mr. Yoho. Does that apply to our universities?
Mr. Reinsch. Yes. Yes. Although I will tell you and I don't
know if it is in my bio, I was the undersecretary that ran this
particular function in the '90s. Universities are the worst,
frankly. First of all, every professor is his own empire and
trying to create a central administration--we impose some
discipline it is like herding cats. It is very difficult. And
second, there is an attitudinal issue, frankly. For them this
is not technology transfer, this is research.
Mr. Yoho. Research.
Mr. Reinsch. And you need to get them to think about it
differently. They are getting better. I visited with some
universities. I will tell you, nothing----
Mr. Yoho. I am going to have to cut you off because I am
out of time.
Mr. Reinsch. Well, I will just say nothing gets them more
focused on this faster than the Commerce Department paying them
a visit.
Mr. Yoho. Thank you.
Mr. Poe. The Chair recognizes the gentleman from
Massachusetts, Mr. Keating.
Mr. Keating. Thank you, Mr. Chairman. Today's actions by
the President at NATO certainly don't make the prospects of
this look great, but our job here in Congress and this
committee is to look at directions that we should take on our
own. That being said, I am a believer that one of the greatest
things we can do, and I think it falls into the testimony we
heard from our witnesses, is to really keep moving ahead,
albeit against some tough odds now, on a TTIP type of
agreement.
I think an alliance and a free trade agreement with the
European Union would be our strongest move. It would help us
here at home. It would help our hand globally and it would
particularly help our hand with China. I can't think of many
other things that could have a greater effect.
So could any of our witnesses comment on that? Mr. Reinsch?
Mr. Reinsch. I would like to. I couldn't agree with you
more. I mentioned this. The point of doing that is to create
basically the largest middle class consumer market in the world
that would set up a system of health, safety, environmental
inspections and rules. If you want to access that market you
have to adhere to those. That will force the outliers which
begins with China, although India would be probably another one
to conform to those rules, procedures, and practices.
And that was the point of doing it in the first place. If
we can get all of us working together we achieve exactly the
result you are talking about, I think.
Mr. Scissors. We are not going to get a TTIP in this.
Mr. Keating. That is not what I asked you.
Mr. Scissors. I know. But I have a way to get closer, which
is feasible, which is a U.S.-U.K. FTA. That is something that
the administration does want to do. It is not difficult to
write.
Mr. Keating. If I could, because my time is precious.
Mr. Scissors. Sure.
Mr. Keating. But 80 percent of our trade partners is the
rest of the EU.
Mr. Scissors. No, I understand, but.
Mr. Keating. We can't ignore that. And the damage we would
do with what you are proposing to the rest of our allies would
make things worse, I think, frankly.
Mr. Scissors. Well, a U.S.-U.K. FTA allows us to put down
text which can serve as the basis for an agreement.
Mr. Keating. We have to wait--again I am going to
interrupt.
Mr. Scissors. Sure.
Mr. Keating. Because it is not the question I asked. But
thank you for your response.
Dr. Atkinson, did you go on this?
Mr. Atkinson. I fully agree with that. I think we should
have had a TTIP. I think we should do a TTIP. I think we should
have had a TTP, although I would have made it, frankly,
stronger. I would have maybe kept out a couple of countries and
made it stronger. But I fully agree that we need those sorts of
trade agreements if we are going to move forward.
And the broader point is we have to get our allies engaged
here. I have spoken with officials from Europe, the European
Commission, from METI in Japan, and Korea. They are as
concerned as we are about what is going on in China.
Mr. Keating. Yes. And I must say this for what it is worth,
things might have changed in the last few months but I was
quite optimistic about the prospects of support in Congress for
TTIP at that particular time moving forward much more than TTP.
Here is a question I just have pondered. The effect of
artificial intelligence moving forward is going to be quite
dramatic on all our lives. It is going to result in increasing
dependence on that and the increasing technological
advancements. It is going to result in great job displacement.
It is going to change the nature of competition in the
workforce.
Can you speculate on how China and the U.S. might react
given the fact that this is just going to be, I think,
exponentially advancing?
Mr. Atkinson. This is an area we have studied quite
extensively. I think I would be a little more skeptical, I
think, of the big job displacements. We have done a lot of work
on that. I did a report for the G7 Ministerial recently. I
agree it will have job displacement, but I think overall it is
going to be a very positive thing for the U.S. economy
particularly as we need productivity going forward.
At least when you look at the studies right now it appears
that China is behind the U.S. in terms of AI. They invest less
in R&D and their science and coding ability, if you will,
computer science, is not as advanced as ours. But their rate of
catch-up is faster than ours and they are putting an enormous
amount of money in there from government. And so it is
conceivable that the Chinese could match us in AI in 5 to 10
years, I would argue.
Mr. Keating. And you think that might level the playing
field more?
Mr. Atkinson. I do. Well, one other advantage the Chinese
have by the way is AI, it helps if you have bigger data sets. A
lot of machine learning is around data pools. They have
unlimited data as a number of people mentioned. So they are
able to use all that data and mine it very well so it is an
advantage that they have.
Mr. Keating. Quickly, I have little time. One other avenue
the Chinese are moving into to capture our intellectual
property is their joint activities with our academic
institutions here too. I have a few seconds, but do you see
that as a concern?
Mr. Atkinson. I do. And I would add to what Bill said, I
think we could, for example, have requirements within our
science funding agencies like NSF and NIH and DOE that number
one you have to report any joint projects with a country like
China, and number two, put some limits on that.
Mr. Keating. Thank you. I yield back.
Mr. Poe. I thank the gentleman. The Chair recognizes itself
for 5 minutes.
The issue regarding China is a national security issue and
it is also an economic issue, economic security, in my opinion.
And I would like to focus on China as opposed to other
countries in the world for trade because China cheats. They
cheat a lot and it works. They steal everything they can from
us.
I would like to ask all three of you this question. So
right now what should the United States do regarding holding
back as the phrase was used, and what should we do--one thing
to run faster, right now?
And thank you, Dr. Scissors, because I remember that 6
years ago that you were before us. I will start with you, Dr.
Scissors, and go right down the row.
Mr. Scissors. It was a great hearing. I almost wish I could
just take what I said back then and repeat it. In terms of
holding them back I am going to stick with what I said earlier.
We have seen in the example of ZTE, which of course was done
for security reasons, that we can hurt the Communist Party by
targeting large state-owned enterprises. And I am not saying
that IP is as important as North Korea or Iran sanctions. I am
saying that we have a method now that works which is there are
large Chinese state-owned enterprises, which matter to the
Party, which have benefited from stolen IP and we know how to
hurt them. We know how to hurt the Party and that is where I
would go first. Obviously we want them to be guilty of
something. We don't want to target companies that haven't done
anything because that doesn't change their incentives.
I would not--actually I disagree with pretty much everyone
in the room on ally coordination. It is definitely a global
problem but I want us to get our policy first. We need to lead
on this. We could spend a lot of time talking with the
Europeans and never get anywhere because that is pretty much
usually what happens when you talk to the Europeans. I
absolutely agree that it is a global problem, but first we have
to decide what we are going to do.
With regard to running faster, you know that I am not a
U.S. economic expert. I would say that in the longer term and
now too because our economy is doing very well, we can't keep
borrowing money. That is not going to help U.S. economic
security. I know it is the easy thing to do in the short term,
but I brought up Chinese debt. Chinese debt is going to kill
China. It is going to kill China's rise. We can stand it for
longer because we are richer and because the dollar is the
global reserve currency, but eventually it is going to get us
too.
Mr. Poe. Dr. Atkinson?
Mr. Atkinson. ITIF issued a report recently, something in
the title of an agenda for alliance-based confrontation. And in
that report we listed 25 things, though I can only give you one
of them and that would be an earlier comment about really using
the Justice Department around tying what the Chinese are doing
as antitrust violations and going after specific companies for
doing that.
Domestically, I would argue that--take this the right way.
I would argue we need our own invented and made in America 2028
and certainly not using heavy-handed things, but we need our
own strategy and one of those would be a better research and
development tax credit. We are now 27th least generous R&D tax
credits in the world. We could beef that up and get more
innovation in the U.S.
Mr. Poe. Mr. Reinsch?
Mr. Reinsch. On holding back, two things. I think you have
an acceptable framework now via CFIUS/FIRRMA and the export
control structure. If you enact bills that the House has
passed, if you enact the FIRMMA bill I think you have done an
important step forward that will address--I mean a lot of these
horses are out of the barn. That will prevent more horses from
getting out of the barn and I think it is an effective step
forward.
The other thing in that in the holding them back field is
don't forget what I said about third markets. Our ZTE
competitors, our companies that make the same stuff that is
critical to our leadership in the telecommunications sector,
they are going to live and die by what they do in third
countries. They are not going to live or die by what they do in
China or what they do in the United States. They are going to
live and die by what they do in India, what they do in Europe,
what they do in Brazil, what they do in the rest of the world.
Helping them, listening to them and figuring out what they need
and helping them, I think, in other situations is
extraordinarily important.
Running faster, I agree with Rob, it is a question of how
do we help our people innovate. And as I, I didn't read this
part of the statement but, you know, we have done this before.
When I refer to the Lincoln administration, land grant
colleges, the Homestead Act, we created the most effective,
efficient world-class agriculture industry in the world and
that was government devotion of resources and focusing of
attention on it.
We did the same thing with wireless communication. We did
the same thing with aerospace. We did the same thing with the
internet. There is no reason why we can't do that going forward
with the next generation of technologies and stay ahead of the
Chinese that way.
Mr. Poe. And I thank all three of you. My time has expired.
I recognize the gentleman from California, Mr. Sherman.
Mr. Sherman. A few comments as to an R&D tax credit, that
increases our deficit. I don't know any economists that are in
favor of that. It will lead to innovation which then will be
transferred to China if it is profitable for the company to do
so. And we live in a world where we are so weak that we allow
China to say you don't get access to our market unless you
transfer the technology to us.
So we are in a trade war with China. For 18 years we have
ignored it. I give the President credit for not ignoring it. We
are probably going to lose because all of China is on China's
side and Wall Street is mostly on China's side as well. Because
you can make profits by manufacturing something for 50 cents or
even $1 an hour in China and sell it in the United States. That
is a proven profit method.
Paying American wages to create a product that you are
going to sell in China is economically difficult. It is not a
get-rich-quick scheme. And that assumes China would let you
sell it in China, which they won't until you have a
coproduction agreement which means you are not making it the
United States anymore. Hence, even the innovation of Tesla,
paid for in part by the U.S. R&D tax credit, will lead to a
factory in China--because the weak United States bullied by a
powerful Wall Street continues to this day to have a 2.5
percent tax on Chinese cars coming here while they have a 25
percent tax on our cars going there.
So the one thing I disagree with in the President's policy
is simultaneously trying to deal with the trade deficits we
have with our allies. We should pick one at a time and China is
the worst and most egregious. But aside from that one element,
it is time for us to be bipartisan. Sixty-five percent of
Democrats voted against MFN for China and now we have a
Republican President with substantial support in the Republican
Party saying that it was a mistake and also saying that when
the United States makes a mistake and enters into a bad deal we
should tear up the deal.
So we should be, I think, revoking MFN for China, 6-month
lead time, and have a chance for them to come to the table. But
before we do that, we have to specify that if they retaliate
against us for this bill we have to double tariffs on them. And
if they seize American assets we have to seize Chinese assets
here in the United States--including and especially their
ownership of our intangible assets and bonds. So we could get
tough. Wall Street won't let us and so we won't. And the
balance of trade is worse today than it was even when Trump
took office.
But I want to talk about this social score. What is the
appropriate American action for Chinese consumers and
businesses being told that if they don't buy Chinese goods they
could lose their passports and their credit? Should we impose
an additional, in addition to everything else, 25 percent
tariff on everything made in China, should we ignore it, or
should we issue a press release and then ignore it?
Dr. Atkinson?
Mr. Atkinson. Well, first, a couple of things. The R&D
credit actually does pay for itself after 15 years if CBO had a
15-year budget window. And secondly, I was asked for one thing
so I completely agree with you.
Mr. Sherman. Well, you didn't disagree the technology's
going to get transferred to China, but go ahead.
Mr. Atkinson. Since I was only able to list one of those as
opposed to the 40 that we have in our reports on what we----
Mr. Sherman. I do have limited time. I asked you a question
about the social score in China. Do you choose to answer that
question or should I move on to another witness?
Mr. Atkinson. I don't think the point, frankly, is the
social score. I think the point is there is a set of Chinese
behavior.
Mr. Sherman. Okay, you don't want to answer the question.
Does anyone else want to answer the question?
Dr. Scissors?
Mr. Scissors. The social score is another way of China
subsidizing production at home, right, that is what it is.
There are a lot of them.
Mr. Sherman. And is it a violation of the WTO?
Mr. Scissors. This is--I don't know----
Mr. Sherman. Is it a violation of any provision that is
proposed for TPP or TTIP, or is it a perfect way for China to
claim that they are not cheating at all, because we don't
bother to write rules that they even need to cheat?
Mr. Scissors. I do not believe--I am not a lawyer. I do not
believe it is a violation of the WTO or any plank of the TTP.
So yes, it is a way for the Chinese to encourage domestic
consumption that doesn't break existing rules.
Mr. Sherman. And other than imposing a 25 percent
additional tariff on everything made in China, can you think of
another way for the United States to respond?
Mr. Scissors. I think we should put it in our--it should be
counted as a subsidy as part of our current subsidies approach
which should be broader than it is and applied to China. I
don't know about a 25 percent tariff but we should be
responding to Chinese subsidies including that.
Mr. Sherman. And this--I yield back.
Mr. Poe. The Chair recognizes the other gentleman from
California, Mr. Rohrabacher.
Mr. Rohrabacher. Thank you, Mr. Chairman. And let me just
note that our friend from, Mr. Garrett from Virginia was
correct in that the two Californians here today agree on most
things and most of what Brad was suggesting and is suggesting
is something I agree with. I don't agree with his political
attributes on those things and, however, the specific points,
policy points, he is right on target.
The bottom line is we don't have all the Americans fighting
for when they go overseas, our elites go overseas and are not
looking out for the United States of America. The Chinese
elites are looking out for what is good for China. Our elites
are what is going to make a good deal for them.
And I remember the good deals. I remember under Bill
Clinton when we transferred our utmost, our most important
rocket technology to the Chinese. The Chinese now have a very
competitive space system because they got all their R&D from
us. They don't look at us as being benevolent. They look at us
as suckers and that is what we are when we permit our R&D to go
and serve as the basis for producing wealth and competition on
their side.
Now the WTO--well, I voted against WTO. I didn't think it
would work. Can any of you tell me if WTO has the answer to the
challenge that we are talking about today and that is making
sure that China is not able to amass wealth in an unfair way
which it then uses to dominate not only their own people, the
oligarchs in China dominating China, but also now the Third
World through bribery, can the WTO handle it and, if so, what
is that solution?
Mr. Reinsch. Well, it is my turn to walk the plank so I
will attempt an answer. I think it has some of the answers, not
all of them. I am more positive about it, I think, than Rob is.
I think in particular an area that is relevant to Made In China
2025, which is one of the subjects of this hearing, is their
rules about subsidies. And we have, you know, most countries
have a domestic law that is designed to implement WTO rules
against subsidies.
We have one, actually the Chinese have one, the Europeans
have one. Those rules I would argue have been fairly effective
as far as they go. We use them very effectively on steel. We
have essentially knocked Chinese steel out of our market
directly through the use of subsidies complaints and----
Mr. Rohrabacher. Okay. But we have seen some--you have seen
some successes.
Mr. Reinsch. It works. And when we litigate in the WTO 85
percent of the cases we have brought we have won which is the
best record in the world on that so yes. Does it solve all
problems, no, because it doesn't have rules that cover all
things.
Mr. Rohrabacher. Okay. Do our other witnesses have
something to say on that? Yes, sir?
Mr. Atkinson. I think the biggest--there are a number of
challenges with the WTO. Bill is right, it will solve some
problems. I particularly agree on subsidies. We should do more
there. There is a subsidy regime we should take a lot more
action under. The biggest problem we have with the WTO though
is it is very difficult to win a case unless you have U.S.
companies being willing to come forward with evidence and stand
up. American companies know that if they do that they will be
punished in China quite severely. And that is not going away
and you cannot blame American companies for that position, in
my view. They are acting on the behalf of their companies and
their workers.
I think ultimately what we need to be thinking about is
some longer term alternative to the WTO that is really designed
around liberal market democracies that are committed to free
trade and have a club there. And that is why I thought TPP and
TTIP would be at the beginnings of beginning to assemble that.
Mr. Rohrabacher. Well, our President today seems to think
that unilaterally we can have something accomplished. I agree
with him there. We should be courageous and that is what he is.
Would you have an answer to that question?
Mr. Scissors. Yes, I agree. I think I more agree with
starting with the unilateral action. I would say that there is
nothing about the WTO that should prevent us from taking the
actions we need to take. We don't need to withdraw from the WTO
because China is a bad WTO actor. I would say that is a
mistake. I think Rob's suggestion on changing our antitrust
laws to recognize the way China handles its state sector is
long overdue. That would give us another set of tools that are
WTO-compatible.
I think a smaller thing is properly resourcing CFIUS. I
agree with my colleagues we have good revisions to CFIUS
pending in both Houses, but if they don't have the resources
they can't do what is necessary. WTO doesn't stop us from doing
that obviously.
Mr. Rohrabacher. One last thought, and that is when we were
sold the bill of goods and I voted against it, but when those
people in Congress voted for WTO and voted for most favored
nation status for China we were told that more trade and more
economic activity going back and forth and building them into a
modern society would create a more peaceful world and
democratize China. It has been just the opposite. China has no
more democracy than they had and now they are a greater threat
to everyone. We have created a Frankenstein monster trying to
look at that WTO as the possible solution to all these
challenges.
Mr. Poe. The gentleman's time has expired. The Chair
recognizes another member from California, Mr. Issa, for 5
minutes.
Mr. Issa. Thank you, Mr. Chairman. As I have been going in
and out and watching a lot of this, I wonder if there aren't
two Chinas. And I would like to ask my questions about the two
Chinas for a moment.
For two decades I was an electronics manufacturer, operated
in South Korea, Hong Kong, Taiwan, and then the company over
the years has moved, after I left has moved into mainland
China. Would one of you like to take on the question of is
there a free enterprise China starving, dying to actually
compete against their own state-owned enterprises?
And if we, in fact, using WTO and any other resources,
begin to target the state-controlled, those entities which have
the capital behind them to fund losses in order to gain market
share, aren't we also enabling, if you will, if you believe
there is the free enterprise portion or semi-free enterprise
portion that does exist in China and certainly existed in Hong
Kong for decades. Anyone want to take that?
Mr. Scissors. I will give a short, a partial agreement. I
certainly agree there is a free enterprise China. Chinese
private entrepreneurs complain bitterly about state repression.
They take money out of the country legally and illegally
because they don't feel like it is safe in China for them to be
operating there.
Mr. Issa. Fortunately it is safe in Vancouver.
Mr. Scissors. Yes, right, because there are a lot of cities
where you see free China, they are just not in China. So I
agree with that completely and I agree that the U.S. should try
to encourage it.
I do think, Bill said this earlier and I am with him 100
percent. Unfortunately he is right, the Party is just not going
to tolerate that up to a point. We don't have that much ability
to change the state-private balance in China because the Party
under Xi Jinping thinks state control of the economy is
absolutely vital. We should do it but it is not going to work
that well unfortunately.
Mr. Issa. Well, let's follow up though. They think it is
absolutely vital because it works. What if we make a decision
as a country--and by the way Mr. Rohrabacher and I, when I came
into Congress he was already a pro-free China, a Taiwan
advocate, if you will. Free trade for free people.
One of the questions I have is, isn't that one of the
fundamental decisions that we have the power to make to treat
state monopolies and state-backed entities, entities that are
able to compete because in fact the government has made
decisions and is funding them, isn't that a strategy that at
least we should explore? Because here is my question: We can't
not trade with those 1 billion-plus people. We cannot ignore
the market. But what we do seem to be able to do is to make a
decision about do we allow ZTE back to buying our goods and, if
so, under what conditions? Do we, in fact, have the ability to
insist that there be a price to pay for stealing our
intellectual property? You know, those are questions I think
that this side of the dais certainly can begin looking at and
that is why I asked it.
Would anyone else like to comment on techniques that might
allow us to change the government's behavior in a way in which,
if you will, the real Chinese people could benefit? Because you
know, this is certainly an area in which the President is
trying to look at being pro billion-plus Chinese and anti bad
behavior of the Chinese Government and its state-owned
enterprises.
Mr. Atkinson. I was in China several years ago meeting with
a fairly large, but privately owned, company and I was sitting
down with the CEO and one of his biggest complaints was about
an unfair competitor from a Chinese SOE. He felt it was
completely unfair. Now he can't say that outside the room when
he was meeting with me, but he feels it.
So I 100 percent agree with you that that is something we
should be focusing on which is partly why I brought up the
point about anti-trust, going after firms whether they are SOEs
or firms that are just so tied-in with the government that we
target them for unfair anti-competitive behavior. Also to Dr.
Scissors' point about denying them access to our financial
system, companies that have stolen IP or the like, so I agree
that that is an important step.
Mr. Issa. Well, let me ask one closing question in my few
minutes and then you can take whatever time the chairman will
give you on all the subjects.
Should we--on the Judiciary Committee just on the other
side, which I also serve on, should we, in fact, begin to look
at the question posed this way: Inherently, isn't a government-
owned, -run, or, in fact, -subsidized enterprise automatically,
essentially, a monopoly in the sense that it has powers that an
ordinary company no matter what their market share would not
have and wouldn't that be the first step to look at state-owned
enterprises domestically, to be fair, and internationally, as
in fact by definition, failing the first checkmark of an
antitrust question about a monopoly?
Mr. Scissors. I would just say, I have said for years that
if you can't go out of business for commercial reasons that is
the biggest subsidy of all. Loans are secondary to that even as
big as they are and there are a whole set of Chinese state-
owned enterprises we can identify as they will never go out of
business for commercial reasons.
And to get to Congressman Sherman's point of view, that
should also be part of our subsidies regime. If they cannot
fail they are--they may not be monopolized but they are very
heavily subsidized and we should treat them accordingly.
Mr. Issa. Yes, Bill.
Mr. Reinsch. I don't want to intrude on the chairman's
rules. Can I respond to the question or do you want to go on?
Mr. Poe. Okay.
Mr. Reinsch. Thank you, Mr. Chairman. I appreciate it. I
served on the U.S.-China Economic and Security Review
Commission for 15 years and I had a colleague there who told me
seriously that there are only two kinds of Chinese companies,
those that are owned by the government and those that shut up
and do what the government tells them. And I think there is a
lot of truth to that and the problem with what you are
suggesting is telling the difference.
In some cases it is obvious because there is a very clear
line of control that comes down from the government. In some
cases it is not so clear. And it is an intriguing idea to, you
know, adjust our economic policy based on, you know, their
lines of control and lines of authority. It raises a host of
sort of definitional and complicated questions that it would
take awhile to sort out.
Mr. Issa. Thank you.
Thank you for your indulgence, Mr. Chairman.
Mr. Poe. The Chair recognizes the gentlelady, patient
gentlelady from Missouri.
Mrs. Wagner. Oh, she is not so patient. Thank you, Mr.
Chairman.
Earlier this year I joined a pretty large number of my
colleagues in urging the President to rethink the imposition of
tariffs on steel, aluminum, and other goods. We, as I said,
commend the President for standing up to China's bullying trade
practices, but urge him to remember that our constituents
depend upon free, fair, and healthy trade relations. And we
must address China's predatory practices but prevent the axe
from falling on American families.
Dr. Scissors, how will China's retaliatory tariffs on
soybeans affect Midwest economies?
Mr. Scissors. I can't speak to how they will affect the
whole economy, but I will say soybeans are probably the
toughest case because there is no substitute for the Chinese
market. For most American goods that might face Chinese
retaliation there is some substitute. We are not a huge beef
exporter or corn exporter, you know, go down the range of
products. Soybeans we simply are, and of course the Chinese are
going to go after where we are most vulnerable.
So if we get into a tariff fight we either have to, we
simply have to accept that soybean farmers are going to get
hurt and we cannot provide them with another market. And I know
you know very well they don't want government subsidies, they
want to be able to compete and sell their product.
Mrs. Wagner. That is correct. How can state governments
reduce the effect of constricted access to Chinese markets?
Mr. Scissors. I think the best thing, I am in favor of
confronting the Chinese and it is easy for me to say because I
am not a soybean farmer and I don't represent soybeans farmers
and others who would be hurt by that. I think the best way to
help Americans who are harmed by a trade interruption with
China is to make sure that we have a stable policy. In other
words, we are not saying tariffs are on, tariffs are off,
tariffs are on, tariffs are off, you don't know how to run your
business, you don't know how to run your farm.
If we could get some consensus, which has been referred to
in this room, among parties and between Congress and the
administration and tell people this is going to be the trade
situation with China for 7 or 8 years, they have a chance to
make better decisions. If we yank them around, you know, not
only do they lose their market, they have no ability to plan
for an alternative.
Mrs. Wagner. Mr. Reinsch, in the interest of running
faster, if trade relations with China remain strained,
commodity producers in Missouri will need to find new markets
for their goods. ASEAN countries seem to be a natural trade
partner. Over half of the United States' congressional
districts export more than $100 million in goods to ASEAN every
year. ASEAN countries themselves wish to see stronger trade
relations with the United States. Can we pressure China to
institute fairer trade practices through improving U.S.-ASEAN
trade relations?
Mr. Reinsch. Well, we could try. It is a noble effort. I
can't resist saying that the best way to have done that was
through TPP.
Mrs. Wagner. I concur.
Mr. Reinsch. Because that would have set up a framework in
which they would, China would have to basically conform to the
rules in order to expand. Instead what we have done is created
a vacuum in that region that has allowed them to step in and we
are playing defense. How we recapture it--and the
administration has proposed bilaterals. I think that has
potential but they have yet to propose any. If they were to
pursue that line, and I was talking the other day to
representatives of one of the governments, ASEAN governments,
and they are actually, they are interested in it.
Mrs. Wagner. I know they are.
Mr. Reinsch. But it has been slow moving and our
administration seems so far to have taken the attitude that
they don't want to begin having a discussion unless the other
government makes some concessions up front. And I think the
other government's view is usually you make concessions as part
of the negotiation, you don't make them in advance. So I am not
sure that these things are going to move very fast, but that is
the alternative the administration has put forward.
Mrs. Wagner. Anyone else? China's ascension to the World
Trade Organization has done little to change its predatory
trade policies as we have discussed. Dr. Atkinson, how can the
World Trade Organization be restructured to better restrain
China's behavior?
Mr. Atkinson. Well, there are several ways, one is just
pressure. There is a Professor Mark Wu from Harvard, used to be
at USTR as a lawyer. He has talked about how the practices of
the WTO have frankly been biased sometimes. So I think just
having pressure. I think Dennis Shea, now who is our Ambassador
to the WTO, is trying to do that. Telling WTO in very clear and
on certain terms that they have to be thinking much more about
not sort of letting China win one and us win another. That is
number one.
Number two, we can bring more cases. There are some cases
we can bring where the USTR decides to bring them on their own
unilateral basis. We could do that. I think ultimately though
having the WTO fix this problem is going to be hard unless we
can have a more important restructuring of the WTO that doesn't
require things being on paper to prosecute them. That is the
big advantage the Chinese have. They can do things that--they
come to the--show us the law. Well, we can't show them the law
because there is no law. It is up here in their brain and
they----
Mr. Poe. The gentlelady's time has expired.
Mr. Atkinson. Sorry.
Mr. Poe. Thank you, Dr. Atkinson.
Mrs. Wagner. Yes.
Mr. Poe. The Chair recognizes the gentleman from Florida,
Mr. Garrett--or Virginia.
Mr. Garrett. I haven't moved to Florida yet. Thank you, Mr.
Chairman. Thank you, gentlemen, for being here today.
It is interesting that we should have started with some
tangential discussion of CFIUS. And I think, I hope, and I have
a finite amount of time, that we made some progress in the
arena of protecting American intellectual property and
technology, but there is an 800-pound proverbial gorilla in the
room that I have discussed that I have never heard anyone else
discuss. And I say this as much for the benefit of the other
members of the subcommittee as for you gentlemen.
I would ask you, is it possible and indeed probable that we
bleed technology and innovation, that we bleed intellectual
property by virtue of exploitation of the U.S. EB-5 visa
program, Dr. Atkinson?
Mr. Atkinson. I am just afraid I can't answer that. I don't
know enough to answer that.
Mr. Garrett. Dr. Scissors, are you familiar with EB-5
visas?
Mr. Scissors. I am. I am familiar with them as a conduit
for Chinese investment in the U.S. I don't think--I think there
are problems with the EB-5 program. I don't think that that
is--I would say as we have discussed that the academic visits
to China are a bigger source of technology loss than EB-5.
Mr. Garrett. Well, let me--I am going to split hairs for a
second. Bigger implies that both of them might be sources. One
might be more prevalent than the other. I would point out the
data as it relates to EB-5 visas, which are essentially visas
purchased by ``foreign investors''--air quotes intended--in
order to come to the United States to start business and create
jobs ostensibly.
However, comma, in one particular prominent example:
GreenTech Automotive, partly found by former Virginia governor
Terry McAuliffe, built a facility in Mississippi which is now
defunct owing tens of thousands of back taxes, wherein they
brought in ``Chinese investors.'' Now the Chinese have
monopolized rare earth minerals like cobalt as it relates to
battery technology, et cetera, these were used in these
GreenTech Automotive cars.
And once these investors bought EB-5 visas they had
unfettered access to U.S. cutting-edge technology by virtue of
their legal residency here--does that not sound about right?--
or they wouldn't have the same hoops to jump through to garner
U.S. technology as visa residents of the United States ``job
creators'' once they were here as they would if they were
trying to export it through something like CFIUS, correct?
Mr. Scissors. I am not saying there isn't a problem. As I
understand the export control law it doesn't matter if you are
Chinese or a resident or a citizen, if you are transferring
controlled technology you are breaking the law. So export
control should be able to handle that regardless of EB-5.
Mr. Garrett. Having spent 10 years as a prosecutor wherein
I would have been unemployed if people didn't break the law, I
would posit that perhaps people break the law. So what I am
driving at is that if you have access to the technology in a
world where a thumb drive can contain any innumerable amount of
technological secrets whether they are allowed to do it and
whether they are doing it might be two entirely different
things.
So I would hope that we would take a long hard look at EB-5
visas when quite literally if you combined every nation in the
world's EB-5 visa recipients over a period of 5 years you would
equal the number of Chinese EB-5 visa recipients in the United
States in one. That is real and it is true. And so whether or
not--and I have the utmost respect for the members of this
panel. I mean you guys are awesome, but this might be one where
I am a little bit more well studied perhaps, for a remarkable
change, than some of the fine individuals before us today. And
it is something we haven't looked at that we ought to be
looking at because once you get the technology whether you are
allowed to steal it or not doesn't mean you won't.
The next thing is technological proliferation by virtue of
the fact that the Chinese are smart enough to go where the
technology and innovation is, which is in many cases our
university and college campuses and the Confucius Institute, et
cetera. What, if anything, should we be doing as it relates to
reciprocity with these breeding grounds for ``Chinese values,''
cultures, and ideas at 524, I believe, locations in the United
States when there is nothing similar advancing U.S. culture and
ideas in China?
Anybody? Yes, sir, Mr. Reinsch.
Mr. Reinsch. Just on the Confucius Institute I would just
comment when I served on the China Commission we did a study
and report on exactly that subject and analyzed them and I
would commend that to you. It basically----
Mr. Garrett. I think I have looked at it. I think it says
no smoking gun but cause for concern; is that right?
Mr. Reinsch. Yes. That is exactly right.
Mr. Garrett. See, I am all read, imagine that.
Mr. Reinsch. You have a good memory, better than mine. I
think that is probably still true, although that was a few
years ago worth a second look----
Mr. Garrett. Yes, sir.
Mr. Reinsch [continuing]. Because it needs to be monitored.
Mr. Garrett. Thank you, anything else?
Mr. Atkinson. If I could just quickly comment on EB-5. One
of the problems with EB-5 is most of those EB-5 applicants
don't really create any jobs that wouldn't have been created
anywhere, somebody else would have created them. So we have
argued and we filed on--narrow it down significantly and if you
do that you might address that and then perhaps more
limitations on the Chinese EB-5.
Mr. Garrett. Thank you so much. And I want to say this. I
am about to mutter a word I don't often mutter, but quotas, for
example. If we want to encourage development in the United
States and other regions of the world, why are 80 percent of
EB-5 visas year-in and year-out going to China when they could
go to places like Nigeria or Brazil or Italy, et cetera?
I don't normally champion such a thing but this EB-5 thing
has manifested itself almost solely to the benefit of our chief
rival economically and perhaps strategically. And so again I
just wanted to shine some light on that.
Thank you, gentlemen. I yield back my negative 19 seconds.
Mr. Poe. I thank the gentleman from Virginia. The Chair
recognizes the gentleman from Utah, Mr. Curtis.
Mr. Curtis. Thank you, Mr. Chairman. And to our guests
here, thank you for being here today and enduring these many
questions.
We are reading in the press today that the U.S. is readying
another $200 billion of sanctions. It is seeming very
predictable, right, they are calling this a trade war. And I
guess my question for you today, I am going to leave this
hearing and the press in Utah is going to ask me a very
predictable question which is, where does this end? And if you
could please tell me that I would be happy to report that to
the press.
Mr. Scissors. Well, I can tell you where it is going to
have to end one way or another, how long it takes us to get
there is a different story. The President is committed to
reducing the trade deficit with China. We had a quote from
Congressman Sherman saying it rose last year which it did.
Now I am not going to defend the President's view of the
trade deficit. I am simply saying he has had this position for
a long time. He has been very clear about it. He has not been
inconsistent. So we have a situation right now where our trade
deficit with China is rising. You can make an argument our
economy is growing faster than theirs even though they don't
report that. We are richer than them. It is going to take some
work to get the trade deficit under control which means we may
get a series of 10 percent tariffs applied to all Chinese goods
for awhile.
But that is where it is going to end. It is going to end
because that is the President's goal with the U.S. bilateral
trade deficit with China at least stabilizing.
Mr. Reinsch. You want to know where it is going to end. I
have to say this reminds me of, you know, two 8-year-olds
having a staring contest waiting to see who is going to blink
first. And the President has only one tactic which is to
escalate, up the ante. He has allowed time with the 200. He has
allowed time for more negotiations. There may be some, there
may not be.
If you go back to my statement, I am skeptical for reasons
I indicated that that will accomplish much but there is a
possibility there. I think if they don't accomplish anything he
will move to round 2 and impose those tariffs. The Chinese have
been very clear that they will respond in like amount in kind.
It is already more trade than we have with them but they will
do other things.
Read today's clips, you will see a lot of speculation about
what those other things might be. And then he will probably
respond with a third tranche and I am very gloomy where this
goes because in the end all trade is subject to punishing
tariffs and there is going to be a lot of collateral damage on
both sides.
Mr. Curtis. So I feel that that is true and the worry in
Utah is the path is littered with dead companies. And right
along the way that, Dr. Scissors, you referred to the
unpredictability and that has hit Utah in a really hard way is
assuming that these tariffs are coming in already, how you
place orders, how do you plan for the future and all of those
things.
I am curious to know if any of you are aware of a different
ending that still gets us the same results using different
tools. So is the only tool available to us to fix this
imbalance a tariff or are there other tools that we could be
using?
Mr. Atkinson. So we had an op-ed, I believe, in The Hill or
Politico recently, 10 non-tariff alternatives the Trump
administration could use as weapons or tools or tactics. There
are a number of them we could use. And I have talked about some
them, others have talked here. What I find striking with what
the Trump administration is doing is they are pretty much using
only one tool. They have a WTO case but they are pretty much
only using one tool.
I would disagree a little bit with maybe Bill in saying
that I don't think the Chinese are as fundamentally committed
to this as--I don't think forcing them to stop intellectual
property theft or forced tech transfer or massive subsidies are
a threat to the Party. I think there is more leeway that the
Chinese could give without giving up Party control of China or
even giving up the goal of growing their tech economy.
So I could see one outcome of this is the Chinese
essentially decide they don't want to have that much pain and
make some modest concessions. I don't think we can rule that
out. I don't know what the odds of it are. I don't know that
anybody knows that but that is one outcome.
Mr. Curtis. Do modest concessions get us to where we need
to go or do we look at it more dramatically?
Mr. Scissors. I think Rob is being realistic, but I don't
think modest concessions get us where we need to go and this is
one of the reasons why I think there is going to be pain. And
when I was in the White House meeting that kicked off the 301
tariffs that led to this point I said, if you are not willing
to stick to this for 3 years and suffer some pain don't bother,
because that is what it is going to take to get the Chinese to
change. I don't think tariffs are the best weapon. I don't
think they are the only weapon. But I do think that if you
don't have tariffs in your pocket and you aren't willing to use
them you get less attention from China and it takes longer.
So, you know, do I think we should only be using tariffs,
no. Do I wish we were using something else first, yes. But I
don't think we are going to be able to get to where we want to
go without tariffs and without pain.
Mr. Curtis. Unfortunately I am out of time. Mr. Chairman, I
yield.
Mr. Poe. I thank the gentleman. It seems to me that maybe
all is not gloom, doom, and despair. That the information you
have given us of holding China back and running faster is
something that Congress, specifically these two committees,
need to move forward on right now. That is our responsibility.
We are not going to be here in 6 years debating this, Dr.
Scissors. There are several of us who won't be here next year.
But it is absolutely necessary that Congress assumes its role
and to lead on this issue of dealing with the cheaters in
China. But more than just bemoan the fact, we need to be
proactive on doing what is best for the United States. Your
information has been of great resource and we probably will
have you back again at a later time to see if some of the
changes that we are going to make hopefully through legislation
are effective or not. I do not want to be a victim of what my
grandfather always would say: When all is said and done, more
is said than done. And so it is time to get something done.
Thank you very much for your participation and thank all
the people that are in the audience as well for being here, and
the members. These two subcommittees are adjourned.
[Whereupon, at 4:20 p.m., the subcommittees were
adjourned.]
A P P E N D I X
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