Senators warn of threats posed by Chinese rail companies

Two U.S. senators are urging the Federal Transit Authority to clarify a ban on Chinese rail manufacturers and to warn local transit authorities of potential national security threats from China, in a letter obtained by Axios.

The big picture: The ban highlights a growing expansion of national security risks to include economic security, as the U.S. responds to Chinese government economic policies that many perceive as exploitative.

Details: Dated Feb. 13 and addressed to Transportation Secretary Elaine Chao, the letter from Senators John Cornyn (R-Texas) and Tammy Baldwin (D-Wis.) cites confusion about the ban and urges the FTA to provide information to U.S. localities explaining the details behind the new policy.

• The National Defense Authorization Act for Fiscal Year 2020 includes a provision that prohibits local U.S. transit authorities from using federal grant money to purchase buses and passenger rail cars from state-owned or state-controlled Chinese companies.
• The provision means Chinese rail manufacturing giants CRRC and BYD will be blocked from the U.S. market beginning in 2022, when the ban will take effect. (It already applies to the Washington, D.C. metro).

Between the lines: The lawmakers blend economic security with national security, casting Chinese government subsidies as part of an intentional strategy to achieve global geopolitical primacy.

• Beijing is known to offer massive subsidies to certain Chinese national champions, such as Huawei, allowing them to systematically underbid competition in countries around the world and thus establish themselves as global leaders.
• Both CRRC and BYD have benefited from preferential Chinese government policies. CRRC, which is owned by the Chinese government, is now the world's largest rail car maker.
• Claims that Chinese-made rail cars could potentially pose a cybersecurity risk have elicited some degree of skepticism, since the claims are based not on events that are known to have happened, but rather an estimation of Chinese capabilities.

What they're saying: "The Chinese government has a history of using state subsidies and predatory corporate practices to achieve market dominance in a variety of economic sectors across the globe," the lawmakers wrote.

• "Since implementation of its 'Made in China 2025' initiative, the Chinese government has identified U.S. rail and bus manufacturing as priority targets for sector dominance."
• The lawmakers also stated that "different interpretations" of the law were causing confusion and asked the FTA to clarify the law to local transit authorities.

U.S. industry groups have supported the ban.

• "We are not against foreign companies being involved in either freight or passenger rail. It’s the difference between a market-based company and a state-owned enterprise that does not abide by normal market rules," said Erik Olson, executive vice president of the Rail Security Alliance, a trade group that advocates on issues of transportation and security, in a statement provided to Axios.