China and the Global Challenge of State Capitalism

The Chamber urges the Biden administration and Congress to embrace a China policy that prioritizes increased access to the Chinese market—as both an economic and strategic goal—and smartly uses offensive and defensive tools to counter the global disadvantages caused by China’s state capitalist approach.

In the short term, the United States should pursue a policy that prioritizes full implementation of the U.S.-China Economic and Trade Agreement reached in January 2020. The United States should also seek to address the core concerns of U.S. business in China, most of which were not addressed in that agreement, namely endemic subsidies; discriminatory standards; market access restrictions for cloud computing and other ICT products and services along with data restrictions and localization requirements; forced technology transfer policies and practices; and outstanding intellectual property concerns, particularly in the patent area.

Moreover, the United States must carefully calibrate the use of export controls, investment screening and similar tools, while pursuing multilateral solutions to global anticompetitive distortions that result from China’s state capitalist model.

While the U.S. Chamber supports the Economic and Trade Agreement, it made limited progress on the overall scope of concerns of U.S. investors and exporters with China. It will therefore be essential for the next administration to prioritize more far-reaching reforms in China that level the playing field for American business.

As a core component of this approach, the United States should develop and execute a diplomatic strategy with allies to enhance leverage and balance the costs on segments of American business that will necessarily be incurred as part of an effective strategy. Such efforts should be plurilateral and multilateral, and they should focus on alignment of policies on competition, subsidies, digital trade, standard setting, export controls, and investment screening.

On the multilateral front, the agreement among the United States, the EU, and Japan in January 2020 on ways to strengthen existing WTO rules on industrial subsidies represents one example of a cooperative approach to key issues that should be continued. As work continues in the multilateral context, the Chamber will urge like-minded governments to adopt plurilateral approaches in the interim that increase pressure on China to remove discriminatory policies and practices and adopt market-opening and market-based reforms.

It is useful to recall that the currently imposed U.S. Section 301 tariffs were not issued all at once or in the same manner. The tariffs today cover $374 billion of imports from China, according to the CBO. An extensive Section 301 investigation and report justified the application of the initial tariffs (lists 1 and 2) on the first $50 billion in July and August 2018. One month later, a second batch (list 3) of tariffs on approximately $200 billion of imports was issued “as a result of China’s retaliation and failure to change its practices,” according to a press release by USTR. The third batch (list 4) of tariffs on more than $100 billion of imports was announced in August 2019 in a trio of tweets from the president and came one day after the White House had declared talks with China to be “constructive.”

In this context, the Chamber urges the next administration to commence an immediate review of the Section 301 tariffs to assess where they are unnecessarily undermining U.S. businesses through their application to downstream inputs for upstream products, particularly those made in North America. The administration should carefully consider areas where China has been building subsidized overcapacity since the introduction of tariffs and the COVID-19 shock and take precautions against any flood of subsidized Chinese exports to U.S. markets that might follow immediate tariff elimination. Further, the administration should remove tariffs that are unrelated to the Section 301 report and pursue further negotiations on the previously-mentioned concerns of business to achieve comprehensive removal of tariffs on both sides.

ACTION: The Chamber advocates for a China policy that builds on the 2020 Economic and Trade Agreement with improved access to the Chinese market; seeks new negotiations to achieve further structural reforms and tariff relief; and works with allies globally to counter the challenges posed by China’s state capitalist policies.