The U.S. Has Failed to Stop “China’s Industrial Predication.” Could Reforming a 1930 Trade Law Change That?

By Elizabeth Brotherton-Bunch
Nov 29 2022 |

The Information Technology and Innovation Foundation argues in a new publication that the answer to countering China’s predatory trade practices lies in Section 337 of the 1930 Tariff Act.

When Congress voted to grant China permanent normal trade relations (PNTR) status back in 2000, it was heralded as a step forward for global democracy, one which would encourage China to open its markets and follow the rules-based system of international trade. Then-President Bill Clinton argued at the time that the “more China liberalizes its economy, the more fully it will liberate the potential of its people.”

Things didn’t work out that way.

More than 20 years since that fateful vote, Chinese leader Xi Jinping has consolidated power, and the Chinese Communist Party (CCP) remains fully in charge. Exacerbated by the pandemic, China is becoming more closed off. And on the trade front, the CCP has failed to follow the rules of international trade, instead focusing on dominating global industry through a host of unfair trade practices like state-owned enterprises, massive government subsidies, intellectual property theft, currency manipulation, and little-to-no labor and environmental standards.

American workers immediately suffered from the “China Shock”, with 3.7 million jobs lost between 2001 and 2018 as a direct result of the rising trade deficit with China. Since we’re the Alliance for American Manufacturing, we’ll point out that 75.4% of those lost jobs — 2.8 million of them — were in manufacturing.

But in recent years, there’s been growing recognition that China’s predatory trade practices — and resulting dominance of industry — is a threat to U.S. national and economic security. The COVID-19 pandemic helped drive that home. If China’s dominance of face mask production proved to be such a challenge, imagine the threat the CCP’s monopoly on critical things like rare earth minerals and solar panels poses.

Now the question is: How to counter China’s predatory trade practices?

The Information Technology and Innovation Foundation thinks the answer lies in Section 337 of the 1930 Tariff Act.

In a new report, author Robert D. Atkinson argues that reforming Section 337, which allows the International Trade Commission (ITC) to bar imports when domestic industries suffer harm because of unfair trade competition, could “change the game” when it comes to China trade.

According to Atkinson, Congress should reform Section 337 to “make it easier to impose exclusion orders against imports from companies systematically supported by unfair trade practices in non-market, non-rule-of-law economies.” Allowing the Commerce Department to bring cases before the ITC and providing more resources to adjudicate unfair trade practices “will not only send a clear message of support for free trade, but also enable allied-nation firms to compete more effectively with Chinese government-backed champions.”

Above all, the report argues that it isn’t enough for the United States to invest in its own industries, so long as the CCP and Chinese government fail to play by the rules. The United States needs to get much tougher on trade:

Absent a significant change in Chinese government leadership, Chinese policies cannot be changed. And while efforts to get the United States to “run faster” could help, it’s not likely America will respond as needed—and even if it did, it would not be enough to address Chinese unfair and predatory trade practices.

It’s time to make Chinese unfair trade practices less profitable by sending a clear message to China: If you significantly violate global rules and norms for an industry in China, the firms in that industry will not have access to U.S. and allied markets. Doing that would not only send a clear message of support for free trade, but also slow down Chinese firms while enabling allied nation firms to more effectively compete with their Chinese government-backed state champions.

Atkinson and the ITIF aren’t the only ones calling for action to counter China’s predatory trade practices.

On Capitol Hill, bipartisan legislation called the Leveling the Playing Field Act 2.0 would give American workers and companies new, modernized trade remedy tools to take on unfair practices, including cracking down on repeat offenders and establishing a process of successive and concurrent investigations on the same imported product. U.S. Trade Representative Katherine Tai told lawmakers earlier this year that the bill is “exactly in the spirit of what we need” to counter China and other unfair players.

Earlier this month, the U.S.-China Economic and Security Review Commission released its annual report, which included 39 policy recommendations to Congress on addressing the unfair trade practices and anticompetitive actions of the CCP.

Among the commission’s recommendations: Revoking China’s normalized trade status; use the Domestic Production Act to re-shore the U.S. production of pharmaceutical goods that depend on active ingredients from China; and establish a new Economic and Security Preparedness and Resilience Office in the Executive Branch to monitor critical supply chains.

The United States (quite rightly) has begun enacting industrial policy measures like the CHIPS and Science Act, Bipartisan Infrastructure Law, and Inflation Reduction Act to strengthen and rebuild America’s critical industry and related supply chains. But as the ITIF points out, all of this work will be for naught if the United States doesn’t figure out a way to effectively counter “China’s industrial predication.”

The CCP is willing to spend massive amounts of money — and break the rules of international trade — to dominate global industry. The question is whether the United States will be willing to do something about it.