U.S. GOVERNMENT PUBLISHING OFFICE

36–645—PDF WASHINGTON : 2019

S. HRG. 115–624 

MARKET ACCESS CHALLENGES IN CHINA 

HEARING 

BEFORE THE

SUBCOMMITTEE ON INTERNATIONAL TRADE, 

CUSTOMS, AND GLOBAL COMPETITIVENESS 

OF THE

COMMITTEE ON FINANCE 

UNITED STATES SENATE 

ONE HUNDRED FIFTEENTH CONGRESS 

SECOND SESSION 

APRIL 11, 2018 

( 

Printed for the use of the Committee on Finance 

COMMITTEE ON FINANCE 

ORRIN G. HATCH, Utah, Chairman 

CHUCK GRASSLEY, Iowa 

MIKE CRAPO, Idaho 

PAT ROBERTS, Kansas 

MICHAEL B. ENZI, Wyoming 

JOHN CORNYN, Texas 

JOHN THUNE, South Dakota 

RICHARD BURR, North Carolina 

JOHNNY ISAKSON, Georgia 

ROB PORTMAN, Ohio 

PATRICK J. TOOMEY, Pennsylvania 

DEAN HELLER, Nevada 

TIM SCOTT, South Carolina 

BILL CASSIDY, Louisiana 

RON WYDEN, Oregon 

DEBBIE STABENOW, Michigan 

MARIA CANTWELL, Washington 

BILL NELSON, Florida 

ROBERT MENENDEZ, New Jersey 

THOMAS R. CARPER, Delaware 

BENJAMIN L. CARDIN, Maryland 

SHERROD BROWN, Ohio 

MICHAEL F. BENNET, Colorado 

ROBERT P. CASEY, JR., Pennsylvania 

MARK R. WARNER, Virginia 

CLAIRE MCCASKILL, Missouri 

SHELDON WHITEHOUSE, Rhode Island 

A. JAY KHOSLA, Staff Director 

JOSHUA SHEINKMAN, Democratic Staff Director 

SUBCOMMITTEE ON INTERNATIONAL TRADE, 

CUSTOMS, AND GLOBAL COMPETITIVENESS

JOHN CORNYN, Texas, Chairman 

CHUCK GRASSLEY, Iowa 

PAT ROBERTS, Kansas 

JOHNNY ISAKSON, Georgia 

JOHN THUNE, South Dakota 

DEAN HELLER, Nevada 

ROBERT P. CASEY, JR., Pennsylvania 

DEBBIE STABENOW, Michigan 

BILL NELSON, Florida 

CLAIRE MCCASKILL, Missouri 

BENJAMIN L. CARDIN, Maryland 

(II) 

C O N T E N T S 

OPENING STATEMENTS 

Page 

Cornyn, Hon. John, a U.S. Senator from Texas, chairman, Subcommittee 

on International Trade, Customs, and Global Competitiveness, Committee 

on Finance ............................................................................................................ 1 

Casey, Hon. Robert P., Jr., a U.S. Senator from Pennsylvania ........................... 3 

WITNESSES 

Garfield, Dean, president and CEO, Information Technology Industry Council, 

Washington, DC ................................................................................................... 5 

Bliss, Christine, president, Coalition of Services Industries, Washington, DC .. 6 

Dempsey, Linda Menghetti, vice president, international economic affairs, 

National Association of Manufacturers, Washington, DC ................................ 8 

Lee, Thea M., president, Economic Policy Institute, Washington, DC ................ 10 

ALPHABETICAL LISTING AND APPENDIX MATERIAL 

Bliss, Christine: 

Testimony .......................................................................................................... 6 

Prepared statement .......................................................................................... 29 

Casey, Hon. Robert P., Jr.: 

Opening statement ........................................................................................... 3 

Prepared statement .......................................................................................... 34 

Cornyn, Hon. John: 

Opening statement ........................................................................................... 1 

Prepared statement .......................................................................................... 35 

Dempsey, Linda Menghetti: 

Testimony .......................................................................................................... 8 

Prepared statement .......................................................................................... 37 

Garfield, Dean: 

Testimony .......................................................................................................... 5 

Prepared statement .......................................................................................... 42 

Lee, Thea M.: 

Testimony .......................................................................................................... 10 

Prepared statement .......................................................................................... 47 

COMMUNICATION

United Steelworkers (USW) .................................................................................... 51 

(III) 

(1) 

MARKET ACCESS CHALLENGES IN CHINA 

WEDNESDAY, APRIL 11, 2018 

U.S. SENATE, SUBCOMMITTEE ON INTERNATIONAL TRADE, CUSTOMS, AND GLOBAL COMPETITIVENESS, COMMITTEE ON FINANCE, Washington, DC. 

The hearing was convened, pursuant to notice, at 2:30 p.m., in 

room SD–215, Dirksen Senate Office Building, Hon. John Cornyn 

(chairman of the subcommittee) presiding. 

Present: Senators Grassley, Roberts, Thune, Scott, Casey, 

McCaskill, and Cardin. 

Also present: Republican staff: Madison Smith, Legislative Assistant for Senator Cornyn. Democratic staff: Livia Shmavonian, 

Legislative Assistant for Senator Casey. 

OPENING STATEMENT OF HON. JOHN CORNYN, A U.S. SENATOR FROM TEXAS, CHAIRMAN, SUBCOMMITTEE ON INTERNATIONAL TRADE, CUSTOMS, AND GLOBAL COMPETITIVENESS, COMMITTEE ON FINANCE 

Senator CORNYN. Good afternoon, and thank you for being here 

today. 

I was just telling Senator Casey I was struck by a recent article 

in The Economist which refers to Bill Clinton’s statements back in 

March of 2000, where he said American opinion on China was divided into two camps, one he called the optimists who would see 

China becoming the next great capitalist tiger with the biggest 

market in the world, and then he said there were the hawks and 

pessimists who saw China stubbornly remaining the world’s last 

great communist dragon and a threat to stability in Asia. They conclude that China, Xi Jinping, is a great mercantilist dragon under 

strict communist party control using the power of its vast markets 

to cow and co-opt capitalist rivals, to bend and break the rulesbased order, and to push America to the periphery of the AsiaPacific region. And they conclude that this has led to one of the 

starkest reversals in modern geopolitics. 

The focus of today’s hearing is on an important international 

market, the second-largest economy, and that is, of course, the 

country of which I was just speaking, China, also the United 

States’ largest trading partner and the third-largest export market 

for U.S. goods abroad. While the legitimate flow of goods and services between the United States and this nation has increased over 

the years, the statistics alone do not tell the whole story. We must 

also consider the national security context. Within 7 years, China 

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will pose the greatest threat to U.S. national security of any nation, 

according to the Chairman of the Joint Chiefs of Staff. 

As China’s population grows and as its economy continues to 

modernize, the Chinese market will continue to emerge as an attractive one for U.S. businesses seeking the opportunity to serve 

the Chinese consumer in all sectors. But unfortunately, while Chinese companies enjoy largely unfettered access to the United States 

market and an economy that is open to investment, U.S. companies 

are not afforded with reciprocity in this regard. 

In order to paint a picture of the persisting problem, we have to 

review the historical context. In the 1980s, China first sought entry 

to the rules-based global trading system known as the World Trade 

Organization. After years of deliberation and negotiation, an agreement was reached in 2001. This agreement allowed for China’s accession to the World Trade Organization if it agreed to comply with 

a number of free market principles: tariff reductions, equal footing 

for foreign businesses, and the removal of implicit and explicit barriers to trade. Moreover, China would have to adhere to global 

principles under the TRIPS agreement to protect and enforce intellectual property rights. 

Fast forward to 2018, 17 years later, and China has still not 

lived up to those promises and commitments it made under WTO. 

China’s authoritarian regime, its One Belt, One Road Initiative, 

and its Made in China 2025 plan are part of a comprehensive agenda to promote state-driven industrial policies that distort and disadvantage U.S. firms that are simply seeking free market competition with Chinese companies. 

U.S. companies seeking to do business in China often encounter—I would say always encounter—a protectionist system, one 

that employs predatory practices and promotes domestic subsidized 

industries over foreign competitors. The U.S. Trade Representative’s 2017 report on China’s WTO compliance explains that today’s 

situation in China is even worse than it was 5 years ago, as the 

state’s grip on the economy continues to increase. But even more 

alarming is the fact that U.S. technology companies often report 

China’s blatant attempts to steal sensitive and proprietary intellectual property. 

In many instances, China has simply used trade as a weapon, coercing U.S. companies to enter into joint ventures and other business agreements that require the company to hand over key technology and know-how—the so-called ‘‘secret sauce’’—simply in 

order to gain market access. This practice has already begun to 

erode America’s technological advantage and undermine our defense industrial base. That is why I have introduced legislation, 

along with Senator Feinstein, called the Foreign Investment Risk 

Review Modernization Act to combat this epidemic and modernize 

the Committee on Foreign Investment in the United States. 

It is also my understanding that President Trump and his administration are currently considering potential temporary actions 

under existing authority to ensure investment reciprocity and protect U.S. national security, in part because CFIUS, as it currently 

is enacted, lacks adequate authority under its current statute. 

China’s restrictive market is highly concerning. And multiple administrations have attempted to engage China’s leaders on their 

3 

trade practices. China will even send students to American colleges 

and universities for STEM-related degrees, only to have them return to China and further advance their goals. It is part of their 

comprehensive strategy. 

Unfortunately, many rounds of high-level diplomatic talks have 

not yielded progress, often resulting in commitments made with 

zero action. Take the latest comprehensive economic dialogue, for 

example. The 100-day plan on trade yielded commitment from 

China, most of which has not been followed up on. 

Discussions may continue in the future, but one thing is clear: 

China’s market access reforms are too slow, and barriers still exist. 

Reciprocal treatment for U.S. companies should not be too much to 

ask; indeed, it is the bare minimum of what we demand. 

It is my hope that today’s hearing will paint a clear picture of 

the problems that persist with access to China’s market and that 

significant reforms will follow. With that, let me turn it over to 

Ranking Member Casey. 

[The prepared statement of Senator Cornyn appears in the appendix.] 

OPENING STATEMENT OF HON. ROBERT P. CASEY, JR., 

A U.S. SENATOR FROM PENNSYLVANIA 

Senator CASEY. Thanks very much, Mr. Chairman. I want to 

thank Senator Cornyn for this hearing and for our witnesses. 

Whether it is steel or tires or high technology, industries across 

a State like Pennsylvania, and indeed across the country, face 

significant challenges when it comes to China. Whether through 

forced technology transfer or joint ventures, theft of intellectual 

property or straight-up barriers to entry, U.S. firms and manufacturers have been fighting for decades to get the same treatment for 

American products in China as Chinese exports see in the United 

States. 

When Ambassador Lighthizer came before this committee just a 

couple of weeks ago, he stated in part of his testimony, quote: ‘‘The 

costs of globalization are falling most heavily on workers.’’ I will repeat the last five words: ‘‘falling most heavily on workers.’’ I could 

not agree more. And this is backed up by studies by the Economic 

Policy Institute, and not too long ago by a study done at MIT by 

economist David Autor and his coauthors, David Dorn and Gordon 

Hanson. All of these studies lend credence and lend data to that 

assertion. 

Just in short, summary fashion, the MIT study said that roughly 

40 percent—40 percent—of the decline in U.S. manufacturing just 

between 2000 and 2007 was due to a surge in imports from China. 

That has been the experience of Pennsylvania. We have had a 

record loss in manufacturing jobs over the last generation, economic devastation that none of us could even begin to describe or 

fully understand, lives that have been completely destroyed, communities wiped out, trauma and suffering that flow from the job 

loss: suicides, family breakups, opioid addiction, all kinds of traumas in the aftermath of that kind of job loss. 

It started to present itself in the 1980s. There was a 4- or 5-year 

period in the early 1980s when tens of thousands of steelworker 

jobs were lost in southwestern Pennsylvania. By one estimate, in 

4 

5 years or less, half of the steelworker jobs in that region were lost, 

from about 90,000 to 45,000. And it just continued from there. 

I have to say, I do not think that in the last 40 years at least, 

either party here in Washington has done nearly enough. Neither 

party, in my judgment, has had a strategy, and neither party has 

focused on a way forward. And this applies, of course, to multiple 

presidential administrations and many sessions of Congress. 

Workers need an answer for what happened to them—and continues to happen to them. U.S. industries have been under a sustained attack from China—our steel, our aluminum, manufacturing—in the past decade. And now China has given us the playbook for their next line of attack: robotics, rail equipment, advanced medical products, just to name a few. Pennsylvania knows 

all too well what may be in store for the rest of the country if we 

do not address the systemic threat that China presents. 

After the collapse of the steel industry, the city of Pittsburgh 

found its way back, reinventing itself with the help of civic leaders, 

foundations, universities that are on the cutting edge in robotics 

and advanced technology. China, in its 2025 plan that Senator Cornyn referred to, is coming after all of that too. 

So I am glad we are having this hearing today, and I hope it begins a much-needed conversation on the type of comprehensive 

strategy we need to address the threat posed by China. If you do 

not have a strategy that undergirds the development of an answer, 

you will not get the results that we all agree on: ensuring U.S. 

workers have the skills they need to compete, insulating our communities from economic shock, and preventing China from literally 

stealing our future. 

Part of that is making sure our communities have access to immediate economic assistance when large job loss or a localized recession occurs, which can happen for any number of reasons outside of trade. The goal is always to prevent economic shocks from 

happening, but if they do occur, we must respond, and respond 

quickly. I have put forward a bill on this issue and would welcome 

the insights of the panel on a future date. 

China has made no secret about its strategy to push the rules 

to their limit and, when advantageous, break those rules outright. 

They know that by the time a trade case reaches its conclusion, the 

damage to an industry has been done. 

The U.S. needs a sustained and coordinated strategy to address 

the threat posed by China, and the United States should work with 

our allies to execute it. This is not a problem unique to the United 

States, and there is no need to treat it as such. We must address 

the barriers China puts up that prevent our companies from competing on a level playing field. 

So I am glad to be working with Senator Cornyn and others on 

these critical issues. It is clear that he and so many people in both 

parties care deeply about this issue. We appreciate our witnesses 

being here today to help us shed light on this challenge. Thank 

you. 

Senator CORNYN. Thank you, Senator Casey. 

[The prepared statement of Senator Casey appears in the appendix.] 

5 

Senator CORNYN. I want to take a moment to introduce our witnesses. The first is Mr. Dean Garfield. Mr. Garfield serves as the 

president and CEO of the Information Technology Industry Council. Our second witness is Ms. Christine Bliss, who is president of 

the Coalition of Services Industries. The third panelist is Ms. Linda 

Dempsey. She is vice president of international economic affairs at 

the National Association of Manufacturers. And our final witness 

today is Thea Lee. Ms. Lee serves as president of the Economic Policy Institute. 

Let me join Senator Casey in thanking each of you for being here 

today and sharing your thoughts with us. I will start with Mr. 

Garfield. If each of you would limit your initial presentation to 

about 5 minutes, we promise you that any additional remarks you 

have will be made part of the record. But we would like to get to 

ask questions and exchange ideas. 

So, Mr. Garfield, I will recognize you, sir. 

STATEMENT OF DEAN GARFIELD, PRESIDENT AND CEO, INFORMATION TECHNOLOGY INDUSTRY COUNCIL, WASHINGTON, DC 

Mr. GARFIELD. Thank you, Chairman Cornyn, Ranking Member 

Casey, members of the subcommittee. On behalf of 63 of the world’s 

most dynamic and innovative companies that are members of ITI, 

we thank you for holding this hearing. 

I can think of no issue more important to America’s economic 

and technological future than the bilateral relationship between 

China and the United States. 

We have submitted my testimony for the record, so for purposes 

of this hearing, I would like to focus on three things: one, what is 

at stake and the obstacles we face in China; two, why we continue 

to compete in that market; and three, what the U.S. Government, 

Congress, and the administration can do to help. 

With regard to the first, which is, what is at stake, it is America’s economic and technological future. We are experiencing now 

innovations like AI, 5G, quantum computing that are some of the 

most historic in human history. China recognizes that and is doing 

things that are both legitimate and illegitimate to put its thumb 

on the scale in favor of its local champions so they can corner the 

market on the frontier innovations of the future. 

The list of pernicious protectionist measures is long; many have 

even called it a tapestry. So for purposes of this hearing, I will 

focus on three elements of the quilt. 

China has become expert in foreclosing strategic elements of its 

market from foreign competition. A case example of that is in cloud 

services. Eighteen of the 20 largest cloud service providers in the 

world are U.S.-based. Unfortunately, those cloud service providers 

do not have free and reciprocal access to the Chinese market. 

In fact, those companies cannot directly engage in cloud services 

in China. They cannot engage in contracts with Chinese customers. 

And they cannot directly operate cloud services in China. In fact, 

China has the most restrictive cloud services rules in the world. In 

contrast, Chinese companies that provide cloud services have unfettered access to the rest of the world. 

6 

A second element of the quilt that gives you a sense of the norm 

in China is China also has become expert in overwhelming companies with an avalanche of vague rules, regulations, standards, and 

practices that create opportunities for mischief. For example, the 

2016 cybersecurity law in China was complemented by an array of 

rules and regulations that culminate in a cybersecurity review regime that empowers agencies and municipalities to pressure companies to provide access to their source code and, as well, to transfer sensitive technologies. Our companies have become adept at 

navigating the straits and avoiding turning over their seed corn to 

the future to China. Nonetheless, in facing those pressures, they 

certainly operate in that market at a disadvantage. 

The trifecta in the quilt in China is what you alluded to, Senator 

Casey, which is the practice in China of making commitments that 

they do not ultimately keep. 

China, when it ascended to the WTO, committed to opening up 

the Chinese market to financial services. Thereafter, China lost a 

WTO case on electronic payment services. And in 2013, it committed to opening up the market. Again, in Mar-a-Lago in 2017 

they committed to doing the same and still have not. 

That may raise the question as to why our companies continue 

to compete in China. The answer is, you cannot be a global company and ignore one-fifth of the world’s population. It would be 

akin to Starbucks saying they are going to have a store on every 

corner with the exception of California, Pennsylvania, and Texas. 

It just does not make sense. As well, in the tech sector, in order 

to acquire customers, you must compete globally, which means also 

competing in China. So the choice for our companies is competing 

in China or not competing at all. Our companies have chosen to 

compete, and that is in part why we need the assistance of both 

Congress and the administration. 

What we recommend is twofold, which fits in a singular basket, 

which both Senator Cornyn and Senator Casey raised, which is, we 

need a broader strategy that has two pillars. One is making sure 

that we are working with our allies to advance our interests with 

China. And what that means at this moment is focusing more on 

building that coalition, getting to the bargaining table with China, 

and putting in place timelines and accountability mechanisms to 

make sure that we are changing their behavior—so, focusing more 

on that and less on tariffs. 

Finally, what it means is investing more here in STEM and the 

other essentials for being successful in those areas of frontier innovation. 

Thank you for this opportunity, and I look forward to your questions. 

Senator CORNYN. Thank you, Mr. Garfield. 

[The prepared statement of Mr. Garfield appears in the appendix.] 

Senator CORNYN. Ms. Bliss? 

STATEMENT OF CHRISTINE BLISS, PRESIDENT, 

COALITION OF SERVICES INDUSTRIES, WASHINGTON, DC 

Ms. BLISS. Chairman Cornyn, Ranking Member Casey, subcommittee members, I appreciate the opportunity to present the views 

7 

of the Coalition of Services Industries, which represents a wide 

spectrum of services sectors, from financial services to IT services 

to professional services, media and entertainment, logistics, just to 

give you a sense of the breadth of whom we represent. 

China was the United States’ second-largest export market in 

2017 and is one of the fastest-growing markets for U.S. services. 

But we need to make sure that we can take advantage of those opportunities, so I want to highlight some particular areas of concern, 

and they are going to overlap with a couple of the areas, if not all 

the areas that Dean mentioned in his testimony as well, just to 

demonstrate how incredibly important digital trade is for the economy as a whole and certainly the services sector. 

In information and technology services, China fails to provide 

nondiscriminatory market access for a broad range of online services, requiring joint venture partners for online services and then 

failing to issue the necessary licenses to provide those services. 

On cloud services—which, again, you just heard highlighted—the 

United States should secure China’s commitment that it will allow 

U.S. cloud service providers to provide all the necessary licenses for 

the operation and provision of cloud services, remove existing investment restrictions, permit U.S. cloud services to use their trademarks and brands and to sign contracts for the provision of cloud 

services, and enable U.S. cloud services providers to procure telecommunications services for the provision of cloud services on a 

nondiscriminatory basis. 

China also maintains barriers to cross-border provision of video 

and music services as well as cross-border data services, including 

virtual private networks. And more broadly, and of great concern, 

China blocks a wide range of legitimate U.S. websites and services. 

China’s cybersecurity law is another area of concern that has the 

potential to create additional discriminatory barriers and, particularly with respect to its requirement that personal data be stored 

domestically and the fact that it is as vague and broad as it is, has 

created confusion and uncertainty as to how it will exactly apply 

and to what types of data it will apply. 

Before highlighting China’s financial services barriers, I just 

want to thank Finance Committee members, including Senators 

Cornyn, Scott, Heller, Crapo, Portman, Cassidy, Isakson, and 

Thune, for your September 17th letter to the administration highlighting the barriers to trade and investment that financial services face. 

Currently, to illustrate, there is a 50-percent cap on foreign equity in life, health, and pension companies that has existed since 

China entered the WTO in 2001. China’s 2017 announcement that 

it would allow 51-percent foreign ownership in Chinese life insurance companies in 3 years and lift that restriction entirely in 5 

years is very welcome. But the key here is implementation and 

follow-through. China has not authorized any U.S. investment in 

the enterprise annuities sector. And there is a 33-percent cap in 

the securities sector. 

There is also an unlevel playing field in the banking sector, as 

U.S. banks are subject to a 20-percent investment ceiling for single 

foreign shareholders and a 25-percent investment limit for multiple 

foreign shareholders in local Chinese banks. China has announced 

8 

that it will increase foreign direct investment in domestic securities 

firms from 49 to 51 percent, with a commitment to remove that 51- 

percent cap within 3 years. 

Electronic payment services—another area that we share in common with the comments made by ITI—is a very important area. In 

May 2017 in the U.S.-China 100-Day Action Plan, one of the commitments China made was to open the domestic market for U.S. 

electronic payment services. There are several U.S. EPS suppliers 

that have filed license applications; they remain pending. And we 

urge China’s commitment to full and prompt market access for U.S. 

EPS suppliers. 

In conclusion, we believe that fully realizing the tremendous potential the Chinese market represents requires not only that 

specific services and investment barriers be addressed, but we 

think there must be systemic changes across the Chinese economy. 

And CSI believes this can be best achieved by ensuring that the 

U.S. establishes a clear framework for engaging in bilateral negotiations with China with defined objectives, a timetable, and close 

coordination with our allies. 

I thank you very much, Mr. Chairman, for the opportunity to 

present our testimony. 

Senator CORNYN. Thank you very much. 

[The prepared statement of Ms. Bliss appears in the appendix.] 

Senator CORNYN. Ms. Dempsey? 

STATEMENT OF LINDA MENGHETTI DEMPSEY, VICE PRESIDENT, INTERNATIONAL ECONOMIC AFFAIRS, NATIONAL ASSOCIATION OF MANUFACTURERS, WASHINGTON, DC 

Ms. DEMPSEY. Chairman Cornyn, Ranking Member Casey, members of the subcommittee, thank you for the opportunity to testify 

today on manufacturers’ views on market access challenges in 

China. The National Association of Manufacturers, NAM, is the 

largest and oldest manufacturing association in the United States, 

representing over 14,000 manufacturers in every industrial sector 

in all 50 States. 

Manufacturing employs 12.6 million women and men across the 

country, contributing a record $2.25 trillion to the U.S. economy in 

2017. U.S.-China commercial relations are a top priority, given 

both the challenges and the opportunities this relationship presents. It is fair to say that our Nation’s relationship with China is 

complicated—very complicated. 

On the one hand, there are few places in the world where manufacturers in the United States export more or have increased sales 

more. As a result of China’s lowering of tariffs and implementation 

of many of the rules of the WTO system, manufacturers in the 

United States have been able to export more goods to China than 

to any other country outside of our NAFTA partners, Canada and 

Mexico. Manufacturers exported nearly $96 billion in goods in 

2017, which in turn supports hundreds of thousands of U.S. manufacturing jobs. 

Exports of ‘‘Made in the USA’’ manufacturing goods to China have grown by more than $76 billion since 2002, more than to any 

other country besides Canada and Mexico. Similarly, our friends in 

the agricultural sector have seen similar levels of growth, which 

9 

help manufacturers sell to our domestic farmers, in terms of equipment, fertilizer, seed, cold storage, and the list could go on. This 

is especially important for manufacturers, because more than half 

of the manufacturing workforce depends for their paychecks on exports overseas. 

But on the other hand, there are few places in the world where 

trade has proven more challenging for American manufacturing. 

We face substantial unfair, discriminatory, and distortive practices 

in China that are harming U.S. manufacturing and manufacturing 

workers and are holding our country back. 

Among the most troublesome issues on which I expanded in my 

written testimony are localization policies, such as Made in China 

2025, that discriminate against U.S. companies; intellectual property rights and enforcement that are insufficient for the 21st century; standards, technical regulations, and conformity assessment 

procedures that limit our ability to compete on a fair and equal 

basis in China; subsidies and other measures that distort the market and create damaging and unsustainable overcapacity; investment restrictions that depress market access and foster harmful 

technology transfer; state-owned enterprises that create unfair and 

uncompetitive conditions of competition; tariffs and other import 

regulations that block U.S. exports; and transparency and the ruleof-law issues. While some of these challenges can be addressed 

through the existing WTO rules, others require new approaches. 

The question is how best to address them. 

We at NAM believe it is time, long past time, to undertake a 

truly comprehensive and focused strategy designed to achieve the 

best outcomes for American workers and enterprise. That means 

pursuing a modern, innovative, and comprehensive bilateral trade 

agreement with China that wholly restructures our economic relationship. 

As NAM president and CEO Jay Timmons explained in a letter 

to the President on January 8th, ‘‘To be successful, such a free and 

fair trade agreement must eliminate barriers that unfairly block 

American companies and American manufacturing exports from 

full access to the Chinese market, raise standards in China and 

create new rules to prevent the wide range of market-distorting 

practices that violate free markets and fair competition and hurt 

American businesses and workers, and create clear mechanisms to 

mandate strong and binding enforcement of the agreement, providing channels for the government and industry alike to address 

cheating and violations.’’ 

This is at once both a radical and, in our view, the most effective 

and pragmatic way forward. This approach must also be combined 

with ongoing enforcement of the WTO rules to which China has 

committed, usage of U.S. trade remedy rules to address unfair 

trade practices that are harming our industries and workers, and 

intensive work with our trading partners to address systemic challenges that are undermining trade globally. Targeted actions, such 

as tariffs, can provide some relief in the short term to some manufacturing industries, but they harm others in the form of significant added costs or provoke China to take further destructive actions. 

10 

Ultimately, we think it is best to address directly the systemic 

issues that have given rise to the underlying challenges in the first 

place. The U.S.-China commercial relationship has provided significant opportunities for the American economy and manufacturers. 

As a massive and growing market, it holds the promise of continuing to do so, but to achieve that, to be sustainable, the trading 

relationship simply must be more fair and more open. That is exactly what a comprehensive bilateral trade agreement with China 

would help achieve. 

Thank you. 

Senator CORNYN. Thank you. 

[The prepared statement of Ms. Dempsey appears in the appendix.] 

Senator CORNYN. Ms. Lee? 

STATEMENT OF THEA M. LEE, PRESIDENT, 

ECONOMIC POLICY INSTITUTE, WASHINGTON, DC 

Ms. LEE. Thank you, Chairman Cornyn, Ranking Member Casey, 

members of the subcommittee, for the invitation to participate in 

this important hearing today. I am the president of the Economic 

Policy Institute, the Nation’s premier think tank analyzing the effects of economic policy on America’s working families. 

Seventeen years after China acceded to the WTO, the bilateral 

economic relationship between our two countries is enormously lopsided and problematic. The U.S. goods deficit with China is the 

single-largest bilateral deficit between any two countries in the history of the world, and it continues to trend upward, despite more 

than 20 U.S. challenges to China at the WTO, despite earnest annual bilateral talks and commitments, and despite all the reform 

commitments China made upon accession. 

Furthermore, it is not just the sheer size of the trade imbalance 

with China that is of concern. It is the composition. The U.S. ought 

to be a leader in advanced technology products. A wealthy, technologically savvy, high-skilled, capital-intensive country like the 

United States would be presumed to have a comparative advantage 

in ATP. However, the U.S. runs annual deficits in advanced technology products of over $100 billion, and that is entirely accounted 

for by China. That is to say, we have a trade surplus in ATP with 

the rest of the world. 

This one fact alone should be a signal that there are significant 

anomalies in the U.S. trade relationship with China that cannot be 

explained by market forces. Overall, top U.S. exports to China include raw materials, agricultural products and waste materials, as 

well as aerospace, while our imports are concentrated in computers, electronics, miscellaneous manufactured commodities, and 

apparel. This is not the profile of imports and exports that would 

be expected between countries at the respective economic development levels of China and the U.S. 

According to USTR, China is still not fully compliant with the 

commitments it made during the WTO accession process, as has 

been talked about today. American companies trying to do business 

in China face theft of trade secrets, counterfeiting, inadequate protection of intellectual property, online piracy, industrial policies 

that promote domestic goods at the expense of U.S. products, subVerDate Sep 11 2014 16:37 Jun 11, 2019 Jkt 000000 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 R:\DOCS\36645.000 TIM
11 

sidies, discriminatory product standards, the dumping of excess capacity, and restricted access for American services. 

Seventeen years after accession, China has not even listed all of 

its restricted export subsidies, let alone eliminated them, as was 

promised. In addition, China has used currency policies to gain an 

unfair competitive advantage over American business and labor. 

This litany of unfair trade practices, together with currency manipulation, has had a serious negative impact on American jobs 

and wages. As my colleague Rob Scott has shown, the U.S. trade 

deficit with China cost jobs in all 50 States and the District of Columbia while also putting downward pressure on the wages of manufacturing workers and, in fact, all non-college graduates. 

It is no secret that the Chinese government has a long-term economic strategy to build certain sectors through subsidies as well as 

through purchasing, tax, and regulatory policies. These plans set 

targets for indigenous production, use of technology, favorable 

treatment for state-owned enterprises, and discriminatory treatment of foreign brands and companies, among other things. These 

practices are deep and pervasive. 

There are two problems here, and we should be careful to distinguish them. On the one hand, many of the Chinese government’s 

practices are inconsistent with international rules and norms, not 

just the WTO, but also international conventions on workers’ 

rights, public health, human rights, environmental protections, intellectual property rights, and consumer safety. The U.S. touts the 

importance of a rules-based system, but if some players, like China, 

flout the rules with impunity over decades, then the rules-based 

system becomes a trap for those who comply. 

The U.S. Government’s piecemeal and scattershot enforcement 

strategy has been time-consuming and ineffective, as well as uneven. For example, our government has not even raised in any 

significant or meaningful way China’s failure to comply with its obligations as a member of the International Labor Organization. 

This means that American workers and businesses are competing 

on a tilted playing field, since Chinese workers cannot exercise 

their rights to form independent and democratic unions. 

The Chinese government is clearly playing a long game, while 

the U.S. is egregiously shortsighted. Our trade policies have been 

so inadequate in scale and slow in implementation that by the time 

we take action, it is often a decade too late, with the result that 

our trade actions are ineffective, if not counterproductive. 

We need to reform our domestic trade laws so we can act expeditiously. Going forward, we must address new barriers to trade in 

services and e-commerce. We need to make sure that we have and 

are willing to use measures to address currency misalignment. 

Our trade enforcement measures should prioritize good jobs, 

workers’ rights, democracy, environmental compliance, and consumer safety over outsourcing and short-term profits. 

In summary, the U.S. Government needs to develop and articulate its own long-term economic development strategy. It needs to 

use domestic tax, infrastructure, and workforce development policies to ensure that American workers and businesses have the tools 

and the skills they need to compete successfully. 

12 

But our government also needs to strengthen our trade compliance and enforcement measures and be willing to use them aggressively and consistently and in a timely manner to ensure that our 

trade relationship with China is both reciprocal and fair. 

Thank you for your attention. I look forward to any questions 

you may have. 

Senator CORNYN. Thank you very much, Ms. Lee. 

[The prepared statement of Ms. Lee appears in the appendix.] 

Senator CORNYN. We will be doing 5-minute rounds with questions, and I will start. 

Maybe, Mr. Garfield, I will start with you. It strikes me that 

most Americans, when they look at China, do not fully appreciate 

the fact that this is a country under communist party control and 

that one of the motivations of the party and of the country is to 

grow their economy, for obvious reasons, but also to control their 

people and to further their surveillance on their own people by, for 

example, maintaining data on their people in their country and not 

making it available more broadly because that undermines their 

goal of control. 

But also, in their approach to stealing intellectual property or, 

through creative investments, getting access to not only the intellectual property, but the know-how in order to build a product 

maybe that has been invented here in the United States, they do 

threaten American jobs, because they undermine the industrial 

base here. And if they can make it in China using Chinese workers, obviously that is to the detriment of American workers. 

So when you think about how we look at China, is that an accurate description? Or do you see some differences? 

Mr. GARFIELD. I think it is fair. Even when you are on the 

ground in China, which I have been double-digit times, it is often 

easy to forget that you are in a market that is state-operated and 

-controlled, with that as a fundamental pillar of their existence. 

I do not think that difference alone suggests that we should not 

be engaging with China. I think what it suggests is, given the level 

of state control and their desire to maintain control over their population, the United States also has to play the long game and develop a strategic outlook that has in mind leveraging our strategic 

advantages. 

Senator CORNYN. Well, Ms. Bliss, let me ask you this. Given 

what Mr. Garfield has said—and I do not disagree with him at 

all—how do we get China to embrace a rules-based regime where 

the rule of law is applied impartially no matter who is involved, 

when it seems so committed to its overall goal of economic growth 

and undermining any advantage of the United States? 

For example, the USTR’s 2017 report on China’s WTO compliance track record said the U.S. erred in supporting China’s entrance into the WTO on terms that have been proven ineffective. 

I mean, the reason why China was accepted in the WTO was the 

idea that they would then have to comply with WTO policies and 

decisions and rules. If they do not recognize those rules as authoritative or controlling, how do we deal with China? 

Ms. BLISS. Thank you, Senator. Well, I think there a couple of 

ways that we respond. And I would agree—as I said in my oral 

statement, and I think you have heard from other witnesses this 

13 

afternoon—that we very much support playing, as Dean said, the 

long game. In a sense, we believe there needs to be an established 

process where we get the Chinese to sit down at the negotiating 

table with well-defined objectives and a timetable, but we do that 

in concert with our allies in order to exert maximum pressure. 

I also think that we avail ourselves—which I think the United 

States has been doing, but could also step up—of existing commitments under the WTO. And I would say that there are some examples of where our hope is that the WTO commitments and the dispute settlement process will ultimately yield positive results in this 

area. 

And the example I would give is the electronic payment services, 

where China not only lost the case, was informed by a WTO panel 

that it was inconsistent with its WTO commitments, but then, in 

the 100-day initiative, recommitted to address that and to allow 

U.S. EPS suppliers into the market. There are now, as I am sure 

you are aware, a number of those license applications pending. And 

our view is, now is the time to ensure that China follows through 

on these commitments and issues those licenses. 

So that is one example where I know you question the effectiveness of the WTO, but I think there is an opportunity to show that 

it can be effective with China. 

Secondly, I think the administration’s current 301 response, 

where they have indicated their decision to take forward an aspect 

of that with respect to licensing to the WTO, is another example 

where we can take advantage of WTO rules in forcing China to 

really live up to its commitments. 

But finally, I would say we are concerned that under the current 

environment, we do not think that turning to things like escalating 

tariff threats is going to be an effective way to secure meaningful 

systemic reform in China. 

So I think the bottom line in our view is long-term, consistent 

pressure to negotiate, working with our allies with clearly defined 

objectives, and using tools that are available to us, which we continue to believe are effective. And we would include in that the 

WTO. 

Senator CORNYN. Senator Casey? 

Senator CASEY. Thanks very much. 

I want to start with Ms. Lee. I was glad that you focused in part 

of your testimony about the impact on jobs and wages here in the 

U.S. We have heard these numbers so many times, so many different versions of them, and the enormity of them, I think, even 

escapes our imagination. 

There is a growing body of research, in addition to the work that 

EPI has done—and we appreciate that work. The MIT study I mentioned in my opening statement about just a 7-year period—40 percent of the decline in U.S. manufacturing is attributable to the 

surge in Chinese imports. So can you discuss the impact in terms 

of not just jobs, but also in particular wages—U.S. wages, I should 

say? 

Ms. LEE. Thank you very much, Senator. And this is a really important issue, and it is one that I think got a lot more attention 

when David Autor and his colleagues at MIT did their study, which 

was very carefully done. They were looking at counties that were 

14 

importing a lot of the products that we import from China, and 

they were measuring the impact on jobs and wages. 

And one of the things I think that is not well understood is, people talk about the benefits of free trade, but I think even economists understand that there are winners and losers. But the magnitude of the difference is, I think, part of what is important, which 

is, there can be very small net economic gains, and there can be 

very large distributional impacts. And I think that is what we see 

from the trade relationship with China. It is not entirely what we 

would expect from economic theory. 

Dani Rodrik at the Kennedy School has said it could be as much 

as five to one, that the dislocation and the disruption and the distributional impact could be five times greater than the net gains. 

And so this is something. 

One of the points that I made is, it is not just the workers who 

lose their jobs because of imports from China or because of outsourcing to China, but this is a labor market. And so workers who 

are not directly impacted, who do not directly lose their job, could 

also be impacted by downward pressure on their wages. So even 

service sector workers who are not in the traded sector could feel 

that impact. 

And that is really a massive effect on the U.S. labor market. 

Senator CASEY. So the wage impact is substantial? 

Ms. LEE. Very substantial and in some ways more important 

than the number of jobs that are directly displaced. 

Senator CASEY. No city in the United States can claim to have 

the recipe for how to recover from huge job loss. Pittsburgh has 

done as good a job as any, I think, in modern history. It did not 

happen overnight. It did not happen because they had a guidebook. 

They had to do a lot of trial-and-error, invest in technology. They 

had big institutions, medical research, big universities, foundation 

support, public/private efforts, a whole range of things that were 

done. 

But if you look at not just the Pittsburgh circumstance, but just 

more broadly, what do you think we need to do to confront this 

challenge in terms of what we can do affirmatively in addition to 

confronting China? And I guess a more particular way of talking 

about it is, how do we keep our workforce more competitive? 

Ms. LEE. Thank you for that question. I think, you know, if we 

think about it as the supply and the demand side, on the supply 

side, I think that is the responsibility of the U.S. Government to 

invest more heavily in retraining and education and skills for 

American workers. 

The U.S. Government, compared to other governments, especially 

in other industrialized nations, under-invests in our workforce. And 

that is something, you know, that we continue to see in the most 

recent budgets. And so that is an easy place to start. But also, I 

think we need to make sure that we are, you know, building those 

supply chains and the manufacturing extension partnership, that 

we are supporting cutting-edge manufacturing. We do not need to 

keep all manufacturing here, but the United States should have a 

competitive edge in really advanced manufacturing. 

And there are apprenticeship programs for advanced manufacturing skills that I know the AFL–CIO has invested in that could 

15 

be really important. There are programs like Jobs to Move America, which is helping to tie public transit purchases to rewarding 

companies that are producing those trains in the United States and 

using American workers and training those workers and really investing in their workforce. So I think those are the kinds of programs that we should be looking at, in addition to making sure 

that our trade policy is fair and that we are enforcing the trade 

laws that we have on the books. 

Senator CASEY. I am just about out of time. Maybe I will go to 

the other panel members on the next round, but thank you. 

Senator CORNYN. Senator Grassley? 

Senator GRASSLEY. Yes. Instead of asking questions, I would like 

to reflect on a trip I had with Senators Daines, Johnson, Perdue, 

and Sasse to China a couple of weeks ago. We visited five cities; 

we did not visit any of the rural parts of the country. And Daines, 

Johnson, and Perdue have been to China many times connected 

with businesses, so they know better than I do about China and 

what they do that way. 

But I had various ideas about China before I went there, and all 

I can say is, they were made very real to me, some assumptions 

I had, like their status as a developing nation, to still be considered 

such, that does not meet the common-sense test. I think a commonsense test for me was, if they want to do business, their businesses 

doing business in the United States—they are the second-largest 

economy in the world; we are the largest—if they want to do business in our country, we ought to be able to do business on the same 

basis in their country. That is just what common sense tells me. 

If China was the 50th-largest economy in the world, that would 

be a whole different story. But number one and number two ought 

to be able to operate pretty much the same way. 

I kind of came away with the opinion that they will do anything 

legal or illegal, anything moral or immoral, anything ethical or unethical—do whatever they want to to get ahead and to stay ahead. 

And I had a chance with the political leaders in each one of the 

five cities, we each of us had an opportunity to present our views 

and ask for their rebuttal. I said that I am one of the few members 

of the United States Senate who is still in the Senate who voted 

for China to be in the WTO. I thought it was a very good thing that 

they be in the WTO, and I suppose I still think that they ought 

to be in the WTO, because that signifies living by the trade rules 

that we have under our international organizations. 

And I said it has not turned out the way that I anticipated with 

you violating all these rules and doing what you do to foreign competition. And I said, you know, I kind of feel like I should be sorry 

for my vote. And of course, they assured me I should not be sorry 

for my vote. 

And then you keep hearing from them, well, we want to have 

dialogue with the United States. Well, we have been having dialogue with them for a long, long time. I told them my view—you 

know, not that they are going to listen to me, but they have to hear 

me, what I think—you know what needs to be done, you just ought 

to do it. 

But they are, as you said, I think, Ms. Lee, very strategic, and 

we are very shortsighted. That is our fault. But if you want to do 

16 

business in that country, do you have to give them all your trade 

secrets? They steal our trademarks. They make fake products. 

They violate everything. 

And so I will end with this, to whoever of you said, we need new 

laws. I would like to have my colleagues look at a bill that Senator 

Brown and I have put in that would take a lot of what countries 

want to do here into consideration, particularly if they are going to 

buy into the United States and buy our research and development 

and all that sort of stuff. 

Then lastly, the former Governor of Iowa is now the Ambassador 

to China. And I saw him at several of our meetings over there. But 

I came to this conclusion from visiting with Chinese political leaders: because of his 30-year relationship with President Xi and 

American business people over there as well as our foreign service 

officers, I got a feeling that he was the right choice for the President of the United States to choose to be our Ambassador there. 

Thank you very much. 

Senator CORNYN. Thank you, Senator Grassley. 

Senator Roberts? 

Senator ROBERTS. I do not know if I can top that. [Laughter.] Although I understand, Mr. Chairman, that you did invite Mr. Smoot 

and Mr. Hawley to come and testify; I do not see them. [Laughter.] 

Senator CORNYN. They were busy. 

Senator ROBERTS. I do not know if they are in the audience or 

not, but I do recall I knew them, but Senator Grassley worked with 

them at that particular time. [Laughter.] 

Ms. Dempsey, you are the only witness who brought up agriculture, and I appreciate that, although there was a connection, I 

think, with Ms. Bliss too. And I do appreciate the two pillars and 

the testimony of all the witnesses. 

China has obviously, Mr. Chairman, been at the forefront of our 

trade policy agenda here in recent weeks—or months for that matter. Most significant has been the administration’s enforcement actions now following the conclusion of investigations regarding section 232, steel and aluminum imports, and section 301, the intellectual property and technology transfer practices, which have been 

referred to by all of the witnesses. 

But as we have seen numerous times, Mr. Chairman, agriculture 

is often the first industry impacted when retaliatory measures are 

enacted. And with the recent announcement of Chinese tariffs on 

U.S. products, many of which are agriculture products, they are the 

first ones that they pick. It is clear that history may be repeating 

itself. I hope that is not the case. 

The U.S. exported nearly $20 billion in agriculture products to 

China in 2017. That made it one of the top export markets for U.S. 

agriculture. But let me point out that over the last 3 or 4 years, 

farm prices are down 40 percent. Farm income is down 52 percent. 

So, when we have a tariff that is announced in response to whatever negotiations are going on and all of a sudden we find out, in 

response to washing machines and solar panels, sorghum producers 

in my State, whose price was about the cost of production, all of 

a sudden find out their basis points are down 80 percent. Boom, 

just like that. 

17 

And in the second place, as we keep going with that, now we 

have the additional—I do not know what to call them—I guess 

measures that the President has mentioned and that the administration has mentioned, Wilbur Ross and Mr. Navarro and Bob 

Lighthizer. 

I had a long talk with Bob Lighthizer about this here just the 

other night. And some of us are going up to the White House tomorrow. Obviously, we are involved in agriculture, and we are worried about the retaliation. 

And here we have the soybean market off 17 percent. The sorghum producers that I mentioned, when I was at the White House, 

they were in my office. And when I came back, they said, ‘‘What 

in God’s name did you do?’’ I said, ‘‘Hey, it was not me, coach.’’ You 

know, one farmer was in tears. He said, ‘‘You know, I had to sell 

at this particular time.’’ So you can see the ramifications here. 

So during an already challenging time for farmers and ranchers, 

drastic trade policy measures will have a compounding effect on 

producers in rural America. Everybody up and down Main Street 

is nervous about trade—everybody in the food chain and all the 

lenders. 

And by the way, Senator Casey is a Senator I really respect. He 

is a very valuable Senator on the sometimes powerful Senate Agriculture Committee. And I understand your plea for workers with 

regards to Pennsylvania. 

Pennsylvania is also a big ag State, and farmers and ranchers 

and growers are also workers, and they work from dawn to dusk. 

And I hope we do not get into a situation where one is pitted 

against the other. That is not what we should do. 

So, what has the administration proposed here in terms of proposing tariffs? I think the President has signaled, at least in the 

press—and we will learn about that possibly tomorrow—about 

using the Commodity Credit Corporation and using money to offset 

some of the problems that we have experienced with regards to 

prices in the farm sector. 

We do not need that. We do not want another subsidy program. 

What we want is a market. We have to sell our product, we have 

to sell things we make, but we also have to sell things that we 

grow. And we are in a rough patch in agriculture today. So I am 

very hopeful—and any witness who wants to can comment about 

this—but I hope we do not go down that road of creating some very 

cumbersome and very difficult-to-implement if not impossible program from the CCC. 

What do you think about—the President mentioned this sometime back; he has not mentioned it since. I hope maybe after tomorrow he will mention it again. How about the 11 countries that 

joined on the TPP program, what about making efforts to get back 

in sync with the TPP? If there is ever an opportunity for the 

United States to plant the American flag and also have their back 

and also increase trade—you know, propositions all throughout the 

Pacific—it would be that. That would be my best suggestion, either 

that or, well, both sell something or else signal that we are interested in getting back with the TPP. 

Would any of you like to comment? 

18 

Ms. DEMPSEY. Maybe I can start. I mean, the National Association of Manufacturers had wanted to see a strong TPP go forward, 

and we were disappointed that it did not. If there is an opportunity 

for the United States to get back in as part of the TPP, I think that 

is important. It would set the rules of the international trading system. 

We also, though, think we have to take this moment with China. 

We have to act urgently to get new rules of the road. When China 

joined the WTO in 2001, the rules were written in 1994 for most 

of it. Right? We did not have an Internet, we did not have the digital economy and the cyber issues. We did not have the growth in 

trade that we have now seen today. 

We have to get China to, at the negotiating table, not just dialogues where statements are issued, we have to get them at the negotiating table to an agreement that is fully enforceable. And we 

can do that through working with our TPP partners, but we also 

have to do that bilaterally. 

Senator ROBERTS. Well, thank you for your comments. My time 

has long since expired. 

Senator CORNYN. I think, Mr. Garfield, you had a comment; you 

wanted to respond to Senator Roberts? 

Mr. GARFIELD. Yes. 

Senator ROBERTS. I am sorry, Mr. Garfield. Please. 

Mr. GARFIELD. I think your point about farming is an apt one. 

One of the things that has been surprising about the discussion 

over the last 3 weeks around China is how much it has unified the 

broad business community across three pillars, I would say. One is 

the need to redefine the relationship with China. What we are 

doing is simply not sustainable. Second is the importance of doing 

things that work, which means avoiding tariffs. They have not 

worked since McKinley or Smoot-Hawley and will not work now. 

And then third is doing all the things that we have been talking 

about in alignment here on the panel, which are, developing a 

strategy and pushing China with clearly defined dates and accountability metrics. 

When China acceded to the WTO, there were no timelines 

against which China would do the things that it committed to do. 

In fact, 2 days ago, President Xi recommitted for the fifth time for 

China to open up its financial services sector. 

And so, unless we push China to commit to a date certain and 

have a metric for measuring whether they are doing it, we will simply continue to repeat the current cycle. 

Senator ROBERTS. Well, let me just close by saying that I agree 

with the President, I agree with everybody who has said, all of the 

witnesses, that long-term—and it is going to have to be a long-term 

policy with regards to China—you are going to have to have systemic change in China. That may be an oxymoron; I hope it is not. 

But that is one thing. 

But short-term, for goodness’ sake, do not, in this business of 

playing your cards of trying to get a better deal for the United 

States or a better trade situation, do not do so at the expense of 

American agriculture, which is going through a very difficult time. 

And I do not like this business of using farmers and workers as 

pawns in this particular game, because every sector of ag now is 

19 

in trouble, and they are worried to death and very nervous about 

that future. 

And I want to thank you all for your comments. Sorry for going 

overboard. 

Senator CORNYN. Senator Cardin? 

Senator CARDIN. Well, Mr. Chairman, first, thank you for convening this hearing. And I thank all of our witnesses. 

And I just want to underscore the point that Senator Roberts 

made. I recently took over as the ranking Democrat on the Small 

Business Committee, and farmers are small-business owners. And 

over half of our exporters to China are small businesses. 

So what concerns me is, we talk about these policies concerning 

China and how companies have to adjust. If you are a smallbusiness owner, it is almost impossible to adjust. 

So I would hope we could get some suggestions as we talk about 

how we engage on trade, our sensitivity to small-business owners 

who are engaged in export, international trade, because they really 

are getting caught without any ability to handle the consequences 

of these trade discussions. 

I do not know if any of you have any suggestions focused on 

small businesses, but I would welcome those. 

Ms. DEMPSEY. Maybe I will start. You know, over 90 percent of 

the NAM’s members are small and medium-sized businesses. And 

actually, one of our small-business members of our board of directors was on the House Small Business Committee today talking exactly about these types of trade issues. 

I mean, small-business owners, certainly our manufacturers, face 

many of the same challenges that bigger companies do, but they 

face more challenges because they do not have outside legal teams, 

inside legal teams, and the whole support network to deal with 

these challenges. 

Senator CARDIN. So how do we help them? How do we, how does 

the USTR, how does the trade discussion become sensitive to our 

smaller companies? 

Ms. DEMPSEY. The three items that our small-business colleague 

mentioned today at the Small Business Committee on the House 

side were, first, making sure that we have strong and enforceable 

trade agreements with clear rules. 

You know, they are in China and facing multiple changes to 

medical equipment regulations and different standards. That 

makes it really hard for a small-business owner to compete. They 

have done great in terms of exports to China; will that continue? 

That is hard. If we can get China to agree to strong, accountable 

rules, that is part of it. 

Another piece for us is, getting things like our Export-Import 

back into full functionality. And we would like to see the Senate 

move forward expeditiously on the nominees that are awaiting 

confirmation. 

The other thing is, the Small Business Administration has programs, like the STEP program and other trade promotion activities. Our trading partners overseas, our friends and allies and 

those who are not, do a heck of a lot more to help their small businesses export and participate—market intelligence and assistance—than we do here in the United States. 

20 

We have to look really clear-eyed at ways that we can use the 

resources we have. We have excellent resources at the Commerce 

Department; our foreign service officers that Senator Grassley was 

talking about should be making sure that those activities are coordinated with the States, because the States do a lot of export promotion now too. 

But clear rules, defined rules, that type of support, and certainty. 

And that is why trade agreements and those types of things are so 

important. 

Senator CARDIN. I think that is helpful. 

I want to get to Ms. Bliss for one second. I appreciated your testimony and responses to some of the questions. 

I just want to get to the overall strategies we have on China that 

I think are not well understood, primarily because of the President’s lead on general tariffs on steel and aluminum under section 

232, and then coming under section 301 against China specifically, 

where we have legitimate problems with China on intellectual 

property. But it gets confused as to whether we are going after 

specific problems in countries or whether we are just trying to protect our domestic industries, as seen by the international community in the credibility of our programs. 

We did not use the antidumping claim this go-around, which is 

better understood and is specific to a country. Instead, we used a 

general tariff. And I just would like to get your view, as a person 

who was in the USTR, as to how this affects America’s credibility 

globally, working with our trading partners to understand our policies in regards to China, which we have legitimate concerns about, 

but the manner that we are going about packaging that, international trade policies. 

Ms. BLISS. Well, thank you, Senator. In that regard, I think, as 

I have said, that certainly wearing both maybe my old USTR hat, 

but also at CSI, we honestly think that it is critically important at 

this stage to clearly define what the objectives are. Now, a lot of 

that work has been done, because there was tremendous work put 

into the 301 investigation with respect to tech transfer and IP. So 

I think there is no question that measures have been looked at, 

have been identified. 

But I think, in terms of pressing forward on what should be accomplished, there still needs to be a roadmap, and I think that is 

what we have been really waiting to see in terms of, what are the 

specific objectives, what is the timetable, what happens if those objectives are not reached? 

And I think a critical part of that, as I have said, is working with 

our allies, which I think the United States government does to a 

great degree. But I think now, more than ever—— 

Senator CARDIN. We did not in regards to the steel and aluminum. 

Ms. BLISS. No, I am not saying that. I am just talking about 

China right now. 

Senator CARDIN. But it came right after steel and aluminum—— 

Ms. BLISS. Right. No, I understand that. But I am just saying 

that, to be effective in focusing specifically on China, I think working with our allies—and even though it is out of my area of expertise at this point—I think the same could have been done with reVerDate Sep 11 2014 16:37 Jun 11, 2019 Jkt 000000 PO 00000 Frm 00024 Fmt 6633 Sfmt 6633 R:\DOCS\36645.000 TIM
21 

spect to steel and aluminum, although that issue seems to be working itself out. 

I would say, and I just wanted to add, that I think services is 

an important part of the trade picture in going forward and 

figuring out where the benefits are. 

Senator CARDIN. I agree with you. I think their rules on services—and our penetration on services is so low compared to our capacity to be involved in services in China. 

Ms. BLISS. Exactly. 

Senator CARDIN. And their rules on investment limitations, et 

cetera, are just so protectionist. We clearly need to take actions. 

But I guess my point is that that is how we should be going after 

China, where we have very strong claims that are understood by 

the international community rather than using, again, the broad 

stroke, as we started, with aluminum and steel at this point. 

Mr. GARFIELD. I was in Brussels 2 weeks ago, and they were 

very clear about their interest in working with the United States 

on these issues. And our colleagues are heading to Japan and 

Korea next week, and the interest in partnering and working with 

the United States is high. The concern they have is that they do 

not see the broader strategy, and they think the focus is solely on 

tariffs, which our allies are not interested in. 

And so, if we can make clear that there is a broader strategy and 

that it goes beyond tariffs, I think we would be surprised at the 

number of nations that are willing to work in collaboration with us. 

Senator CORNYN. Senator Scott? 

Senator SCOTT. Thank you, Mr. Chairman. And thank you to the 

panelists for being here this afternoon. 

Certainly, our trade approach perhaps is unorthodox at this moment. I do think that we are going beyond the trade scope. I think 

I would break it down to three ‘‘t’’s, Mr. Chairman: trade, tariffs, 

and theft. 

And perhaps we are conflating some issues at times, but really, 

long-term, I think the President’s objective is to make sure that we 

are still in business in the next generation. And if we allow the 

theft to continue from an IP perspective, we will find ourselves 

wishing we would have addressed it differently in the past, looking 

back a generation from now. 

I think the importance of goods in this conversation cannot be 

emphasized enough. I come from South Carolina, a State where we 

were fairly anti-trade for a hundred-plus years, and in the last decade or two, maybe three, we have seen a renaissance. And now we 

have BMW that exports 100,000-plus cars from South Carolina to 

China. We are building the new Volvo plant. We have the country’s 

largest exporter, Boeing, in my backyard, Mercedes as well. So we 

have a lot of folks who are focused and interested in the goods part 

of the trade conversation. 

I am on the Banking Committee, so I have spent a little time on 

the services part as well. And I think as we look at the portfolio 

of who we are as Americans and what we will produce in the future, 75 percent of the U.S. private sector is in services. About $731 

billion of our exports are services, about 80 percent of our GDP. 

So while we spend a lot of time, and we should, on the goods 

component or aspect of our trade conversation, it is truly important 

22 

that we spend a fair amount of time on the future economy of this 

country, which will be driven by our services and our ability to engage this world around those services. And I would note that our 

services trade surplus with China has grown from, in 2007, $1.3 

billion to, 2017, around $38 billion. Now, this is just a smidgen— 

which is southern for ‘‘small.’’ [Laughter.] 

Now, I know that kind of confuses people sometimes. But the fact 

of the matter is that we are growing in the right direction. And if 

we get the rules right with China, we can grow exponentially faster 

in a shorter period of time. 

That growth would be better, Mr. Garfield, as you were just talking about, if we made sure that we hold the folks in China accountable for the timelines that they set out. 

And to that, if you think about it, China prohibits American 

firms in banking and insurance from establishing wholly owned operations by capping their ownership levels. Of course, when the 

Chinese financial services providers come here, they do not face the 

same barriers. And so the conversation around reciprocity, I think, 

is actually a healthy conversation and a necessary one. 

In November, China announced plans to remove its foreign ownership equity caps in financial services over the next 3 years. President Xi reiterated those comments this week. Good news, I think, 

Mr. Garfield. 

Maybe not good enough, Ms. Bliss, so I am going to ask you to 

answer a question—two questions for you. Number one, when you 

are focused on China’s approach to services, I think there is a lot 

of fine print in the contracts that we have to pay close attention 

to. My understanding is that the Chinese securities regulatory commission is currently writing draft rules to implement these 

changes. Is there something we should watch for that would not 

allow U.S. firms to compete on a level playing field as promised? 

Do you think the 3-year roadmap is a realistic one? 

Ms. Bliss, if you would start, and anyone else who wants to can 

jump in in my 45 seconds that I have left. 

I have noted, however, that we typically give each Senator 12 

minutes in this hearing, and I appreciate that. 

Senator CORNYN. We will come back for another round. 

Ms. BLISS. Thank you very much, Senator Scott, and for your 

comments about services. Because certainly, one of our missions at 

CSI is to educate about the role of services in the economy and the 

very positive role that it has in job creation and in good jobs, and 

jobs of the future in particular. 

But let me turn specifically to financial services. I think we see 

the notion of—certainly with respect to life insurance, China has 

talked about lifting the 51-percent cap entirely in 5 years. So we 

see that as a positive development. And with respect to securities, 

similarly, we look in a positive way at the timetable for that to be 

lifted. 

And really, I think the answer to your question is ‘‘yes,’’ it is a 

welcome development for two reasons. One is, because it is a commitment that we can solidly and hopefully enforce; and two, because it sets a specific timetable. 

23 

So I think our challenge is to make sure that we are there the 

whole way, pushing and making sure that it happens and talking 

about what happens if it does not. So I absolutely agree with you. 

And if I can add just a couple of things on the services side. I 

think that, certainly, in terms of the future, one of the points that 

we like to make, which I think is very important, is the role that 

services play in other sectors of the economy, like manufacturing 

and agriculture. 

Senator SCOTT. Yes. 

Ms. BLISS. So I would just mention that, because when you talk 

about how eight out of 10 of us are in services jobs, if you look 

closely in manufacturing, 25 to 49 percent of the import in manufacturing is services. 

So a lot of the jobs that are being created in smart manufacturing, which is critically important to our future, are services jobs. 

Senator SCOTT. Absolutely. 

Ms. BLISS. So thank you. 

Senator SCOTT. Thank you. 

Thank you, Mr. Chairman. 

Senator CORNYN. Thank you, Senator Scott. 

I am interested, Ms. Bliss. I think you said something along the 

lines that the aluminum and steel tariff issue is working its way 

out—or something like that. Am I putting words in your mouth? 

And if not, would you—if I am, please clarify that, and if you 

would, sort of tell us what you meant by that. 

Ms. BLISS. I think what I meant more generally was that the administration approach to that particular issue, for which I claim no 

expertise and I am not involved in with respect to my association, 

seems to be on a road—I am not endorsing it one way or another— 

but that is all my comment really meant. 

Senator CORNYN. Okay. Okay. Thank you. 

Given the nature of the Chinese government and their desire for 

economic growth and stability in their political system, why in the 

world would they want to participate in a trade war with the 

United States? Do any of you have any comment on that or any response? Because it strikes me as counterintuitive that they would 

want to do anything that would create either economic uncertainty 

or political instability. 

Mr. GARFIELD. Well, I do not think they want a trade war. I 

think President Xi has spent the last 6, 7 years consolidating 

power for reasons that are important locally. 

Senator CORNYN. He has done a pretty good job. 

Mr. GARFIELD. Yes. And if there is the potential of eroding that 

consolidation of power, then he and the nation will push back aggressively. And I think that is what we saw with the tit-for-tat discussions around tariffs. 

I think you raised an excellent point, though. One of the things 

I have learned over the years in visiting China is that there are 

Chinese companies and individuals within the Chinese government 

who have significant concern about the trade norms in China. And 

so part of the work is actually empowering those companies and 

those potential allies within China to begin to stand up on the need 

for China to align with global norms. 

24 

Senator CORNYN. Several of you have mentioned that we ought 

to be playing the long game when it comes to China, but I am a 

little concerned about what happens in the near term, which may 

affect the long game. In other words, if China is able, through theft 

of intellectual property, to undermine our industrial base by strategic investment in the United States, including startup companies 

that may not even be on our radar screen, I just wonder how much 

time we have before they basically beat us in the near-term game 

so that, long-term, they are the dominant economy. And meanwhile, they continue to build their military, project military power, 

in order to protect that position. 

Ms. DEMPSEY. You know, I think one of the issues that this administration, this President, has brought to the table is the urgency of the situation. And my remarks on a bilateral trade agreement with China—that is not a long game, that is something we 

should be engaged in right now with real timetables to move this 

forward, because we have to solve these issues now rather than 

later. 

The Chinese market—Mr. Garfield talked about the ICT sector. 

Think about autos, which the Senator from South Carolina, Senator Scott, was talking about. Last year in China, there were nearly 30 million vehicle sales. Contrast that to the United States market, about 17.5 million vehicle sales. 

We have to be part of that market. We have to find a way to 

grow in that market. And right now, the rules are stacked against 

us. We have old rules. We can bring them to comply with the WTO 

rules that are clear-cut. There have been many cases that the U.S. 

Government has brought—rare earths, raw materials, auto parts, 

some others—where the rules were absolutely clear; China actually 

complied. 

But we do not have clear enough rules on a lot of these issues 

right now. We have unfair trade practices that both Ms. Lee and 

I talked about. We need to make sure that our own rules there are 

enforced as well, but we have to act now. 

And I think it is really important that both of you have brought 

this hearing together today, but that is our message. 

Ms. LEE. And, Senator Cornyn, I think that is a really excellent 

point. I have been in this trade debate for a long time, for a couple 

of decades, and a decade ago this was an urgent question. And the 

AFL–CIO, where I used to work, was in partnership with a lot of 

small businesses that were also feeling that they were being completely undermined by China’s currency policies at that time and 

others. 

And so, you know, I think the urgency is important. And in one 

sense—you asked about a trade war. I know Clyde Prestowitz from 

the Economic Strategy Institute will say we have been in a trade 

war with China that they started a long time ago, and we have 

been losing, and so when we come to the table—— 

Senator CORNYN. I am not sure we have been fighting back. 

Ms. LEE. Right. Well, that is because we have not recognized 

that we were in the war. And we come to the table very late. 

And, you know, I think that the current policies, the trade policies, the tariff policies, that the Trump administration has put in 

place have not been well messaged, they have not been well impleVerDate Sep 11 2014 16:37 Jun 11, 2019 Jkt 000000 PO 00000 Frm 00028 Fmt 6633 Sfmt 6633 R:\DOCS\36645.000 TIM
25 

mented, they have not been thoughtfully addressed with respect to 

our trading partners. And yet, we definitely do have the attention 

of the Chinese government. 

And I think you are right and Mr. Garfield is right, that the Chinese government is looking for a trade war, because we already 

have this tremendously imbalanced trade relationship. They cannot 

even find enough U.S. exports to put tariffs on, because the imbalance is so great. So I think that the urgency is important. 

And I just wanted to quickly address the issues about agriculture 

and small business that were raised by your colleagues. 

If you look at the immediate impact, I think people are concerned 

about what will happen if there is retaliation; will farmers be in 

the crosshairs? They will, and small business will be impacted. 

But we need to step back and take in the bigger picture that I 

think other people have also raised, which is that, if we can address the totality of Chinese unfair trade practices, including currency, including subsidies, it will actually help both small businesses and farmers. 

Senator CORNYN. Well, I know, Ms. Dempsey, you said we need 

to get a bilateral agreement with China. Most of us are concerned 

with the more immediate concerns about section 232, section 301, 

and NAFTA renegotiation. And it is almost like our plate is 

overflowing, and the idea of undertaking something of that magnitude is daunting. 

But let me ask you again. There has been some discussion about 

TPP. I think many of us think the President has not been well advised when it comes to trade issues, and we are hoping that with 

Mr. Kudlow onboard and with his track record that he will provide 

a more balanced advice to the President on these issues. 

But I have heard the President say that the 11 countries that entered into the TPP, absent the United States, have now come back 

to the United States to see if we would be interested in joining. Is 

that a real prospect? Because it strikes me that TPP may be one 

of our best weapons—‘‘weapons’’ is not the right word—one of our 

best instrumentalities to try to engage China constructively on 

trade and to leverage our allies, as many of you have said we 

should be doing when it comes to dealing with China on trade 

issues. 

Mr. GARFIELD. I actually think this is a place where the Senate, 

and Congress generally, can be incredibly impactful. 

Two things. In recent conversations with Ambassador Lighthizer, 

he has raised that both publicly and in private. There is the question as to whether that is something this Congress would support. 

And so I think, to the extent that there is clarity, that it has a 

path to success, that would be incredibly helpful. And so anything 

that you and your colleagues could do to clearly communicate that, 

I think would be quite helpful. 

The second thing that has been really surprising to us in the 

whole back-and-forth with China with this administration over the 

last few weeks, particularly over the last few days, is just the lack 

of urgency in sitting down face-to-face with China to take advantage of the moment. And that is something where I think some encouragement from Congress on Secretary Mnuchin to get on a 

plane and advance these negotiations in the immediate term, so we 

26 

can take advantage of what President Xi is saying, would be quite 

helpful as well. 

Senator CORNYN. Well, thank you for that. 

I would just remind all of us that Trade Promotion Authority in 

and of itself was not an easy lift. And so the idea of actually approving some other trade agreement in this political environment 

is far from a certainty. So there are challenges everywhere. 

Senator Casey? 

Senator CASEY. Thank you, Mr. Chairman. 

I wanted to put something on the record to respond to the distinguished chairman of the Agriculture Committee, Senator Roberts. 

He and I might have a disagreement about when I was making 

points about workers, but I do not think this is one of those false 

choices where you can choose to support workers or farmers when 

it comes to China. Everyone loses if we do not confront China. 

They have really taken advantage of our workers and our economy, so I hope we do not get into pitting one group against the 

other, because we are all going to lose if we do not confront them. 

And we have not confronted them; neither party has done a very 

good job on this. 

Senator CORNYN. I thought he was just pulling your leg. 

Senator CASEY. Well, I just wanted to make sure the record was 

clear before we moved on. 

Now, Ms. Dempsey, I am calling on you not only because you 

have roots in Pennsylvania, but it helps. 

I want to talk to you about IP theft, because I know we have 

been referring to a number of the consequences of our failure to 

confront China. And I wanted to start with western Pennsylvania. 

I am not sure there has been a county—and I am speaking of Allegheny County, where Pittsburgh is—or a region of any State 

where there has been more of a target placed by the Chinese government than western Pennsylvania. 

They managed to hack into a number of institutions, whether it 

was U.S. Steel or the Steelworkers or ALCOA or ATI or Westinghouse—the list goes on and on. A course of prosecution was commenced by then United States Attorney David Hickton and then 

carried forward. 

The individual who took over for Dave Hickton, the Acting U.S. 

Attorney for western Pennsylvania, as of when this statement was 

made, November of 2017, said, quote: ‘‘Any company should be able 

to succeed based upon its ability to innovate and to compete without being sabotaged by cyber-hacking,’’ unquote. So companies invest millions, if not tens of millions, in developing technology and 

innovation to give them a competitive edge, and then that can be 

ripped away from them and certainly have long-term impacts. 

I guess I wanted to ask you to discuss some of those impacts in 

terms of what happens to a particular company on a number of 

fronts. Number one, what happens to their ability to be competitive 

or to be as competitive as they once were or hoped to be? What 

happens to their incentives to innovate? And, of course, what happens to their jobs? Can you comment on all of that? 

Ms. DEMPSEY. Absolutely, Senator. And thank you for highlighting that concern, because that is a concern. Our members in 

Pennsylvania, those that you mentioned, but also across the counVerDate Sep 11 2014 16:37 Jun 11, 2019 Jkt 000000 PO 00000 Frm 00030 Fmt 6633 Sfmt 6633 R:\DOCS\36645.000 TIM
27 

try, look at that—you know, those were well-publicized cases—and 

it chills a lot of our manufacturers. 

And going back to the conversation about small manufacturers, 

can you imagine these smaller manufacturers too and the impacts? 

The impacts are devastating. Companies are losing their trade secrets, their ‘‘secret sauce’’ of production or their special formulas. 

And some of that you can never get back again. 

The concern is, it is not just general counsels’ offices, it is discussions engineers are having about, how do you plan and incentivize 

that growth going forward? How do you deal with that? And then 

there is the jobs impact. 

I think one of the things that we are looking at is how these 

cases are going in U.S. courts. This is not something that is legal 

in the U.S. legal system, right? We need to make sure that the U.S. 

legal system has the right remedies to stop this and to prevent 

this. And that is probably beyond my level of expertise, in terms 

of the types of actions that we need to take. 

This is an issue that we are facing. You know, we face it domestically, we face it from other countries, but the concerns we have out 

of China are probably the most compelling that we are seeing here. 

And I think it is an issue that we need to stay on top of; we need 

to be making sure that we do everything in our own domestic legal 

system. We do not need a trade agreement to deal with some of 

this. We can take care of these domestic actions right here at 

home. 

Senator CASEY. Anyone else in terms of the company-specific or 

sector-specific impacts? Does anyone want to comment on that? 

Mr. Garfield? 

Mr. GARFIELD. We talked about electronic payment systems. 

When you look at China UnionPay and how much China UnionPay 

has grown since China entered the WTO—and it is now, I think, 

the number-two electronic payment processor in the world while 

non-Chinese-based payment processors do not have access to the 

China market—it shows you the nonreciprocal nature and the impact it has, because those are jobs that were created there through 

China UnionPay but are not being created here because we do not 

have access to that market, or those companies do not have access 

to that market. 

Senator CASEY. Ms. Lee? 

Ms. LEE. Just a brief point. I want to agree with Ms. Dempsey’s 

points about the impact on workers but also the importance for 

manufacturing, because we think of intellectual property rights as 

being for pharmaceuticals or for motion pictures or other things. 

But the counterfeit auto parts and other things directly impact 

American workers. 

But there is a difference also when it happens in Allegheny 

County. We have certain tools, we can use the U.S. court system. 

When it happens in another country—which does happen when 

there is outsourcing, when American companies take their precious 

intellectual property and they bring it to another country where 

they do not have these kinds of protections—it is much more challenging. So I think it is worth noting that. 

Senator CASEY. I want to highlight something that was submitted as testimony by the United Steelworkers. On page 2 of this 

28 

testimony, they are talking about the auto sector and the consequences here. They are talking about a particular advanced, 

high-strength steel used in the auto industry. And I am quoting: 

‘‘Companies in China have been unable to develop this technology 

and were under pressure from their domestic car companies to get 

it, so their government stole it for them. After the theft, one of the 

largest steel companies in China, Bohai steel, used the trade secrets to produce the specialized steel and export it to the United 

States in direct competition with U.S. steel,’’ unquote. 

So that is what we are talking about. And we are either going 

to confront this or we are just going to surrender to it. And I think 

for too long, we have been in a surrender mode. 

Thanks, Mr. Chairman. 

Senator CORNYN. Well, thank you, Senator Casey. 

And thanks to each of you for helping us highlight this important 

topic. And I do think the slumbering giant of the United States 

government is starting to be awakened. And hopefully, we will be 

in a position to respond and to address these challenges in a way 

that protects our economy and protects our national security and 

protects our workforce, which is so important. 

I want to express my gratitude to Senator Casey and his staff for 

working with my staff to put together this hearing. 

And as a reminder, the deadline for filing any additional questions or statements for the hearing record will be 2 weeks from 

today. 

So with that, the Senate Committee on Finance stands adjourned. Thank you very much. 

Senator CASEY. Thanks, John. 

[Whereupon, at 4:05 p.m., the hearing was concluded.] 

(29) 

1 ‘‘Table 3.2. U.S. International Trade in Services by Area and Country, Seasonally Adjusted 

Detail, China,’’ Bureau of Economic Analysis, U.S. Department of Commerce, March 21, 2017, 

https://www.bea.gov/itable/. 2 Ibid. 

3 Ibid. 

A P P E N D I X 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

PREPARED STATEMENT OF CHRISTINE BLISS, PRESIDENT, 

COALITION OF SERVICES INDUSTRIES

Chairman Cornyn, Ranking Member Casey, members of the subcommittee, thank 

you for the opportunity to present the views of the Coalition of Services Industries 

(CSI) on market access issues in China. 

For more than 3 decades, CSI has been the leading industry association devoted 

exclusively to promoting the international objectives of U.S. services companies and 

associations. Our members include the vast array of U.S. companies that provide 

services and digitally enabled services—domestically and internationally—including 

information and communication technology (ICT) services, financial services, express delivery and logistics, media and entertainment, and distribution and professional services. 

The services sector is a bedrock of the U.S. economy. Services account for about 

75 percent of U.S. private sector jobs, $730.6 billion in U.S. exports, and nearly 80 

percent of U.S. gross domestic product (GDP). Services, including digitally enabled 

services, are a part of and enable every single sector of the U.S. economy. Moreover, 

ICT services drive U.S. productivity overall. Services allow all businesses to be more 

productive, reach more customers in more foreign markets, and ultimately, support 

a better livelihood through higher wages and greater opportunities. 

CURRENT STATE OF PLAY IN CHINA

China was the second-largest services export market for U.S. services providers 

in 2017, with $56 billion in U.S. services exports, and a $38 billion services trade 

surplus.1 From 1999 to 2007, the United States maintained a services trade surplus 

with China of around $1 billion. Since then, U.S. services exports have more than 

quadrupled, resulting in the growth of the U.S. services trade surplus with China 

from $1.3 billion in 2007 to $38 billion in 2017.2 This growth over the last decade 

in U.S. services exports to China, along with the bilateral services trade surplus 

with China, exceeds the growth in U.S. services exports to other nations (54 percent), and exceeds the increase in the global U.S. services trade surplus (which has 

risen by 115 percent).3 China has thus become one of the fastest growing markets 

for U.S. services. 

30 

4 ‘‘Table 2.3. U.S. Trade in Services, by Country or Affiliation and by Type of Service, China,’’ 

Bureau of Economic Analysis, U.S. Department of Commerce, December 19, 2016, https:// 

www.bea.gov/itable/. 5 Ibid. 

The financial services sector has been an area of great strength for U.S. services 

providers. Over the last decade, the United States has increased its financial services exports to China by 347 percent, totaling over $3 billion in 2015.4 This growth 

rate is the second highest among all U.S. trade partners and nearly triple the average global financial services export growth rate.5

Despite the growth of U.S. financial services exports and China’s stated intent to 

provide greater services market access, significant market access barriers remain, 

including existing and proposed discriminatory regulations in areas such as restrictions on data flows, information technologies, equity cap limitations, licensing restrictions, and outright bans on foreign investment. 

Thank you to the members of the Senate Committee on Finance—including Senators Cornyn, Scott, Heller, Crapo, Portman, Cassidy, Isakson, and Thune—among 

other Senators, for your leadership on these issues. Your September 2017 letter to 

the administration regarding trade and investment barriers that harm U.S. 

financial services institutions and their ability to grow the American economy outVerDate Sep 11 2014 16:37 Jun 11, 2019 Jkt 000000 PO 00000 Frm 00034 Fmt 6601 Sfmt 6621 R:\DOCS\36645.000 TIM

41118.001 41118.002
31 

6 Nigel Cory, ‘‘Cross-Border Data Flows: Where Are the Barriers, and What Do They Cost?’’, 

Information Technology and Innovation Foundation, May 1, 2017, https://itif.org/publications/ 

2017/05/01/cross-border-data-flows-where-are-barriers-and-what-do-they-cost. 

lined many of our issues. We appreciate your leadership on these and other trade 

issues. 

China has long insisted that it is an open market with clear rules. Unfortunately, 

this position does not match reality. While China continues to increase its investments abroad and engage in more trade with its partners, U.S. firms have an increasingly difficult time competing on a fair playing field in China. U.S. firms have 

considerable experience that could prove beneficial to China as its economy develops 

further, but this requires that U.S. companies have non-discriminatory access to the 

Chinese market. China’s current short-sighted approach means that China risks losing the significant benefits and expertise of U.S. services firms. 

CHINA’S TREATMENT OF DATA AND TECHNOLOGY

The free flow of data across borders is critical in every business sector as it is 

necessary for businesses to operate globally in an efficient and secure manner. In 

addition to the free flow of data, businesses also need ICT services, platforms, and 

other infrastructure to provide their services, which are increasingly digitally enabled. 

The free flow of data means that companies can integrate staff around the world, 

maintain their customer networks as well as their supply chains, and ultimately 

build their competitiveness. For instance, financial services companies rely on the 

ability to transfer data quickly and easily across the globe to provide better service 

to their clients at lower cost. This means that consumers can access their accounts 

from any location, whether they are performing a simple bank transfer or more complex transactions. Further, cross-border data flows increase access to capital for 

start-ups and allow small businesses, through digital marketplaces, to tap into foreign markets and receive payments from customers. 

Over the last decade, China has taken wide-ranging steps to restrict data flows, 

including through requirements to localize data and servers in China. Because of 

the widespread use of and reliance on customer data by many services firms, these 

practices have significant impacts, including in insurance, banking, and cloud computing, among other areas.6 These data-restrictive policies impede the ability of U.S. 

services firms to supply cross-border services and to make investments in China. 

The inability to operate cross-border, the loss of efficiency, the increase in costs, and 

other impediments reduce U.S. competitiveness. The Office of the U.S. Trade Representative (USTR) has recently raised concerns at the World Trade Organization 

(WTO) over China’s recent restrictions on cross-border data services (including Virtual Private Networks or VPNs), and the types of companies able to offer those services. The restrictions impact the availability of services and suppliers for important 

business communication services in China. There have also been reports of China 

blocking VPNs used by foreign businesses in China. 

Moreover, as noted in the letter to China’s Cybersecurity Administration signed 

by a global coalition of industry associations, including CSI, China’s Cyber Security 

Law (CSL), along with other current and proposed regulations, has the potential to 

create additional, discriminatory barriers and impose significant compliance burdens for suppliers of a wide number of services due to the CSL’s broad and vaguely 

defined scope. Particularly concerning is China’s proposed requirement that all Chinese personal data must be stored domestically. The CSL also potentially subjects 

U.S. companies to security reviews. This includes the proposed requirements to review companies’ proprietary source code and allow the government to review and 

approve encryption measures. China is still developing implementing regulations 9 

months after the law has gone into effect, creating a great deal of uncertainty 

around the obligations around different kinds of data. Specifically, measures regarding the cross-border transfer of data and the scope of Critical Information Infrastructure were written quite broadly and contain the strictest requirements around 

localized storage of data and cross-border transfer. 

China restricts foreign firms from providing cloud services directly in China and 

imposes numerous discriminatory restrictions. In addition, new draft regulations, if 

implemented, combined with existing Chinese laws, would force U.S. cloud service 

providers to hand over operation and control of their business to a Chinese company 

in order to operate in China, and also transfer valuable U.S. intellectual property 

and use of their brand names. These proposed regulations are of concern both to 

32 

7 ‘‘The 13th Five-Year Plan—China’s Transformation and Integration With the World Economy,’’ KPMG, October 2016, https://assets.kpmg.com/content/dam/kpmg/cn/pdf/en/2016/10/ 

13fyp-opportunities-analysis-for-chinese-and-foreign-businesses.pdf. 

U.S. cloud service providers as well as the many services and other U.S. sectors that 

rely on cloud services to operate in China. 

To address this, the United States should secure China’s commitment that it will 

allow U.S. cloud service providers to obtain and hold all necessary licenses for the 

operation and provision of cloud services in China, including those related to software, hardware, facilities, and infrastructure; allow foreign investment in Chinese 

companies established to provide cloud services in China; and allow U.S. cloud service providers to sign contracts for the provision of cloud services in China and use 

their trademarks and brands to market their cloud services. China should also allow 

U.S. cloud service providers to procure telecommunication services (including bandwidth) for the provision of cloud services on the same terms available to Chinese 

companies. 

China’s regulation of cloud services flows from its decision to classify cloud services as a telecommunications service, which, based on China’s rules, restricts foreign 

providers to a maximum 50-percent equity limit. A similar approach has been taken 

with other services not typically regulated as telecom services, such as content delivery networks and Internet platforms. China’s approach is inconsistent with the global approach that does not regulate or restrict foreign participation in these types 

of services. China should loosen these policies to increase market access for U.S. 

providers of these and other types of communications services. 

China has cited concerns over national security as the justification for many of 

these restrictions, but in September 2015 and June 2016, China committed to the 

United States that measures it has taken to enhance cybersecurity in commercial 

sectors would be non-discriminatory and would not impose nationality-based conditions or restrictions. These restrictions are in direct contradiction of commitments 

and commitments China has made to open up its market. 

China imposes other severe restrictions in ICT services as well. It fails to provide 

non-discriminatory market access for a broad range of online services—requiring 

joint venture partners for online services and then failing to issue approvals for 

those joint ventures. It fails to allow U.S. companies to provide video and music 

services on a cross-border basis. And more broadly, China completely blocks a wide 

range of legitimate U.S. websites and services, as USTR has highlighted in its recent National Trade Estimate report. 

INSURANCE MARKETS IN CHINA

U.S. access to China’s insurance and retirement securities markets remains 

difficult because of restrictive Chinese measures. Foreign insurers have less than 

a 5-percent cumulative market share in what is the third-largest insurance and pensions market in the world.7 Given the size and future growth of China’s insurance 

markets, and the relatively small market share of foreign firms, the economic opportunity for foreign insurers, absent the discriminatory equity cap and prohibition on 

U.S. companies in the enterprise annuities sector (China’s 401k), is exponential and 

would deliver significant commercial benefits to U.S. industry. Profits generated 

from overseas operations would help fund long-term infrastructure investments in 

the United States, create jobs, and support high-paying service jobs. 

Current Chinese regulation places a 50-percent cap on foreign equity in life, 

health, and pension companies, a restriction that has been in place since China’s 

accession to the WTO in 2001. Removing this equity cap has been a top priority for 

the U.S. financial services industry for over a decade. At the end of 2017, China 

announced it would allow 51-percent foreign ownership in Chinese life-insurance 

companies in 3 years and lift that restriction entirely in 5 years. This is a welcome 

development and strong signal of liberalization from China, though follow-through 

and implementation are of utmost importance to ensure the equity cap is lifted in 

an effective manner. Liberalization in the life insurance sector would benefit Chinese consumers who need greater access to insurance and more stable protection 

and investment options in light of China’s recent market volatility. 

China has made some progress in liberalizing the non-life insurance sector. In 

2013, China removed all restrictions on foreign non-life insurers. In January 2017, 

China’s State Council issued the ‘‘Circular on Several Measures to Expand the 

Opening-up and Actively Utilize Foreign Investment,’’ which committed to lower 

33 

8 ‘‘Circular on Several Measures to Expand the Opening-up and Actively Utilize Foreign Investment,’’ State Council of China, January 17, 2017, http://www.gov.cn/zhengce/content/2017- 

01/17/content_5160624.htm. 9 ‘‘Future Directions for Foreign Banks in China 2014,’’ Ernst and Young, 2014, http:// www.ey.com/Publication/vwLUAssets/EY-foreign-bank-china-report-2014/$FILE/EY-foreignbank-china-report-2014.pdf. 10 ‘‘2017 National Trade Estimate,’’ China, Officer of the United States Trade Representative, 

Executive Office of the President, March 2017, https://ustr.gov/about-us/policy-offices/pressoffice/reports-and-publications/2017/2017-national-trade-estimate, 87–88. 11 ‘‘2016 U.S.-China Strategic and Economic Dialogue Joint U.S.-China Fact Sheet—Economic 

Track,’’ U.S. Department of Treasury, June 7, 2016, https://www.treasury.gov/press-center/ 

press-releases/Pages/jl0484.aspx. 

entry restrictions on foreign investment in several services sectors, including insurance, banking, and securities.8 But, further action is needed. 

The elimination of the equity cap aligns well with China’s domestic policy goals 

and economic reform agenda, which emphasizes the need to grow the services sector, 

deepen financial inclusion, and enhance the participation of foreign financial services firms in China. Liberalization in the life insurance sector would benefit Chinese 

consumers who need greater access to insurance and more stable protection and investment options in light of China’s recent market volatility. 

China has not yet authorized any U.S. investment in the enterprise annuities industry, which is China’s 401(k) industry. In addition to equity restrictions in China, 

there is a 33 percent cap in the securities sector. There is also a recent proposal 

for new regulations to restrict domestic shareholding in foreign-invested insurance 

companies (both life and property casualty), which will diminish the value of existing investments. The United States should seek confirmation from China’s insurance regulator that the existing ‘‘Foreign-Invested Measures’’ will continue to govern, with respect to foreign equity and all other issues involving insurers, with at 

least 25-percent foreign investment. It should also seek confirmation that the proposed regulations will not be applied retroactively to foreign-invested insurance 

companies. 

China has made several commitments on insurance at the WTO. This includes allowing 100-percent foreign equity in property insurance and reinsurance, as well as 

prohibitions on creating conditions of ownership for existing foreign suppliers of insurance services that are more restrictive than they were on the date of China’s accession to the WTO. Both commitments are formalized in the 2004 ‘‘Detailed Rules 

on the Measures for the Administration of Foreign-Invested Insurance Companies.’’ 

However, questions remain on how well these commitments have been followed. 

In short, explicit and implicit barriers in China’s insurance sector mean that U.S. 

firms are unable to fully tap into this critical market. 

BANKING AND SECURITIES BARRIERS

China has exercised great caution in opening its banking sector to the United 

States. In particular, China has imposed capital requirements and other rules that 

that have made it more difficult for foreign banks to establish and expand their 

market presence in China. It is then unsurprising that foreign banks’ collective market share in 2013 was below 2 percent.9

U.S. banks, securities, and other bodies are unable to compete on an equal footing 

with domestic institutions. U.S. banks are subject to a 20 percent investment ceiling 

(for single foreign shareholders) and a 25-percent investment limit (for multiple foreign shareholders) in local Chinese banks. Further, once a foreign-funded business 

in the banking sector is established, it is limited in its activity for 2 years. Following 

this waiting period, a business can expand the scope of the business, assuming it 

has met certain conditions, which includes holding over $10 billion in total assets.10

There are also other restrictive regulations, including stipulations that foreign 

banks in China must work through branches, as opposed to subsidiaries. These restrictions have legal and economic impacts. 

Equity caps on foreign ownership of securities joint ventures have not been lifted 

in China since 2012, and remain at 49 percent, despite the commitment to ‘‘gradually raise’’ the equity caps from the 2016 Strategic and Economic Dialogue 

(S&ED).11 China has announced it will allow foreign companies to hold 51 percent 

of domestic securities firms, up from 49 percent, with the plan for the 51-percent 

cap to be removed 3 years after the new limit takes effect. Again, a welcome development that requires proper implementation. Following through on this commitVerDate Sep 11 2014 16:37 Jun 11, 2019 Jkt 000000 PO 00000 Frm 00037 Fmt 6601 Sfmt 6621 R:\DOCS\36645.000 TIM
34 

12 Ibid. 13Oxford Economics, ‘‘Understanding the U.S.-China Trade Relationship,’’ U.S. China Business Council, January 2017, https://www.uschina.org/sites/default/files/Oxford%20Economics 

%20US%20Jobs%20and%20China%20Trade%20Report.pdf, 4. 14 Ibid., 4. 15 Richard Kersley and Markus Siterli, ‘‘Global Wealth in 2015: Underlying Trends Remain 

Positive,’’ Credit Suisse, October 2015, https://www.credit-suisse.com/corporate/en/research/research-institute/news-and-videos/articles/news-and-expertise/2015/10/en/global-wealth-in2015-underlying-trends-remain-positive.html. 

ment to ensure that a foreign firm can establish a wholly owned company in its 

market is a bedrock free market principle that the Unitexd States and a significant 

number of other countries committed themselves to many years ago. It is time for 

China to make the same positive step by allowing U.S. securities firms to establish 

wholly owned subsidiaries without subjecting them to additional requirements that 

would hamper those subsidiaries’ ability to conduct business onshore on the same 

terms as domestic players. 

China has also committed to expand opportunities for U.S. financial services 

firms to acquire settlement and underwriting licenses as part of the 2016 S&ED.12

CSI’s member companies look forward to working with the U.S. and Chinese governments to ensure proper and effective implementation of these licenses is underway. 

ELECTRONIC PAYMENT SERVICES

In May 2017, opening China’s domestic market for U.S. electronic payment services (EPS) suppliers via a bank card clearing institution (BCCI) licensing process 

was included in the 100 Day Action Plan between the United States and China. Several U.S. EPS suppliers filed their BCCI applications in 2017 and all are still pending review by the People’s Bank of China (PBOC) at this time. 

China has committed through its WTO obligations, and more recently under the 

100 Day Action Plan, to ensure ‘‘full and prompt’’ market access for U.S. EPS suppliers. CSI urges this commitment to be upheld as soon as possible. 

A PATH FORWARD THROUGH CONTINUED BILATERAL ENGAGEMENT

Despite the market access issues I’ve outlined, it is important to keep in mind 

that China represents a significant opportunity for U.S. services firms. China is the 

third largest destination for American goods and services.13 In fact, U.S. exports to 

China supported 1.8 million new jobs and $165 billion in GDP in 2015.14 One cannot 

underestimate the potential of the Chinese market—one-fifth of the world’s population and almost 10 percent of global wealth is China.15 China also holds the largest middle class in the world. In order to increase the services surplus with China, 

we recommend identifying incentives to open up new opportunities for U.S. firms. 

Any approach designed to further U.S. interests ought to recognize that the Chinese 

market has much to offer for American companies and their employees. 

CSI supports efforts to constructively engage with China because it is critical for 

the United States to address the current and growing trade and investment challenges facing U.S. services providers operating in China. We believe that a measured and holistic approach in engaging with China and avoiding harm to U.S. businesses, workers and consumers is of the utmost importance. Close cooperation with 

our international partners is also an essential element for success. 

CSI and its members stand ready to work with you in crafting a comprehensive 

and transparent approach to ensure that the full spectrum of barriers to U.S. services providers operating in China are addressed in a manner that demands action 

from China and minimizes the real threat of reciprocal punitive measures. CSI believes that a carefully calibrated approach with robust input from industry will facilitate the most positive outcome. 

Thank you for your time. I look forward to answering your questions. 

PREPARED STATEMENT OF HON. ROBERT P. CASEY, JR., 

A U.S. SENATOR FROM PENNSYLVANIA

From steel and tires to high-tech, industries across Pennsylvania and the country 

face significant challenges when it comes to China. Be it through forced technology 

transfer, joint ventures, theft of intellectual property, or straight-up barriers to 

entry, U.S. firms and manufacturers have been fighting for decades to get the same 

35 

treatment for American-made products in China, as Chinese exports see in the 

United States. 

When Ambassador Lighthizer came before the committee a few weeks ago, he 

stated ‘‘the costs of globalization are falling most heavily on workers.’’ I could not 

agree more. Studies by EPI and MIT economist David Autor, and his coauthors 

David Dorn and Gordon Hanson lend data to that assertion. According to the MIT 

study, roughly 40 percent of the decline in U.S. manufacturing between 2000 and 

2007 was due to a surge in imports from China. 

That has been the experience of Pennsylvania. It started to present itself in the 

1980s. There was a 4- or 5-year period in the early 1980s when tens of thousands 

of steel worker jobs in southwestern Pennsylvania were lost. And it just continued 

from there. And I have to say that I don’t think in the last generation that either 

party has done nearly enough. Neither party has had, in my judgment—and this 

applies to multiple administrations and multiple Congresses—an answer for these 

workers. 

U.S. industries have been under a sustained attack from China for the past decade—our steel, aluminum, manufacturing. And now China has given us the playbook for their next line of attack: robotics, rail equipment, and advanced medical 

products, to name a few. Pennsylvania knows all too well what may be in store for 

cities across the country if we don’t address the systemic threat that China presents. After the collapse of the steel industry Pittsburgh fought its way back, reinventing itself with the help of our civic leaders, foundations and universities to be 

on the cutting edge in robotics and advance tech. China, in its 2025 plan, is coming 

after that too. 

I am glad we’re having this hearing today, and I hope it begins a much-needed 

conversation on the type of comprehensive strategy we need to address the threat 

posed by China. If you don’t have a strategy that undergirds the development of an 

answer, then you won’t get the result I think we can all agree on: ensuring U.S. 

workers have the skills they need to compete, insulating our communities from economic shock and preventing China from stealing our future. 

Part of that is making sure our communities have access to immediate economic 

assistance when a large job loss or localized recession occurs—which can happen for 

any number of reasons outside of trade. The goal is always to prevent economic 

shocks from happening, but if they do occur, we must respond, and respond quickly. 

I’ve put forward a proposal on that and would welcome your insights at a future 

date. 

China has made no secret about its strategy to push the rules to their limit, and 

when advantageous, break them outright. They know that by the time a trade case 

reaches conclusion the damage to an industry has been done. The United States 

needs a sustained and coordinated strategy to address the threat posed by China. 

And the United States should work with our allies to execute it. This is not a problem unique to the United States, there is no need to treat it as such. 

I think we can all agree that something must be done to address the barriers 

China puts up that prevent our companies from competing on a level playing field. 

I am glad to work with Senator Cornyn on these critical issues. And I appreciate 

our witnesses for sharing their expertise and experience with the committee. 

PREPARED STATEMENT OF HON. JOHN CORNYN, 

A U.S. SENATOR FROM TEXAS

Good afternoon. Thank you for being here today. 

The focus of today’s hearing is on an important international market—one that 

happens to be the world’s second-largest economy. 

This market—I’m talking about China, of course—is also the United States’ largest merchandise trading partner and is the third-largest export market for U.S. 

goods abroad. 

While the legitimate flow of goods and services between United States and this 

nation have increased over the years, the statistics alone do not tell the entire story. 

We also must consider the national security context here. Within just 7 years, 

China will pose the greatest threat to U.S. national security of any nation, according 

to General Joe Dunford, Chairman of the Joint Chiefs of Staff. 

36 

As China’s population grows and its economy continues to modernize, the Chinese 

market will continue to emerge as an attractive one for U.S. businesses seeking the 

opportunity to serve the Chinese consumer, in all sectors. 

But, unfortunately, while Chinese companies enjoy largely unfettered access to 

the U.S. market and an economy that is open to investment, U.S. companies are 

not afforded with reciprocity in this regard. 

In order to paint a picture of the persisting problem, we must first review the 

historical context. 

In the 1980s, China first sought entry into the rules based global trading system 

known as the World Trade Organization (WTO). 

After years of deliberations and negotiations, an agreement was reached in 2001. 

This agreement allowed for China’s accession to the World Trade Organization if 

it agreed to comply with a number of free-market principles: tariff reductions, equal 

footing for foreign businesses, and the removal of implicit and explicit barriers to 

trade. 

Moreover, China would have to adhere to global principles under the TRIPS 

agreement to protect and enforce intellectual property rights. 

Fast forward to 2018, 17 years later, and China has still not lived up to its WTO 

obligations. 

China’s authoritarian regime, its One Belt, One Road Initiative, and its Made in 

China 2025 plan are part of a comprehensive agenda to promote state-driven industrial policies that distort and disadvantage U.S. firms who are simply seeking free 

market competition with Chinese companies. 

U.S. companies seeking to do business in China often encounter a protectionist 

system; one that employs predatory tactics and promotes domestic, subsidized industries over foreign competitors. 

The U.S. Trade Representative’s 2017 Report on China’s WTO Compliance explains that today’s situation in China is even worse than it was 5 years ago, as the 

state’s grip on the economy continues to increase. 

Even more alarming is the fact that U.S. technology companies often report of 

China’s blatant attempts to steal sensitive and proprietary intellectual property. 

In many cases, China has used trade as a weapon, coercing U.S. companies to 

enter into joint ventures and other business arrangements which require a company 

to hand over key technology and know-how, the so-called ‘‘secret sauce,’’ simply in 

order to gain market access. 

This practice has already begun to erode America’s technological advantage and 

undermine our defense industrial base. 

That’s why I have introduced legislation, along with Senator Feinstein, called the 

Foreign Investment Risk Review Modernization Act (FIRRMA), to combat this epidemic and modernize the Committee on Foreign Investment in the United States 

(CFIUS). 

It is also my understanding that President Trump and his administration are currently considering potential temporary actions under existing authority to ensure investment reciprocity and protect U.S. national security, in part because CFIUS 

lacks adequate authority under its current statute. 

China’s restrictive market is highly concerning, and multiple administrations 

have attempted to engage China’s leaders on their trade practices. 

China will even send its students to American colleges and universities for STEMrelated degrees, only to have them return to China and further advance their goals. 

Unfortunately, many rounds of high-level diplomatic talks have generally yielded 

little progress—often resulting in commitments made with zero action. 

Take the latest Comprehensive Economic Dialogue for example. The ‘‘100-day 

plan on trade’’ yielded commitments from China—most of which have yet to be followed through on. 

Discussions may continue in the future, but one thing is clear: China’s market access reforms are too slow, and barriers still exist. 

Reciprocal treatment for U.S. companies should not be too much to ask. 

37 

It is my hope that today’s hearing will paint a clear picture of the problems that 

persist with access to China’s market, and that significant reforms will follow. 

PREPARED STATEMENT OF LINDA MENGHETTI DEMPSEY, VICE PRESIDENT, 

INTERNATIONAL ECONOMIC AFFAIRS, NATIONAL ASSOCIATION OF MANUFACTURERS

Chairman Cornyn, Ranking Member Casey, and members of the subcommittee, 

thank you for the opportunity to testify on manufacturers’ views on market access 

challenges in China. 

The National Association of Manufacturers (NAM) is the largest manufacturing 

association in the United States, representing more than 14,000 manufacturers 

small and large in every industrial sector and in all 50 States. Manufacturing employs nearly 12.6 million women and men across the country, contributing $2.25 trillion to the U.S. economy annually. The NAM is committed to achieving a policy 

agenda that helps manufacturers grow and create jobs. Manufacturers very much 

appreciate your interest in and support of the manufacturing economy. 

U.S.-China commercial relations are a top priority for manufacturers in the 

United States, given both the challenges and opportunities this relationship presents. I appreciate the opportunity to testify today to discuss the market access 

challenges that manufacturers face in China. 

I. OVERVIEW

It’s fair to say that our Nation’s trading relationship with China is complicated. 

On the one hand, there are few places in the world where manufacturers sell 

more or have increased sales. Indeed, manufacturers in the United States export 

more goods to China than any other market outside of our NAFTA partners in 

North America—to the tune of nearly $96 billion in 2017—which, in turn, supports 

hundreds of thousands of U.S. manufacturing jobs here at home. Exports of ‘‘made 

in the USA’’ manufactured goods to China have grown more than $76 billion since 

2002, more than to any other country, except Canada and Mexico. That’s especially 

important considering that more than half of American manufacturing workers depend on exports for their paychecks. 

On the other hand, there are few places in the world where trade has proven 

more challenging for American manufacturing. From unfair subsidies, to intellectual 

property (IP) theft and market-distorting policies that shield Chinese companies, 

manufacturers and workers in the United States face an unfair playing field that 

harms U.S. manufacturing and holds us back. 

There is no doubt that we need to address these challenges. China simply must 

follow the same rules as everyone else. It simply must be held accountable when 

it cheats. On this, nearly all parties agree. 

The question is how best to go about doing so. 

There has been a lot of debate about this for a long time. We at the NAM believe 

it’s time to finally change the contours of that debate. We think a comprehensive 

strategy will be needed if our country is to truly achieve the best outcomes for 

American workers and American enterprise. In our view, that means pursuing a 

modern, innovative and comprehensive bilateral trade agreement that wholly restructures our economic relationship with China. This is at once both a radical idea 

and, in our estimation, the most pragmatic and effective way forward. 

Targeted actions can provide some relief in the short term to some manufacturing 

industries, they can harm others, and there will be a lot of arguments about their 

merits in-between. So, at the end of the day, we think it’s best to address the underlying systemic issues that have given rise to the imbalances in the U.S.-China relationship in the first place. That’s what I look forward to discussing with you further 

a little later in my testimony. 

But first, it’s important to understand the nature of our trading relationship with 

China. 

II. THE U.S.-CHINA COMMERCIAL RELATIONSHIP

The U.S.-China commercial relationship has grown substantially over the past 

several decades following China’s accession to the World Trade Organization (WTO) 

in 2001. China is the United States’ largest goods trading partner, the largest 

38 

source of U.S.-manufactured goods imports, and the third-largest export market for 

U.S.-manufactured goods: 

• U.S.-manufactured goods exports to China grew from $19 billion to nearly $97 

billion between 2002 and 2017. 

• U.S. imports of manufactured goods from China have grown even more from 

$122 billion in 2002 to nearly $496 billion in 2017. 

In joining the WTO, China agreed to abide by the WTO agreements that were 

largely created in the Uruguay Round talks that ended in 1994, as well as some 

specific requirements in its protocol of accession. In subsequent years, China has 

also agreed to new, targeted agreements, including the Trade Facilitation Agreement (TFA) to cut red tape at the border and regularize customs processing and the 

2015 expansion of the Information Technology Agreement cutting tariffs on information and communications technology products. Unlike some of the original WTO 

members, most notably Brazil and India, China was brought into the WTO on much 

stricter tariff terms, agreeing to cut tariffs to an average rate of 10 percent without 

any flexibility to raise tariffs (as Brazil, India, and other countries have retained) 

and changing thousands of regulations, laws, and guidelines. China’s protocol of accession also outlined many other requirements specific to China, including some requirements to address distortive activities by state-owned enterprises (SOEs) and 

unfair government involvement in commercial transactions. While China implemented many of these provisions fully, there are gaps in China’s implementation 

and issues that were not fully covered by the WTO requirements. 

As a result of the implementation of many of these provisions, U.S. manufacturers 

have increased exports to record levels in 2017, supporting hundreds of thousands 

of American manufacturing workers. China is the single largest foreign purchaser 

of U.S.-manufactured goods outside of North America, and U.S.-manufactured goods 

exports account for approximately 11 percent of all of China’s imports. Among the 

U.S. manufacturing sectors that have seen the biggest growth are: 

• Transportation equipment, including aerospace products and parts; motor vehicles, auto parts, and related products; railroad rolling stock; and ships and 

boats; overall, U.S. transportation equipment exports increased by nearly $26 

billion between 2002 and 2017; 

• Chemical products, which have increased by nearly $12 billion since 2002; 

• Computer and electronic products, including semiconductors, measuring and 

medical control equipment, and computer and communications equipment; 

overall, U.S. computer and electronic product equipment exports to China increased by nearly $12 billion between 2002 and 2017; and 

• Machinery, such as industrial machines, engines, and power transmission 

equipment; overall, U.S. machinery exports increased by more than $6 billion 

between 2002 and 2017. 

Manufacturers of agricultural equipment, from tractors and seeds to farming implements, grain storage structures, and fertilizers, have also grown as a result of 

increased sales to the U.S. agricultural sector, which has expanded U.S. product 

through strong export growth to the Chinese market in numerous areas. Indeed, 

U.S. agricultural exports to China have grown to nearly $18 billion in 2017, from 

a base of less than $1.5 billion in 2002. China is the largest single country purchaser of U.S. farm products. 

The U.S.-China investment relationship is also substantial, totaling more than 

$68 billion in 2016. U.S. manufacturing investment in China equaled $47 billion in 

2016, up from nearly $6 billion in 2002, and equal to just 7 percent of worldwide 

U.S. foreign direct investment in manufacturing ($667 billion in 2016). Sales by U.S. 

manufacturing affiliates in China equaled $283 billion in 2015, compared to only $9 

billion in U.S. exports by those same affiliates. Chinese foreign direct investment 

in U.S. manufacturing totaled nearly $21 billion that same year, up from just $215 

million in 2002. 

While there have been significant improvements in the U.S.-China commercial relationship, China also poses a major challenge for manufacturers small and large, 

imposing a range of market-distorting and trade-limiting barriers that impact manufacturers in the United States. To address some of these issues, the United States 

has brought more than 20 WTO challenges against China, several of which have 

successfully resolved issues directly covered by WTO rules, such as relating to export restraints, subsidies, and automotive parts. In other areas, as discussed below, 

39 

the WTO rules do not explicitly or sufficiently discipline practices, and additional 

work is needed to address these gaps in coverage that allow unfair barriers to continue. 

III. KEY MARKET ACCESS CONCERNS IN CHINA AND RELATED ISSUES

The Chinese market remains one of the most frequently cited trouble spots for 

manufacturers in the United States, and challenges continue to rise. Among the 

market-distorting and damaging industrial policies and other measures negatively 

impacting manufacturers in the United States include the following: 

• Localization Policies: Manufacturers in the United States have seen in recent years a resurgence of discriminatory policies, particularly those that 

have a differential impact on products and technologies produced by domestic 

and foreign companies, even if they do not explicitly treat domestic and foreign companies differently. These policies are often as problematic for foreign 

companies as explicit discrimination and should be eliminated. Particularly 

concerning are localization policies related to production or technology that 

mandate local testing and certification requirements for products in the information, communications and telecommunications, (ICT) and medical sectors 

as well as policies requiring companies to store China-generated data on local 

servers and prohibiting their transfer overseas. 

One policy area of significant concern is China’s ‘‘Made in China 2025,’’ an 

ambitious 10-year plan designed to upgrade China’s manufacturing economy. 

The plan sets specific targets for domestic manufacturing (40 percent domestic content of core components and materials by 2020 and 70 percent by 

2025), focusing on 10 priority sectors, such as information technology, new energy vehicles, agricultural equipment, and robotics. While the plan’s broad objective of promoting smart manufacturing policies in China is common to 

many countries, the specific implementation and localization targets of the 

plan raise significant concerns for manufacturers in the United States. In 

particular, the plan’s focus on building globally competitive Chinese companies through specific government policies and financial support raise concerns 

that the plan’s effect will be to benefit Chinese manufacturers over foreign 

ones, raising significant questions about the consistency of policies with China’s WTO commitments. 

Examples of other policies with localization elements include: 

» Cybersecurity policies that pressure companies to localize technology; 

» Data flow restrictions/Internet controls; and 

» Expedited product approvals for innovative medical device products. 

• IP Rights: While China has increasingly recognized the value of innovation 

and IP rights and enforcement, with some steps being taken to upgrade IP 

laws and regulations, promote IP awareness, and tackle IP enforcement, 

much more work is needed in this core area important to manufacturers of 

all sizes and types. Among the areas of most concern that impede U.S. market access and fair competition in the Chinese market are: 

» High levels of counterfeiting, piracy, and trade secret theft, both physically and online; 

» Structural barriers to strong IP enforcement, such as value thresholds 

that effectively preclude criminal enforcement; 

» Policies designed to push companies to localize R&D and technology and 

promote the development of Chinese IP-intensive industries; 

» Policy developments in areas such as competition, standards, and product price controls that undercut U.S.-generated IP; 

» Cybertheft that has targeted several U.S. companies; and 

» Weak enforcement. 

• Standards, Technical Regulations, and Conformity Assessment Procedures: Manufacturers in the United States continue to experience a variety 

of challenges related to standards and technical regulations in China, ranging 

from inadequate channels for participation in standard-setting processes, 

treatment of IP in standards setting, and Chinese efforts to promote standards, both at home and abroad, that do not harmonize with international 

40 

standards. All of these regulations and requirements can add significantly to 

the cost of manufacturing products for export to China and limit the ability 

of U.S.-manufactured products to compete fairly in China. Among the areas 

where manufacturers in the United States are facing challenges include electric vehicles, medical equipment, and hazardous substances in electric and 

electronic products. 

• Subsidies and Other Measures: Manufacturers in the United States continue to be concerned about a range of other Chinese Government actions 

that have led to market distortions, such as subsidies and state-owned enterprise (SOE) interventions in the market that have built up massive overcapacity. Steel and aluminum are front and center, but overcapacity is also 

a problem in industries such as chemicals, fertilizer, concrete, agricultural 

processing, and semiconductors. More broadly, Chinese Government agencies 

continue to use a variety of export policies, particularly export restraints and 

subsidies, to promote or restrict the growth and export of priority products 

and sectors to provide an advantage to Chinese producers reliant on various 

metals and raw materials. While the United States has brought and won 

WTO cases on some of these policies, others continue to pop up. These actions 

both undermine U.S. market access in China and distort competition in the 

United States and third-country markets, all to the disadvantage of manufacturers and their workers in the United States. 

• Investment Restrictions: Manufacturers also face investment caps in key 

manufacturing sectors, such as agricultural processing, automotive, and telecommunications, forcing them to form joint ventures with domestic companies 

under the Catalogue Guiding Foreign Investment. Problematically, this allows 

government and company stakeholders leverage to seek concessions from foreign companies, including investment commitments, local sourcing, and access to capital and technology, in exchange for investment approval. In a series of changes in late 2016, China approved some revisions to its main foreign investment laws, which, while generally welcome, did not fully address 

remaining concerns from manufacturers in the United States about continued 

investment caps in critical sectors, efforts to build a national security review 

system for foreign investment and broader regulatory concerns that impact 

foreign-invested enterprises. Given the role of investment overseas in helping 

manufacturers reach foreign customers and participate in foreign resource 

and infrastructure projections, these rules negatively impact market access 

for manufacturers in the United States. 

• SOEs: During China’s WTO accession, China made a number of commitments 

related to the activities of SOEs and state-invested enterprises (SIEs), including agreeing that those firms would make purchases and sales based solely 

on commercial considerations and not be influenced by the government. Despite that commitment, the Chinese Government has continued to play a 

strong hand in SOE and SIE management and decision-making and pressure 

these firms to act in ways to support government priorities. Efforts to 

strengthen SOEs have only accelerated under President Xi Jinping, with 

plans that have generally focused on strengthening, not reforming, SOEs with 

only small changes, such as promoting mixed-ownership structures, addressing corruption, and reforming executive board operations. 

• Import Regulation: From tariffs and customs barriers to differential import 

procedures, manufacturers in the United States face a number of border barriers in China that impede U.S. exports and limit market access: 

» While China reduced tariffs as part of its WTO implementation on a 

broad range of manufacturing products, the process did not eliminate all 

of China’s burdensome tariffs, including some high tariff rates in key 

manufacturing sectors. 

» While China ratified the WTO’s TFA in September 2015, it will not implement its Schedule B commitments, including implementation of a 

‘‘single window’’ system for customs clearance, publication of average customs release times, or customs cooperation, until 2020. As a result, U.S.- 

manufactured goods face higher costs and red tape as well as delays in 

exporting to China. 

» Inconsistencies in customs-related regulations and enforcement create 

unnecessary challenges for U.S. exporters. Particularly concerning are 

different customs clearance proceedings and regulations between difVerDate Sep 11 2014 16:37 Jun 11, 2019 Jkt 000000 PO 00000 Frm 00044 Fmt 6601 Sfmt 6621 R:\DOCS\36645.000 TIM
41 

ferent ports, different agencies, and even different customs agents as 

they seek to get products cleared, including customs classification, customs valuation procedures, and clearance requirements. 

» In addition, China’s current import clearance regime unnecessarily complicates trade and restricts low-value shipments (including shipments of 

manufactured goods sent through e-commerce channels) from benefiting 

from expedited shipments treatment, as envisioned in the TFA. Although 

China’s complex import clearance procedures can clear products through 

one of three channels (including an e-commerce category), burdensome 

requirements to utilize the e-commerce channel prevent many products 

from benefiting from this option. 

» Manufacturers in the United States are seeing the misuse of Chinese 

trade laws to retaliate against U.S. industries and limit U.S. imports unfairly. 

» Import bans and other regulatory limits have also undermined U.S. access to China’s market, including bans on remanufactured products and 

units and a July 2018 ban on 24 types of materials, including scrap 

paper and plastic. 

• Transparency and the Rule of Law: Despite Chinese commitments during 

its accession to a range of reforms related to the rule of law, including regulatory transparency and consistent implementation of laws and regulations, 

China continues to struggle with many of these areas in ways that have a 

significant negative impact on the ability of manufacturers in the United 

States to navigate China’s regulatory framework and participate on a level 

playing field in the Chinese market. Among the most concerning areas are: 

» A lack of full regulatory transparency regarding laws and regulations, 

where new rules are implemented with limited notice and input from the 

private sector; and 

» A lack of fair and open processes regarding regulatory approvals. 

IV. IMPROVING THE U.S.-CHINA COMMERCIAL RELATIONSHIP

The U.S.-China commercial relationship holds potential to spur the growth and 

expansion of manufacturing here at home, but the trading relationship must be fair 

and open and must tackle persistent barriers. 

On this point, there is a lot of work left undone. Of particular importance for 

manufacturers is work to ensure full enforcement of existing international and domestic trade rules, including bringing additional WTO cases; engagement and coordinated activities with our trading partners and through regional and global channels, such as the Asia-Pacific Economic Cooperation Forum and G20; and the creation of new rules to ensure a free and fair competitive landscape for manufacturers 

in the United States. 

While targeted actions can provide some relief in the short term to some manufacturing industries, they can harm others, and there will be a lot of arguments about 

their merits in-between. This is especially true of tariffs, which, as NAM president 

and CEO Jay Timmons recently put it, can also create new challenges in the form 

of significant added costs or provoke China to take further destructive actions. So, 

at the end of the day, we think it’s best to address the underlying systemic issues 

that have given rise to the imbalances in the U.S.-China relationship in the first 

place. 

As Timmons explained in a letter to the President on January 8th, to address 

these issues comprehensively and truly level the playing field for the long term, the 

United States should ‘‘be pursuing a truly modern, innovative and comprehensive 

bilateral trade agreement with China that wholly restructures our economic relationship.’’ The letter explained that ‘‘[t]o be successful, this free and fair agreement 

must: 

• ‘‘Eliminate barriers that unfairly block American companies and America’s 

manufacturing exports from full and fair access to the Chinese market; 

• ‘‘Raise standards in China and create new rules to prevent the wide range 

of market-distorting practices that violate free markets and fair competition 

and hurt American businesses and workers; and 

42 

• ‘‘Create clear mechanisms to mandate strong and binding enforcement of the 

agreement, providing specific channels for government and industry alike to 

address cheating and violations.’’ 

A bilateral U.S.-China trade agreement would need to build on, but go far past, 

previous agreements by adding priority issues relevant to China, from industrial 

policy, state-favored industries and new transparency and IP disciplines to rules 

that reflect other changes in the global economy since the WTO agreements were 

negotiated, starting with digital trade and cross-border data flows. In particular, 

such an agreement would need to address those areas where unfair, discriminatory 

and harmful Chinese policies and practices are not actionable at the WTO. 

We believe this approach, while in some sense a radical idea, presents the best 

way to restructure the U.S.-China economic relationship so that it works for manufacturers and all Americans. 

V. CONCLUSION

Chairman Cornyn, Ranking Member Casey, and members of the subcommittee, 

thank you for your work on global trade and competitiveness issues and for holding 

this hearing. 

PREPARED STATEMENT OF DEAN GARFIELD, PRESIDENT AND CEO, 

INFORMATION TECHNOLOGY INDUSTRY COUNCIL

INTRODUCTION

Chairman Cornyn, Ranking Member Casey, and members of the subcommittee, 

thank you for inviting me to testify this afternoon. 

The Information Technology Industry Council (IT) represents over 60 of the 

world’s leading information and communications technology (ICT) companies. We 

are the global voice of the tech sector and the premier advocate and thought leader 

in the United States and around the world for the ICT industry. ITI’s member companies are comprised of leading technology and innovation companies from all corners of the ICT sector, including hardware, software, digital services, semiconductor, 

network equipment, Internet companies, and companies using technology to fundamentally evolve their businesses. Trade issues are critical to our members, and 

China is always a subject of much concern and interest. 

Today’s hearing is particularly timely, as the U.S.-China relationship stands at 

a crossroads. If we continue down our current path of tolerating China’s blatant disregard for international norms governing free trade and market access, we will continue to lose ground on both technological and economic fronts. Yet, altering course 

poses a unique challenge of navigating uncharted waters. The U.S.-China relationship is as complex as it is important. The relationship has always been—and likely 

will continue to be—one of both competition and cooperation. We need to approach 

managing difficulties in the bilateral trade relationship with the nuance and deliberation they deserve, recognizing that both action and inaction will have consequences for years to come, in positive and negative respects. 

The tech sector has been at the forefront of the competitive and cooperative balance with China for decades. While competition and collaboration between our companies can and should be a driver of innovation and growth, it is clear that China 

does not compete fairly. The Chinese have run a robust effort to rewrite the rules 

of the game in their favor—and this needs to change. Foreign companies must be 

able to compete on even footing with domestic companies in China and around the 

globe. 

While we must address China’s problematic policies and practices, that is only 

half of the equation. We also need to rebalance our approach to strengthening the 

U.S. economy and our own capacity for innovation. To that end, we must invest in 

our own people, our own research and development, and foster emerging technologies here in the United States. 

Regardless of whether China plays by the rules or not, it will continue to develop 

significant capacity for technological development, innovation, and growth. The 

United States must be prepared to compete. 

In my testimony, I will outline some of the key market access problems that our 

companies face as well as what we can do about it, why the Chinese market is so 

important, and how we can ensure that the United States continues to foster an enVerDate Sep 11 2014 16:37 Jun 11, 2019 Jkt 000000 PO 00000 Frm 00046 Fmt 6601 Sfmt 6621 R:\DOCS\36645.000 TIM
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vironment that gives the best and brightest individuals the necessary tools to develop tomorrow’s most innovative technology. 

KEY PROBLEMS FOREIGN TECH COMPANIES FACE IN THE CHINESE MARKET

Our companies face real and persistent challenges in the Chinese market, including data localization requirements, cloud services restrictions, and intrusive and 

undefined security review regimes that may lead to exposure of source code and intellectual property. Over the last decade, China has made a concerted effort not only 

to address legitimate cybersecurity and privacy concerns but also to foster a protected space for domestic companies to gain an unfair market advantage. As the 

Office of the United States Trade Representative (USTR) laid out in its comprehensive section 301 investigation findings report, China has created a tapestry of laws, 

regulations, standards, and practices that collectively advantage Chinese companies 

and create conditions for direct and indirect tech transfer. 

Despite this clearly strategic approach to boost Chinese innovation and indigenous 

technology, the Chinese government is not a monolith. Infighting, discord, and pressure from Chinese leadership for agencies to issue regulations and demonstrate enforcement has added another layer of uncertainty and unpredictability to the Chinese market. Following passage of China’s 2016 Cybersecurity Law, the tech sector 

has seen an unprecedented onslaught of implementing regulations, notices, measures, and standards drafted by numerous agencies within the Chinese bureaucracy, 

often contradicting one another. For example, the information technology standards 

body known as TC 260 released 110 standards for comment between November 2016 

and September 2017 alone, accounting for nearly half of all standards it has ever 

released for comment. Implementing regulations and standards that the Chinese 

government promised would clarify compliance questions often seem hastily drafted 

by individuals without relevant expertise, leading to more questions than answers. 

While the Chinese government has addressed certain concerns through solicitation 

of comment, often industry finds that issues go unaddressed or appear again in 

other regulations or implementing guidelines—leaving us to play an endless game 

of ‘‘whack-a-mole.’’ These hastily enacted regulations also allow enforcement agencies to both interpret obligations unevenly and, potentially, target foreign companies. 

BROAD AND AMBIGUOUS SECURITY REVIEW REGIMES

While the Chinese Government has for the most part been careful not to explicitly 

outline requirements for transfers of technology, source code, or IP, the ambiguity 

and uncertainty surrounding China’s numerous ‘‘security review regimes’’ create 

conditions ripe for coercion of companies to expose these valuable trade secrets. The 

Cybersecurity Law requires that companies subject themselves to intrusive security 

reviews for products and infrastructure to qualify as ‘‘secure and controllable.’’ 

While the meaning of this term is ambiguous, the provision seems to favor domestic 

companies and products as inherently more secure. This provision appears to be a 

thinly-veiled attempt to encourage consumers to ‘‘buy domestic.’’ Specifically, the 

Cross-Border Data Transfer Measures outline highly intrusive procedures, including 

background investigations of network suppliers and inspections of corporate offices. 

Given that President Xi Jinping and other officials have publicly stated an official 

preference for Chinese technologies, industry remains concerned that this policy empowers agencies to focus disproportionate regulatory attention on foreign technology 

products and services, relying on a broad justification of ‘‘public interest’’ concerns 

rather than true national security. 

IMPLICIT AND EXPLICIT TECHNOLOGY TRANSFER REQUIREMENTS

Intellectual property and source code are the lifeblood of American companies, and 

they make a concerted effort to safeguard these secrets. In addition to ambiguous 

security review regimes, Chinese requirements outlined in various laws and regulations—including those that require firms to locate production or facilities in China 

and establish a joint venture (JV) with a Chinese partner in order to operate in 

China—can put this invaluable information at risk. Disclosure of sensitive information can be forced through a contract (e.g., JV, partnership), direct pressure from 

local or central governments, or governmental review or certification mechanisms. 

While the term ‘‘joint venture’’ has come to carry a negative connotation, JVs can 

serve as an asset in China and other markets—allowing foreign companies to operate under otherwise rigid investment restrictions as well as leverage local expertise, 

support, and connections. There is nothing inherently wrong with JVs and partnerships if they are voluntary. They become problematic, however, when they are 

44 

1See ‘‘Law of the People’s Republic of China on Chinese-Foreign Joint Ventures; Provisions 

on Administration of Foreign-Invested Telecommunications Enterprises; The People’s Republic 

of China Foreign Investment Catalogue 2017.’’ 2https://www.brookings.edu/blog/up-front/2014/10/21/cross-border-data-flows-the-internetand-what-it-means-for-u-s-and-eu-trade-and-investment/. 

forced and regulations stipulate that the Chinese partner must maintain majority 

control of the JV or required product licenses can only be obtained by a Chinese 

company, thereby necessitating a partnership.1

China has made its technology transfer objective clear through its national strategy to promote indigenous innovation, Made in China 2025. The strategy explicitly 

promotes the transfer of technology as a means of advancing technological capability, competitiveness, and strategic emerging industries. Further, it outlines a 

wide-ranging effort to employ funding and the investment of significant government 

resources in support of key industries. This top-down direction fosters an environment that actively pursues technology transfer as a prerequisite for doing business 

in China. These factors create real risks for companies and reduce the competitiveness of American firms as well as their profitability. 

RESTRICTIONS ON FOREIGN CLOUD SERVICE PROVIDERS

China’s restrictions on U.S. cloud services providers (CSPs) exemplify the lack of 

reciprocity in the U.S.-China trade relationship. Foreign companies face written and 

unwritten requirements that could force U.S. CSPs to transfer valuable intellectual 

property, surrender use of their brand names, and hand over operation and control 

of their businesses to Chinese companies in order to do business in the Chinese 

market. Chinese cloud service providers operating in the United States are subject 

to none of these market access barriers. 

Draft and current Chinese regulations—including Regulating Business Operation 

in Cloud Services Market (2016) and Cleaning Up and Regulating the Internet Access Service Market (2017), would force U.S. cloud computing providers to offer their 

services through Chinese partners in the market. These measures, together with existing licensing and foreign direct investment restrictions on U.S. CSPs operating 

in China under the Classification Catalogue of Telecommunications Services (2015), 

would require U.S. CSPs to turn over essentially all ownership and operations to 

a Chinese company, forcing the transfer of incredibly valuable intellectual property 

and know-how to China. 

DATA LOCALIZATION REQUIREMENTS

Despite numerous efforts by the U.S. tech sector to revise problematic Chinese 

regulations and explain that localization does not equate to security, China continues to publish new and troubling laws, regulations, and standards that restrict 

data flows. Cross-border data flows are essential to digital trade. In 2016, over 53 

percent of total U.S. service exports relied on cross-border data flows.2 China’s Cybersecurity Law and other regulations seriously harm many U.S. exporters by restricting cross-border data flows and requiring firms to store and process data in 

China. Draft regulations—including the Cross-Border Data Transfer Measures and 

the Critical Information Infrastructure Protection Regulation (both implementing 

regulations of the Cybersecurity Law) contain numerous provisions that will force 

companies to localize certain data in China and create undue and expensive impediments to transferring business information out of China in a timely manner. 

The Chinese Government’s focus on data localization reflects the premium placed 

on control of content and data as a tool to ensure the stability of the Chinese Government. Though these policies will also have a negative impact on Chinese multinational companies, thus far the Chinese Government has not heeded these concerns. 

PROLIFERATION OF ‘‘CHINA-UNIQUE’’ STANDARDS

Standards offer yet another avenue for China to expand its regulatory and legal 

objectives—with even greater international consequences. Since the early 2000s, 

China has sought to establish a more robust and coordinated national technical 

standards regime, increase China’s participation in international standards setting 

bodies, and increase the number of Chinese standards adopted by those bodies. This 

has led to notable improvements in China’s standards setting and transparency, but 

also caused significant problems for U.S. tech companies. 

45 

3The WTO TBT Agreement Code of Good Conduct calls for a 60-day comment period and 

mandatory reply to all comments received by domestic and international stakeholders. 4 U.S. GDP was $19.739 trillion in the fourth quarter of 2017. 

China’s use of standards is particularly problematic for a few reasons. First, 

China uses standards as final implementing guidelines of laws (including the Cybersecurity Law) for companies, meaning the standard is our last chance to clarify and 

address problematic provisions of laws and regulations. Political pressure in China 

to produce standards rapidly has also led regulators to offer insufficient comment 

periods that fall far short of the WTO’s recommended 60-day comment period.3

Second, China claims that numerous Chinese standards are in line with international standards; however, they frequently contain key differences that require 

companies to modify products and practices specifically for the Chinese market, 

which takes time and increases costs for foreign companies. Moreover, China’s reluctance to allow foreign experts to participate in the standards-setting process in a 

truly robust and influential way has limited technical experts’ ability to counter 

these trends. 

Third, China seeks to promote its standards in international standards setting 

bodies. The cumulative effect of China rapidly publishing and promoting ‘‘Chinaunique’’ standards that favor Chinese companies will not only limit foreign companies’ access to the Chinese market but also reshape international standards in favor 

of Chinese companies. 

Recently, China has also sought to codify its standards-setting process in law 

through revision of its Standardization Law. The Standardization Law presents numerous requirements unique to China, including public disclosure requirements for 

internal company practices that will add unnecessary costs and risk making public 

sensitive company data and practices. For example, the Law requires that companies disclose ‘‘enterprise standards,’’ which are related to the features and performance of a company’s product. In addition, the inclusion of a preference for indigenous 

innovations in the Law creates trade barriers that would conflict with China’s obligations under the WTO TBT Agreement. In order to counter these trends, we must 

ensure that countries’ national standardization practices are fully compliant with 

international norms and WTO obligations that apply to a central government standardizing bodies. 

WHY DO COMPANIES STAY IN THE CHINESE MARKET?

While the Chinese market presents clear risks and impediments for foreign companies, its size and impact on the global supply chain cannot be ignored. In 2017 

alone, the U.S. exported $23 billion worth of ICT goods to China.4 And, as of 2015, 

China was the second largest export market for U.S. commercial ICT services exports in Asia. Put simply, companies cannot be truly global if they give up 25 percent of the global market. 

Customer retention is another important factor. Customers operate globally, and 

they expect leading American companies to offer services where they need them. If 

U.S. companies cannot operate in China, they risk ceding to Chinese companies in 

the global market, as customers—particularly those that depend on services such as 

Cloud—will seek out companies that provide services in all markets in which they 

operate. 

Ultimately, companies face two unappealing options: loss of the Chinese market 

and diminished global competitiveness OR operating in a risky and highly restricted 

but profitable and important market. 

WHAT THE U.S. GOVERNMENT CAN DO TO CHANGE THE STATUS QUO

ITI appreciates that the U.S. Government recognizes that there is a market-access 

problem in China and has taken steps to address it, including USTR’s Section 301 

investigation and subsequent report regarding China’s unfair trade policies and 

practices. The tools that the U.S. Government uses to address these issues, however, 

must be tailored and strategic to avoid causing unnecessary harm to U.S. consumers, businesses, and the economy. I’d like to outline a few basic tenets below. 

DO NO HARM TO U.S. CONSUMERS AND BUSINESSES

Tariffs are counterproductive. The broad array of products identified by USTR for 

increased tariffs will have a significant negative impact on the U.S. economy across 

multiple sectors, increasing prices for consumers and businesses. The administraVerDate Sep 11 2014 16:37 Jun 11, 2019 Jkt 000000 PO 00000 Frm 00049 Fmt 6601 Sfmt 6621 R:\DOCS\36645.000 TIM
46 

5https://www.federalregister.gov/documents/2018/04/06/2018-07119/notice-of-determination-and-request-for-public-comment-concerning-proposed-determination-of-action. 6https://www.technologyreview.com/the-download/610271/chinas-ai-startups-scored-morefunding-than-americas-last-year/. 

tion has claimed that consumer goods will be exempt from tariffs; however, the 

structure of the global supply chain and the numerous product inputs from across 

the globe factoring into final products make it virtually impossible to exempt consumer goods from the increased costs attributable to tariffs. For example, smart 

home devices like connected thermostats would increase in price as a result of these 

tariffs,5 as the final product ships from China though it is the product of U.S. knowhow and innovative technology. Additionally, tariffs on key components of televisions, touch-screen devices, and cameras are all captured by the current list of potential tariffs and, if imposed, will yield increased prices on the final product. In 

short, tariffs ultimately amount to a tax on American consumers. 

DON’T GO IT ALONE—LEVERAGE INTERNATIONAL PRESSURE AND COALITIONS

We cannot ignore the global importance of the Chinese market and we cannot unilaterally punish China into changing its behavior. It is misguided to assume that 

publically—and unilaterally—punching China will change behavior. As we are seeing play out in real-time, this will only prompt China to retaliate in order to demonstrate that it won’t be bullied by the United States. 

We must focus on what works. Multilateral pressure is one of the few tactics that 

has caused China to change course. For example, in 2004, China proposed an international standard for wireless security, ‘‘Wireless Authentication and Privacy Infrastructure (WAPI).’’ China subsequently tried to make this mandatory for wireless 

LAN equipment in China. Members of the International Standards Organization 

(ISO) refuted the mandatory status of the standard and slow-rolled its approval as 

an international standard. With the support of business groups and standards group 

around the world, ISO ultimately rejected the proposal for WAPI to become an 

international standard in 2006. 

In 2009, China required that ‘‘Green Dam-Youth Escort’’ screening software be installed on computers to be sold in China, ostensibly for the purpose of restricting 

pornographic imagery. However, the software had clear ‘‘censor-ware’’ capabilities 

with intrusive surveillance potential; cybersecurity experts also noted serious security vulnerability concerns. The international community across businesses, rights 

groups, and NGOs, and the United States, Japanese, and EU governments combined intense pressure on numerous fronts, which led to the delay and ultimate suspension of the program. 

Finally, while it is fair to say that bringing China into the WTO has not had the 

positive impact that we hoped for, it does create the opportunity to hold China accountable. Thus far, China has not faced any real consequences for its actions. It’s 

time for the international community to stand united and tell China that its market 

access restrictions will no longer be tolerated. 

COMPETE WITH CHINA AND INVEST IN OUR FUTURE

Punishing China and restricting Chinese investment in the United States alone 

will not help us achieve our goals. We must invest in our own future. This means 

investing in research and development, education, science and technology, artificial 

intelligence (AI), and incentivizing innovation—all of which are key to our future 

economic and societal prosperity. 

We must be prepared to step up and compete with China. Regardless of whether 

China plays by the rules or not, Chinese inventors, entrepreneurs, and businesses 

will continue innovating and will close the technological gap between the United 

States and China. While we of course want a level playing field, we must also step 

up our game. China is making a concerted and strategic effort to invest and plan 

for its economic and technological future. The United States can and should do 

more. According to the World Economic Forum, in 2016 China had 4.7 million recent 

STEM graduates while the United States had 568,000 graduates. In 2017, China 

accounted for 48 percent of the total global investment in AI startup funding, while 

the U.S. accounted for 38 percent. In monetary terms, China invested $7.3 billion 

in AI while the U.S. invested $5.77 billion.6

China is also on track to outpace the United States in other areas. For example, 

according to a 2018 International Data Corporation (IDC) report, the United States 

will spend $22 billion on smart city development this year. China is close behind 

47 

7https://www.techrepublic.com/article/smart-cities-expected-to-invest-80b-in-technologies-in2018/. 8https://www2.deloitte.com/content/dam/Deloitte/tr/Documents/public-sector/deloitte-nl-pssmart-cities-report.pdf. 

with projected spending at $21 billion.7 As of 2015, there were 1,000 smart city pilot 

plans in the works worldwide, 500 of which were located in China.8

These are just a few examples. The bottom line is that the United States is failing 

itself by not seriously investing in our country’s technological and economic future. 

CONCLUSION

The tech sector faces serious challenges in accessing the Chinese market. We 

must address these challenges aggressively, but we also cannot ignore or deny the 

significant role China plays in the global economy as a key piece of the global supply chain, supplier of products and components, and a vital market for U.S. goods 

and services. 

There is no question that it is time to demonstrate to China that there are consequences for its unfair trade actions, and that the international community will not 

tolerate blatant disregard for international norms and principles of free trade. However, addressing China’s behavior must not come at a cost for American consumers 

and businesses. And we cannot let our efforts distract us from strengthening and 

developing our own tech sector and economy. We do ourselves a disservice if we 

downplay the need to invest in our ability to compete with an increasingly innovative and technologically advanced China. 

Market access in China is a complex and multi-faceted problem that will require 

us to be strategic on numerous fronts. With the right approach, we can address 

these serious issues in a way that benefits, not harms, the United States and the 

global economy. 

On behalf of all ITI members, I thank you for having me before the committee 

today and commend you for your interest in examining the evolving U.S.-China 

trade relationship. We stand ready to work with you to address these challenges. 

I look forward to answering your questions. 

PREPARED STATEMENT OF THEA M. LEE, 

PRESIDENT, ECONOMIC POLICY INSTITUTE

Thank you, Chairman Cornyn and Ranking Member Casey, for the invitation to 

participate in this important hearing. I am the president of the Economic Policy Institute, the Nation’s premier think tank for analyzing the effects of economic policy 

on America’s working families. EPI has focused attention over many years on the 

impact of the imbalanced U.S. economic relationship with China on U.S. jobs and 

wages, as well as on American business and the long-term prospects for U.S. innovation and growth. 

Seventeen years after China acceded to the World Trade Organization (WTO), the 

bilateral economic relationship between our two countries is enormously lopsided 

and problematic. The U.S. ran a goods trade deficit with China of $375 billion in 

2017—up from $83 billion in 2001. This is the largest single bilateral trade deficit 

between any two countries in the history of the world—and it continues to trend 

upwards, despite 20 U.S. challenges to China at the WTO, despite earnest annual 

bilateral talks and commitments, and despite all the ‘‘reform’’ commitments China 

made upon accession. 

Furthermore, it is not just the sheer size of the U.S. trade imbalance with China 

that is of concern. It is the composition. 

As recently as 2001, the U.S. ran a global trade surplus in advanced technology 

products (ATP). ATP includes advanced elements of computers and electronics, as 

well as biotechnology, life sciences, aerospace, and nuclear technology, among others. ATP should be a strong suit for a wealthy, technologically savvy, high-skilled, 

capital-intensive country like the United States. However, roughly coincident with 

China’s entry into the WTO, the surplus turned to deficit and grew rapidly, hitting 

$136 billion in 2017. The U.S. ATP deficit with China is more than our entire global 

ATP trade deficit, which was $110 billion. This means that excluding China, we actually have a trade surplus in ATP with the rest of the world. This statistic alone 

48 

should be a signal that there are significant anomalies in the U.S. trade relationship with China that cannot be explained by market forces. 

Meanwhile, top U.S. exports to China include raw materials, agricultural products, and waste materials. Between 2001 and 2015, we saw the fastest growth in 

imports over exports with China in computers, electronics, miscellaneous manufactured commodities, and apparel. We saw the fastest growth in exports over imports 

in agriculture and aerospace (where significant technology is being transferred over 

time). This is not the profile of imports and exports that would be expected between 

countries at the respective economic development levels of China and the United 

States. 

WTO PROMISES

In 2000, politicians from both the Democratic and Republican parties and business leaders argued that WTO accession would create a ‘‘win-win result for both 

countries’’—the U.S. would gain access to Chinese markets, ‘‘reformers’’ in China 

would ascend in the political/economic hierarchy, workers’ rights would improve, 

and both countries would prosper. 

The actual outcomes have been decidedly different. 

According to USTR, China is still not fully compliant with the commitments it 

made during the WTO accession process. American companies trying to do business 

in China face theft of trade secrets, counterfeiting, inadequate protection of intellectual property, online piracy, industrial policies that promote domestic goods at the 

expense of U.S. products, subsidies, discriminatory product standards, the dumping 

of excess capacity, and restricted access for American services. Seventeen years after 

accession, China has not even listed all of its restricted export subsidies, let alone 

eliminated them, as promised. 

In addition, China has used currency policy to gain an unfair competitive advantage over American business and labor. During the crucial decade after China’s accession, the Chinese Government intervened systematically and in one direction in 

currency markets to thwart exchange rate adjustment that could have helped to rebalance trade with the United States. The legacy of that currency intervention remains an important factor in the current imbalance. While in principle both the 

WTO and the IMF have mechanisms and rules to address currency manipulation, 

in practice no U.S. administration has yet been willing to use those mechanisms or 

U.S. unilateral measures to address this problem. 

IMPACT ON JOBS AND WAGES

This litany of unfair trade practices and currency manipulation has had a serious 

and pervasive negative impact on American jobs and wages. As my colleague, Rob 

Scott, demonstrated in a 2017 report, ‘‘Growth in U.S.-China Trade Deficit Between 

2001 and 2015 Cost 3.4 Million Jobs,’’ the deficit cost jobs in all 50 States and the 

District of Columbia. Between 2001 and 2011, the growing trade deficit cost directly 

impacted workers $37 billion a year, while also putting downward pressure on the 

wages of all non-college graduates by $180 billion a year. 

American businesses have also suffered from closed markets and unfair practices 

in China, but they are often reluctant to initiate trade complaints or protest, as they 

fear any public outcry will bring more unfavorable treatment on their company. 

It is no secret that the Chinese Government has a long-term economic strategy 

to build certain sectors through subsidies, as well as purchasing, tax, and regulatory 

policies. These strategies are announced publicly at regular intervals—pillar industries, strategic emerging industries, Made with China, Made in China 2025. These 

strategic plans are variations on the theme of ‘‘picking winners,’’ also known as industrial policy, something American politicians of both parties tend to scorn. These 

plans set targets for indigenous production, use of technology, favorable treatment 

for state-owned enterprises, and discriminatory treatment of foreign brands and 

companies, among other things. These practices are deep and pervasive. 

Of course, the Chinese Government has a right to set its own strategic goals, and 

the United States can certainly be faulted for failing to articulate, let alone implement, any coherent, long-term economic strategy. 

But there are two problems here, and we should be careful to distinguish them. 

On the one hand, many of the Chinese Government’s practices are inconsistent with 

international rules and norms—not just WTO rules on prohibited subsidies and 

dumping, but also international conventions on workers’ rights, public health, 

49 

human rights, environmental protections, intellectual property rights, and consumer 

safety. The United States touts the importance of a rules-based system, but if some 

players—like China—flout the rules with impunity over decades, then the rulesbased system becomes a trap for those who comply. The United States failure to 

adequately enforce existing rules is why there is so much pent-up frustration among 

workers and domestic producers over trade with China. The U.S. Government’s 

piecemeal and scattershot enforcement strategy has been time-consuming and ineffective. 

The U.S. Government has not ever raised, in any systematic or meaningful way, 

China’s failure to comply with its obligations as a member of the International 

Labor Organization to ‘‘respect, promote, and realize’’ the core international workers’ rights outlined in the ILO Declaration on Fundamental Principles and Rights 

at Work: freedom of association, right to organize and bargain collectively, and freedom from child labor, forced labor, and discrimination. This means that American 

workers and businesses are competing on a tilted playing field, since Chinese workers cannot exercise their rights to form independent and democratic unions. 

On the other hand, the United States has its own responsibility to develop and 

implement a coherent long-term economic strategy with respect to both manufacturing and services, both trade-related and domestic. The U.S. Government has 

failed to invest adequately in infrastructure and skills for decades, and business has 

not filled the void. We have a tax system that rewards capital over labor and outsourcing over domestic production. It remains riddled with unproductive loopholes, 

and—especially after last year’s changes—it fails to raise adequate revenue to fund 

needed investments. 

Our trade policy is geared toward boosting the profits and mobility of multinational corporations, but not creating and supporting good jobs at home. Our government spends a lot of time and energy negotiating new trade agreements, but has 

failed to act to stem currency manipulation, which undermines the market-opening 

measures negotiated with so much fanfare. 

Forced technology transfer, IPR transgressions, and the loss of domestic capacity 

in key sectors can all contribute to the undermining of American innovation and 

technological leadership. This has consequences not just for the current labor market, but for our future trajectory. 

The Chinese Government is clearly playing a long game, while the U.S. is egregiously shortsighted. Our trade policies in the past have been so inadequate in scale 

and slow in implementation that by the time we take action, it is often a decade 

too late, with the result that our trade actions are ineffective, if not counterproductive. 

We need to reform our domestic trade laws so we can act expeditiously—as soon 

as the Chinese government announces its strategic priorities, not a decade later, 

after we’ve lost market share and the technological edge. Going forward, we must 

address new barriers to trade in services and e-commerce. We need to make sure 

that we have—and are willing to use—measures to address currency misalignment. 

Our trade enforcement measures should prioritize good jobs, workers’ rights, democracy, environmental compliance, and consumer safety over outsourcing and shortterm profits. 

In summary, the U.S. Government needs to develop and articulate its own longterm economic development strategy. It needs to use domestic tax, infrastructure, 

and workforce development policies to ensure that American workers and businesses 

have the tools and skills they need to compete successfully. But the government also 

needs to strengthen our trade compliance and enforcement measures and be willing 

to use them aggressively and consistently and in a timely manner to ensure that 

our trade relationship with China is reciprocal and fair. 

Thank you for your attention. I look forward to any questions you may have. 

(51) 

1https://www.epi.org/press/the-growing-trade-deficit-with-china-cost-3-4-million-u-s-jobs-between-2001-and-2015/. 2https://ustr.gov/sites/default/files/files/reports/2017/NTE/2017%20NTE.pdf. 

3https://www.usw.org/blog/2016/outlaw-chinese-steel. 

4https://www.usw.org/news/media-center/releases/2018/usw-section-301-decision-confrontschinas-intellectual-property-abuses. 

COMMUNICATION

UNITED STEELWORKERS (USW) 

Statement of the United Steel, Paper and Forestry, Rubber, 

Manufacturing, Energy, Allied Industrial and 

Service Workers International Union (USW) 

On behalf of the 850,000 members of the United Steelworkers (USW), we wish to 

thank you for holding this important hearing on market access challenges in China 

and for the opportunity to provide submissions to the record. Access to foreign markets are critical for any manufacturer, and as the largest union in the manufacturing sector in North America, it is imperative that the rules of trade provide for 

fair competition that raises living standards for all workers. 

Since the ascension of the People’s Republic of China (PRC) to the World Trade Organization (WTO), the dramatic loss of U.S. manufacturing jobs has been staggering. The growth in the U.S. goods trade deficit with China eliminated or displaced 3.4 million U.S. jobs between 2001 and 2015 according to research by the 

Economic Policy Institute. Nearly three-fourths of the jobs lost, or 2.6 million jobs, 

were in manufacturing.1

The market access barriers in China are not unknown to American workers or to 

Congress. The most recent National Trade Estimate report of the United States 

Trade Representative (USTR) highlights, in 18 pages, multiple long standing market access barriers for every segment of the economy from agriculture to manufacturing.2 Each of these barriers represents a long established issue with the PRC, 

such as the illegal hacking of several USW represented companies like United 

States Steel. Throughout 2010, the Chinese Government subjected U.S. Steel to 

cyber-attacks. Then in 2011, government hackers in China hijacked information 

from U.S. Steel on advanced high-strength steel used in the auto industry. 

Companies in China had been unable to develop this technology and were under 

pressure from their domestic car companies to get it. So their government stole it 

for them. After the theft, one of the largest steel companies in China, Baosteel, used 

the trade secrets to produce the specialized steel and export it to the United States 

in direct competition with U.S. Steel.3

These attacks also targeted USW staff. We were directly attacked by China’s People’s Liberation Army hackers, as shown in the May 2014 indictment obtained by 

the U.S. Attorney for the Western District of Pennsylvania, David Hickton. Several 

of our employers were also identified as victims in those attacks.4

These overt raids of intellectual property and espionage of labor organizations are 

unfortunately just one of the many challenges with the PRC market. The industrial 

policies of the country create a wide array of limits to U.S. products that were long 

established prior to the recent announcements of retaliation by the PRC for the U.S. 

attempt to maintain its critical defense and infrastructure through the completion 

of the 232 investigations on steel and aluminum. 

USW members in the food processing and ethanol industries have seen anti-dumping and countervailing duties raised against their exports because of the PRC’s merVerDate Sep 11 2014 16:37 Jun 11, 2019 Jkt 000000 PO 00000 Frm 00055 Fmt 6601 Sfmt 6621 R:\DOCS\36645.000 TIM
52 

5https://www.reuters.com/article/us-chicken-china-sb/u-s-china-tire-spat-couId-hurt-chickenfeet-idUSTRE58D4P620090914. 6https://lta.reuters.com/article/marketsNews/idLTAL4N1DM34C?rpc=401&. 

7https://www.reuters.com/article/usa-trade-china-ethanol/update-1-china-tariffs-on-u-s-ethanol-to-cut-off-imports-in-short-term-idUSL4N1RF4G0. 8https://ustr.gov/sites/default/files/tiles/reports/2017/NTE/2017%20NTE.pdf. 

cantilist policies. After USW tire workers successfully petitioned the Obama administration for tariff relief under section 421 of U.S. trade law on passenger vehicle 

and light truck tires, the PRC responded by illegally retaliating against U.S. chicken 

producers.5

In the last 2 years, the PRC has also raised significant tariffs on U.S. ethanol production, undercutting foreign market growth for U.S. producers and amplifying ongoing issues in U.S. domestic renewable fuels policy. In late 2016, the PRC added 

a 30-percent tariff on U.S. ethanol exports, the goal was not to prevent U.S. dumping but to develop the domestic industry and reduce Chinese subsidized corn 

stocks.6 The addition of a 15 percent ethanol tariff in retaliation for the Administration’s steel and aluminum 232 announcements was not just a response to tariffs but 

strategically done to blunt U.S. producer’s competitiveness. U.S. imports had recently picked up after prices fell enough to be attractive even with the high 30- 

percent duties.7

While much attention continues to be paid to the PRC’s retaliatory threats against 

U.S. agricultural products, previously established market access barriers from the 

country’s ‘‘Made in China 2025’’ program will undercut the U.S. ability to access the 

Chinese market in advanced manufacturing. The PRC intends to develop and grow 

advanced information technology, automated machine tools and robotics, aviation 

and spaceflight equipment, maritime engineering equipment and high-tech vessels, 

advanced rail transit equipment, new energy vehicles, power equipment, farm machinery, new materials, biopharmaceuticals and advanced medical products. The 

country intends to capture these advanced manufacturing productions through 

state-driven plans and initiatives, as it, for example, sets targets for indigenous production or control of up to 40 percent of certain critical components in the aerospace, 

power and construction sector.8

How we respond to these market challenges is a critical function that the administration and Congress must address. For too long U.S. manufacturing workers have 

been asked to sacrifice their jobs to what economists blithely call ‘‘comparative advantage.’’ However, economics 101 quickly falls apart in the real world where political calculations are made. U.S. workers cannot idly wait years for international forums to squabble over terms and definitions of industrial overcapacity and other 

critical debates. Congress should support aggressive attempt to open Chinese markets but not at the expense of unilateral domestic deindustrialization. Trade between the two largest individual economies in the world today must be fair and reciprocal. 

Æ