Trade War Update: Chinese SOEs can Continue Bidding on Some FTA Contracts

By Matthew McMullan
May 21 2019 |
Photo by Leo Patrizi / Getty Images

Thanks to “Steve” McCarthy!

It’s Trade Tuesday! So what’s happenin’ with trade policy?

Now that the Trump administration has made nice with the Canadian and Mexican governments regarding steel tariffs, it looks like the renegotiated NAFTA – the U.S.-Mexico-Canada Agreement (USMCA) – may have some hope of moving through Congress this year.

The U.S-China trade negotiations, meanwhile, have (publicly) ground to the halt. The editorials in China’s government newspapers aren’t, uh, softening their tone:

“The trade war launched by the US is becoming more and more like real war. At its core is the US resorts to unscrupulous means to suppress China while China is committed to crushing US arrogance. The US has been telling its people that China would soon make compromises, and we must break such lies by making clear China will not sign any unequal deal.”

Washington, meanwhile, isn’t exactly warming up to Chinese businesses either – and especially not to those with ties to the Chinese state. Like telecom giant Huawei, which the Trump administration may just blacklist entirely from the American market.  

That dour mood doesn’t account for everybody in Washington, though. I can think of one prominent example from the political establishment who doesn’t see what the big deal is about business ties with China: Steve McCarthy!

I mean, Kevin. His name is Kevin McCarthy. Cut him some slack, the president has a lot of names to remember. And all these dudes look the same

Anyway, we noted a few months ago that House Minority Leader Kevin McCarthy was putting in work to ensure BYD Motors, a Chinese auto manufacturer with ties to the Chinese state, would be allowed to bid for American government procurement contracts that were financed by the Federal Transit Administration.

It was clear why he was doing this: BYD’s North American unit has a plant in his Southern California district, and they employ a lot of people there. But McCarthy was bucking a lot of bipartisan agreement that the U.S. government shouldn't be tacitly supporting such companies. The Alliance for American Manufacturing even wrote a letter to Congress about it. And we wrote on the blog:

By allowing state-backed companies to establish themselves in the U.S., the financial stress on domestic manufacturers that don’t enjoy similar support greatly increases. Through a foothold in the form of a Massachusetts assembly plant, for instance, a Chinese railcar manufacturer that has received significant state support is now offering remarkably cheap bids for public transit projects in Boston, Philadelphia, Los Angeles and Chicago. That doesn’t bode well for its private American competitors, the manufacturing jobs they support, and the domestic supply chains they sit atop.

But McCarthy was grindin’. He was on his grind! And the Washington Post reports that his grinding paid off:

McCarthy’s work on the transit issue affecting BYD began last year and continued for several months, culminating in a February spending bill that omitted the ban on Chinese-backed companies getting federal transit contracts. …

A House version of the bill, which McCarthy supported, exempted bus manufacturers from this prohibition, according to McCarthy’s office — a key provision that would have protected BYD. Senate negotiators wanted their broader, bipartisan restrictions pushed into the final law but McCarthy objected, according to three officials, speaking on condition of anonymity to discuss the private talks.

Ultimately, all of the proposed restrictions were scrapped because the impasse threatened to cause another government shutdown. Supporters of the stricter Senate version said the goal was to protect U.S. national security and domestic manufacturing.

So … McCarthy got a carveout for Chinese companies with state backing by risking another government shutdown. Wow!

The House Committee on Transportation and Infrastructure just last week held a hearing exploring the potential threats to American public transit and freight systems posed by Chinese state-owned enterprises (SOEs). One witness pointed out that another Chinese national economic champion, the China Railway Rolling Stock Corporation (which already has a significant presence in the American market), underpriced its way to dominance in the Australian market only a decade after entering that country. And AAM President Scott Paul offered testimony as well and spoke at length about the risk of extending BYD the benefit of the doubt:

"BYD’s economic model of assembling vehicles in the United States, but relying on imported parts and components, would threaten over 5,600 parts suppliers spread across the nation, employing 871,000 workers, the very heart of American manufacturing."

Anyway: Shout out to House Minority Leader Kevin “Steve” McCarthy on his behind-the-scenes-legislation game. It appears to be strong! And read a little more about the concerns of procurement contracts for Chinese SOEs here.