Last year, the House and the Senate passed two different bills related to America’s China trade policy: the House passed the America COMPETES Bill, and the Senate passed the U.S. Innovation and Competition Act (USICA).
The trade provisions in the COMPETES bill have been widely praised by institutions that share Trump’s economic approach to China. Despite being Democrat-sponsored legislation, COMPETES has earned praise from such institutions because, for one, it would close theso called de minimis loophole for Chinese imports. The de minimis loophole allows shipments with a declared value under $800 to enter the U.S. tariff-free, which Chinese importers have used to their advantage.
Furthermore, COMPETES would shore up the Miscellaneous Tariff Bill by making eligible for tariff reductions only those intermediate goods which go into final products produced in the United States.
There were plenty of reasons why Republicans objected to COMPETES, mostly related to the bill’s non-trade provisions. COMPETES would have created a special visa category for entrepreneurial immigrants, and exempted high-skilled immigrants (those with doctorates or master’s degrees) from caps on green cards for immigrants from specific countries, for instance. It also included progressive provisions to liberalize banking laws on behalf of marijuana growers and dispensaries.
“The intention in [COMPETES] is there,” Conservative Partnership Institute Senior Director of Policy Rachel Bovard told TAC. “I have no problem with the idea that we need to maneuver our public policy to directly address the threat China poses, but this bill is so cluttered with a massive climate agenda, sending everything to the National Science Foundation, ensuring that all the research funding gets held up in identity politics and victimology, et cetera.”
When the House voted on COMPETES in February, just one Republican, Adam Kinzinger of Illinois, voted in favor of the bill—and not because Kinzinger shares the former president’s view on trade.
Last June, the USICA passed easily in the Senate by a vote of 68-32. USICA’s trade section would reinstate 2,200 exemptions for China that the Trump Administration stripped away. Specifically, the USICA takes a sledgehammer to Section 301 of the Trade Act of 1974, which allows the president to respond to breaches by foreign countries of U.S. trade agreements or other foreign trade practices deemed improper.
Trump used Section 301 to place tariffs on a large number of Chinese imports to the tune of an additional 25 percent in response to intellectual property theft. Despite the political establishment and corporate media’s pearl clutching, the tariffs on Chinese imports were popular, which is likely why the Biden Administration has done little to undo them, though it has handed out just over 350 tariff exemptions for certain Chinese goods.
Section 301 is the chief executive’s main tool in the kit to decouple the American economy from China, but the USICA would render it virtually inoperable, while giving large handouts to Chinese importers. Under the USICA, Chinese firms would be allowed to claim “lost profitability” via tariffs on goods to get an exemption from Section 301 tariffs. It would also refund Section 301 tariffs paid in 2021 if a Chinese good lost its exemption at the end of 2020. If this refund provision remains in the final bill, the U.S. Treasury will be forced to send billions of dollars to Chinese firms within 90 days of the bill becoming law.
USICA would also present the U.S. Trade Representative with a number of regulatory hoops to jump through in order to deny tariff waivers for products made in China. Failure to navigate this obstacle course in a timely manner would automatically give reprieve to the Chinese importer. The Trade Representative is also explicitly directed to look at the impact of passing up cheap Chinese imports.
Because of this regulatory burden and other factors, the USICA would empower the World Trade Organization to serve as the de facto authorizer of any Section 301 tariffs imposed by the president.
“In a WTO dispute, the way it works is you file something called a consultation request, and that triggers a timeline,” explained Charles Benoit, trade counsel at the Coalition for a Prosperous America. “Now, the WTO doesn’t have an army or a police force, so the WTO can’t compel a losing party to comply. So, if a country loses a WTO case, and they don’t remedy the situation, then what the WTO does is authorize retaliation” through certain, targeted tariffs that match the WTO’s assessed amount in damages.
Section 301 allows the president to retaliate against another country in the event of a favorable WTO ruling in a trade dispute.
“What USICA does is it makes 301 unusable by imposing insane burdens with one exception: all of the new USICA 301 burdens do not apply if the tariffs are being imposed subsequent to a WTO ruling,” Benoit said. “So it’s saying, ‘Hey, this trade remedy is only okay to use if a court in Geneva says so.’”
Defanging Section 301 and rendering it a domestic legal mechanism for the enforcement of WTO arbitration is the corporate world’s revenge for Trump’s actions against China.
“The multinationals, Business Roundtable, and the Chamber of Commerce were aghast that even though [the Trump Administration] checked all the domestic law boxes” while pursuing tariffs against China, Benoit said, “the administration ignored the WTO,” because there was no WTO redress for intellectual property theft.
“Of course, it would be a bridge too far if they came out and said, ‘we’re taking authority away from the president, and handing it to a Geneva court,’” he added. “So they’re salting the earth and making 301 impossible to use unless you go through the WTO process.”
Trade provisions aside, there is plenty of pork in the USICA that Republicans may object to as well.
Nevertheless, 19 Republicans, mostly the ilk of Senate Minority Leader Mitch McConnell, voted in favor of the bill. McConnell was joined by Senators Lindsey Graham, Mitt Romney, and Ben Sasse, among others. As was the case in the Senate’s infrastructure battle, these Republicans are willing to put up with progressive priorities as long as it means the U.S. has access to cheap imports from China. Some of these senators may mimic Trump and talk a tough game when it comes to China, but their voting record shows their true colors.
“Republicans are still on autopilot,” Benoit said with a tone of both disappointment and frustration. “Republicans, especially on Ways and Means and Senate Finance, which are two key committees, are still taking their marching orders from the U.S. Chamber of Commerce and Business Roundtable like they have been for our adult lives and longer. That’s what’s going on.”
“They have no regard for their constituents,” he added. “Zero regard.”
“I don’t think that they [some Senate Republicans] were ever actually on board with that part of the Trump agenda anyway,” Bovard said. “I think there was a willingness to just not say anything, or not say anything too loudly when Trump began waging a tariff war on China. Although I think there was a fair bit of grumbling about it, I don’t think that there was conference-wide unity on that. So, the idea that they were going to protect this part of the Trump agenda, I don’t think that they see it, or ever saw it, that way. It is sort of like the divide that existed when Trump was trying to use emergency powers to build the border wall.”
Though some Senate Republicans are now trying to gut Trump’s China tariffs, Bovard said, “I think everyone at least agrees with Trump’s critique of what’s going on to varying degrees.” However, she said she does not think “the Republican Party is unified around an agenda to actually address the issue.”
“There are still people within the right who believe that you can just out compete China, but it’s far more complicated than that. In many ways, China uses our system against us. It’s not state actor versus state actor. They weaponize private business against our values and against our system,” Bovard went on to say. “Look at companies like TikTok and Huawei. Those are engines of the Chinese state, and yet our policies, in many ways, still treat them like they are just any other private enterprise when they’re not. I think that’s also true when you look at our own companies that want to do business in China and are prepared to give up whatever they have to give up to access that market. That’s something our public policy hasn’t dealt with.”
“In their defense,” Bovard added, “I think the issue is broader than just tariffs, but…it seems to me the institutional Republican actors, particularly in the Senate, haven’t figured out how to channel that into something productive.”
Most Senate Republicans who rejected the USICA kept quiet, afraid of running afoul McConnell’s political machine. Sens. Josh Hawley, Marco Rubio, and Tom Cotton, however, went to bat for Trump’s China policy.
“I can’t support a bill that harms American workers and cuts tariffs on products made in China in the name of ‘increased competition,’” Hawley said in a statement regarding the USICA last year. “For decades, US policy makers have watched as millions of American jobs were shipped overseas, corporate America sold out to the Chinese Communist Party, and our industrial economy was replaced by slave labor in Xinjiang. We must correct the failed Washington consensus that has allowed Beijing to thrive at the expense of working Americans.”
The chambers have now put together a conference committee to reconcile the two bills, where Republicans are now pushing not to pare back progressives’ climate-action demands and other excesses in both COMPETES and the USICA, but instead to ensure the USICA’s trade provisions make it into the legislation that Biden will likely sign into law. Senate Republicans in the conference committee have drawn a line in the sand with respect to some of COMPETES’ trade provisions, threatening to pull their support if they end up in the revised legislation.
Senate Finance Committee Ranking Member Mike Crapo, a Republican from Idaho who authored the trade provisions with Chairman Ron Wyden,said the USICA “needs to be the foundation” of the conference committee’s final product. Senator Todd Young, R-Indiana, echoed Crapo’s statement, saying the conference committee’s version must “resemble fairly closely the Senate bill in order to retain Republican support.”
Hawley, Rubio, and Cotton have been iced out of the conference process, which Bovard told TAC, “is not unusual,” given they did not support the bill in the first place. “That being said, leadership and the committee leadership has a fair amount of flexibility,” Bovard continued. “If they actually wanted someone to make that case, they could’ve appointed someone to the conference committee like those guys to make it. Like I said, I don’t think the Republican Party has a coherent vision for what they view as a trade agenda at this point, so I don’t think having a robust debate about this in a conference committee is something they’re focused on.”
But even without some of the most vocal objectors in the Senate getting a seat at the table, “there’s so many ways that this process is getting hamstrung,” Bovard added. “I’m not going to be surprised if there’s a jailbreak of Republicans against it because it’s just getting so bogged down by other priorities, and that’s the problem that you have on the left. You can’t have an honest conversation about this with the left because they have 18 other priorities and everything is like gender identity.”
The reason that not just Republicans but an increasing number of legislators are anti-tariffs goes beyond their adherence to globalizing liberal economic orthodoxy. One of the problems, Benoit told TAC, is, “we’ve lost so much of our manufacturing at this point,” that there aren’t many members of Congress with large manufacturing constituencies to oppose members whose constituents heavily rely on imports. “If a producer has outsourced its manufacturing, they will lobby vigorously for tariff cuts, but if they’re producing domestically, then they’re probably going to lobby heavily for tariffs.”
“How do we get Congress to write a new, protective tariff, when a majority of our producers are manufacturing overseas?” Benoit said. “That’s a huge problem.” ✪