On February 25, President Biden’s nominee for U.S. Trade Representative, Katherine Tai, testified at a confirmation hearing before the Senate Finance Committee. The issue of trade with China came up a number of times, both in her opening statement and in response to questions from committee members.
In the setting of a confirmation hearing such as this one, any statements by Tai should be seen as fairly general, with details to be filled in later after she takes up her position. Nevertheless, some noteworthy statements she made with respect to U.S. trade policy as it relates to China were the following:
- “China is simultaneously a rival, a trade partner, and an outsized player whose cooperation we’ll also need to address certain global challenges”;
- “We must also impart the values and rules that guide global commerce — and we must enforce those terms vigorously”;
- “We can’t compete by doing the things China does, so we have to figure out how we compete, marshaling all the tools and resources that we have in the U.S. government”;
- “I think that what the most recent years has taught us is that we need to revisit how we conduct our economic activity, our cooperation and our trade policies, not to become China, but how to be true to ourselves and our traditions and be more strategic, knowing the quantity and the strategy and ambition we are up against”.
The full text of her opening statement and the questions/answers follow.
In her opening statement, she said:
That duty of leadership extends, of course, to addressing the challenges posed by China.
I previously served as America’s chief enforcer against China’s unfair trade practices. I know firsthand how critically important it is that we have a strategic and coherent plan for holding China accountable to its promises and effectively competing with its model of state-directed economics. I know the opportunities and limitations in our existing toolbox. And I know how important it is to build what the President has termed “a united front of U.S. allies.”
We must recommit to working relentlessly with others to promote and defend our shared values of freedom, democracy, truth, and opportunity in a just society.
China is simultaneously a rival, a trade partner, and an outsized player whose cooperation we’ll also need to address certain global challenges. We must remember how to walk, chew gum and play chess at the same time. That means here at home, we must prioritize resilience and make the investments in our people and our infrastructure to harness our potential, boost our competitiveness, and build a more inclusive prosperity. We must also impart the values and rules that guide global commerce — and we must enforce those terms vigorously.
This is work I am eager to take on once more.
In addition, she had the following exchanges with committee members on China trade issues:
Senator Chuck Grassley (R-IA)
Our Department of Agriculture projected China would purchase 31 billion of US farm exports this year. That’s a little bit short of the 38 billion they were supposed to do, but that’s still pretty positive news considering the virus. But the Phase 1 deal wasn’t only about purchase. It was also intended to result in structural changes to China. Do you intend to push China on those structural changes?
Senator Grassley, I’m glad you asked this question. So the agreement that we have with China is the agreement that we have, and there are promises that China made that China needs to deliver on.
With respect to structural changes within China, I think that we would all be delighted to have those structural changes in China, to have our economies meet be more compatible. I think it is absolutely worth exploring with China, but I also want to note that those are conversations and those are roads that have been well-worn by U.S. trade Representatives before me. And so, on this issue of the U.S. China trade relationship, I would like to say that we need to be exploring all of our options.
Senator Bob Menendez (D-NJ)
Let me turn to China as well. You’ve heard this. We all believe collectively, on a bipartisan basis, one of our biggest challenges. The last Congress I led in the introduction of the American Leads Act. It is a cross jurisdictional piece of legislation to not only confront China but to compete with China at the end of the day. Do you believe that domestic investments are part of our response to the challenge of competing with China?
And particularly at USTR, there is a special investigations unit that would be responsible for trade agreement violations in Section 301 investigations. One of the things that you can do is to get U.S. companies who refuse to share information with the U.S. government about China’s predatory practices, out of fear that the Chinese authority will discriminate against the firm. But knowing about those predatory practices are important to us as we deal with China. Is that something that you believe that you would pursue and that is of value to us?
So Senator, just to be clear, is your question whether or not I would be interested in pursuing deploying this particular group at USTR in working with stakeholders who may be shy about sharing the problems they’re running into in China?
Senator Rob Portman (R-OH)
As you know from your time at USTR, it’s a very special place. It’s full of career experts on trade, almost all of whom can make a lot more money in the private sector. They’re committed, they’re passionate, and I know you’re going to thrive there. Largely because of commitments that I made when I was before the Senate Finance Committee, sixteen years ago I conducted what was called a top to bottom review of China. We issued an extensive report. We also established a prosecutor. I said we need a prosecutor just for China who became sort of the chief counsel for China. You later had that job. Let me ask you if you would make a commitment today to update that top to bottom review. Everybody in this panel is talking about China. I mean I think it’s clearly the most important single trade issue we face. Would you commit today to updating that and providing it to the committee?
Senator Portman, you know, I think that the — the Biden administration itself is committed to a holistic review on China and U.S. China strategy, if confirmed at USTR, I think that’s an excellent idea, and yes, absolutely, I would want to make sure that that review happens at USTR as well.
Well, I’m sorry to surprise you with that, but I just was thinking about it as we’ve heard all the questions and I think it is timely. A lot has changed in the 16 years. Mostly changed in the way the Chinese become even more competitive, used even more subsidies. And under the current regime, it decided that state owned enterprises and heavy subsidies are going to be the norm rather than the exception. And this goes to semiconductors and there’s been a lot discussion today in semiconductors. I appreciate with the chairman said, ranking member, Senator Stabenow, Senator Cornyn and others. I mean, this is an urgent issue. We’re looking at serious impacts on our economy because of the supply chain issues. Here’s what China is doing on semiconductors: They’re heavily subsidizing it. One study found that major Chinese semiconductor firms have received subsidies equal to 20 to 40 percent of the revenues. Subsidies of up to 40 percent of the revenues. We can’t compete with that. And so you know Phase One with China was a good start and Bob Lighthizer hasn’t gotten enough love in the room today. He did a lot of hard work on that and I appreciate that. But we need to take it to the next level because it’s really more than just non-market. I think it’s techno nationalist approach to trade that we have to stand up to. How would you propose we do a better job of addressing those unfair industrial subsidies and their proliferation strictly by state owned enterprises?
Senator Portman, I think this is part and parcel of some of the most important questions that are facing us today, not just on trade but across the board, which is how we compete more effectively with China. China’s done an incredible job of articulating its ambitions in its five year plans and accomplishing a lot of the goals that it has set for itself. You mentioned semiconductors and I want to acknowledge that that is an area where there is a lot of focus right now, which is really great about how we more strategically shape our supply chains. I would just say that the Chinese are not shy about articulating their ambitions and semiconductors are just a part of what we have to compete with. We can’t compete by doing the things China does, so we have to figure out how we compete, marshaling all the tools and
resources that we have in the U.S. government.
Senator Michael Bennet (D-CO)
President Trump had a go it alone approach … , launching trade wars around the world that alienated our allies and undermined an effective global response to China.
At the same time, China was strategically investing in the Mediterranean and African countries, expanding its reach in the South China Sea region, and the One Belt, One Road initiative. While China is an important market for agricultural products …, they failed to live up to their agreements.
How will you work with partners and allies, and the broader administration, to hold China accountable for its mercantilist and predatory practices. I should say the Chinese Communist Party, not the Chinese people, but the Chinese government. You mentioned earlier in an answer to one of my colleagues that there had been a well worn path trod by former trade ambassadors, sort of expecting China to somehow adopt our economic system. That’s clearly not going to happen. What tools are available to us, and maybe even beyond the trade tools, to be able to push back and ensure that we continue to lead?
Again, I feel like this is part of the most consequential questions that we collectively as servants in the US government will need to figure out. …
I guess there are a couple ways that I would think about it. One is, rules that China has clearly signed up for, and agreed to. Those may be agreements that it has struck with trading partners. They may be the WTO rules. So rules that they have taken on as a member of a larger organization. And when we are in that area, we have designed for use enforcement tools to engage with the Chinese and hold them accountable. You promised to do X, you need to deliver on X.
There are also a lot of areas that are gray areas, where the rules are not clear or where we don’t have rules yet. And I think that in that area, in terms of working with others, we have a couple options. One is, we create and we craft new rules, to address the gray areas. Separately, I think that that provides us with a lot of opportunity as well to think strategically about how to respond to the strategies that China is pursuing.
Senator James Lankford (R-OK)
Critical mineral minerals is another area that you and I have talked about before, obviously very exposed in that area to China. China has made it very clear in recent articles have been out there saying they’re targeting using that leverage to cut nations off from actually distributing critical minerals to them that should make us wake up even more in this process. Part of the challenge that we have is, when an American company starts their mining process and finally goes through all the environmental restrictions they have to be able to produce it here, China could cut the price there, cuts off access to capital here and growth here, and so we have a problem. So one of the big issues we have, if we’re going to have a clean energy, or if we’re going to produce steel or any number of other things, we have to produce our own critical minerals or develop new relationships with allies that we can trust that will provide critical minerals. What’s your strategy on that?
Senator Lankford, I know the term the Biden administration issued a supply chains executive order yesterday that specifically calls out critical minerals as one of the supply chains for special focus and in crafting a strategy. So if confirmed, I look forward to participating in that process and supporting that review. In terms of the strategy coming from USTR, as you know, because we talked about it in our earlier conversation, one of the big cases that I worked on at USTR related to China’s export restrictions on rare earths and a number of other critical materials and minerals that come out of the ground, I think that in this area trade has an important part to play. But the trade piece is part of a larger strategy that relates to our supply chain resilience. And so I, if confirmed, will look forward to being not just a connector between Congress and the administration, but being well coordinated with the other parts of the administration who are thinking and making plans in this area.
Senator Steve Daines (R-MT):
Shifting gears to TPP, back in 2018, I led over two dozen of my colleagues in sending a letter to President Trump, urging him to re-engage with the Trans-Pacific Partnership, and I’m calling on President Biden to do the same. I know politically that may not seem to be the most attractive issue at that time. But I believe strongly this multilateral approach with our allies is very important to think about the long term of trade. Giving China’s growing economic and geopolitical influence, it’s essential that we work with our allies and partners in the region. We had a great conversation, we both spent time living in China working in Guangzhou, my question for you is, do you support reengaging with the Trans-Pacific Partnership and pursuing multilateral trade agreements with our friends and allies in APEC and around the world, to improve access to important markets and counter China’s growing influence?
Senator Daines, again, I know your interest in this area and your experience with respect to China and the Asia-Pacific. To follow on the exchange that I had earlier with Senator Carper, I want to emphasize that today, even today in 2021, the basic formula of TPP, which was to work with our partners with whom we have very important shared interests economically and strategically, and with the the challenge of China in mind, is still a sound formula. I think that what I would add is that a lot has changed in the world in the past five or six years, and a lot has changed in terms of our own awareness about some of the pitfalls of the trade policies that we’ve pursued as we’ve pursued them over the most recent years. So what I would say to you today is, with respect to working with other countries on a multilateral basis in the Asia Pacific, with the China challenge in mind, that, if confirmed, those are absolutely elements that I believe are worth pursuing.
Senator Robert Casey (D-PA)
Let me move, secondly, to China. … We face just a myriad of challenges when it comes to the Chinese government, especially. We’ve got to engage in coordinated efforts to address a number of issues. Market distortions is one. Second, subsidies. And third, anti‐competitive behavior that the Chinese government engages in. Through our trade subcommittee in the finance committee in the last Congress, Senator Cornyn and I working on a range of issues posed by the Chinese government, including the Belt and Road Initiative, extraterritorial censorship, and market access challenges. These are of course cross cutting issues, which will require both coordination and cooperation. You have … significant experience in this regard. Can you discuss your observations with respect to the evolution of tactics and strategy employed by the Chinese government in the trade and economic space, and how USTR can work in coordination with the interagency to combat some of these efforts to support domestic production and competition?
I’ve watched those hearings that you and Senator Cornyn have put on here in the Senate Finance Committee, and appreciate the levels of expertise and interest that you have demonstrated with respect to our China trade and competition issues and challenges.
… I think that what I would say is that, with respect to the nature of the Chinese challenges, I think it’s clear that when we as Americans, with our economic traditions, look at the Chinese economy, what we see is an extremely formidable competitor, where the state is able to conduct the economy almost like a conductor with an orchestra, whether or not through companies that are officially state‐owned, or just companies that are part of the Chinese economy. I think that traditionally, we, in our system, have been very trusting of the free market, of the invisible hand that Adam Smith described, to try in terms of the market forces taking care of our economy and global competition. And I think that what the most recent years has taught us is that we need to revisit how we conduct our economic activity, our cooperation and our trade policies, not to become China, but how to be true to ourselves and our traditions and be more strategic, knowing the quantity and the strategy and ambition we are up against.
Senator Catherine Cortez Mastro (D-NV)
Let me talk a little bit about China’s Belt and Road. One area I’m proud of Congress’s work in response to the China challenge is, what we’ve done to respond to China’s Belt and Road Initiative. And although there’s more work to be done, we passed bipartisan legislation, which I supported, to establish the Development Finance Corporation. I remain dedicated to ensuring the United States is stepping up to the plate to address the challenges and opportunities posed by competition with China. From your perspective, what measures should Congress be taking like the Development Finance Corporation to improve the US’s ability to compete with China?
Senator Cortez Mastro, I just want to acknowledge my awareness of the high levels of energy interest and innovative thinking in the Congress about this very question of how the United States can compete more effectively with China. So with respect to the development finance entity that you’ve described and what else Congress may want to do, I just want to indicate to you that if confirmed, I will be very interested in being part of the administration conversation with Congress about what we do in our whole of government approach to addressing this question.