House committee says China's economic system is "incompatible" with WTO
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The House select committee on the Chinese Communist Party yesterday released a landmark report declaring China's economic system to be "incompatible with the WTO." The report proposes nearly 150 recommendations to restore U.S. economic and tech competitiveness.
Why it matters: The future of the World Trade Organization may be at stake. The committee calls for like-minded countries to form a new multilateral organization that excludes non-market economies if China's approach to economic governance can't be brought into line with WTO standards.
- Many U.S. lawmakers now identify competition with China as America's defining challenge this century.
- The bipartisan report represents the culmination of the committee's findings since it was established nearly a year ago.
What they're saying: The report calls for countries to work together to counter China's economic aggression. "If this cannot be achieved within the confines of the WTO, then a new multilateral effort by likeminded market economies" is needed, the report states.
- "Because the PRC's state-led economic system is antithetical to the founding principles of the WTO, actions to defend the United States and global economy against PRC economic aggression are consistent with the U.S. commitment to a multilateral trading system based on market-oriented principles."
Flashback: China was admitted into the WTO in 2001 with the expectation that its trend toward market-oriented reform would continue.
- Instead, the Chinese government has maintained and expanded non-market policies, including the widespread use of subsidies and dumping to dominate targeted industries, denial of market access as a form of political coercion, opaque auditing practices, and others.
- Cases brought against China through the WTO's dispute settlement mechanisms haven't fundamentally changed Beijing's economic practices.
- Decisions in the WTO are typically made by consensus among member states, meaning that China could block attempts to change WTO rules in ways that target Beijing.
The report also calls for renewing the China Safeguard Act, which expired in 2013. That act allowed the U.S. to impose tariffs on goods from China that caused "market disruptions." It could also be used to target practices that harm U.S. industry.
- The report recommends passing legislation that requires major U.S. firms to publicly disclose China-related risks and market exposure.
- The report's "offensive strategy to invest in innovation" zeroes in on the development of emerging technologies — AI, quantum computing, biotechnology and others — and recommends several measures to attract experts in these fields and to address concerns about research security and intellectual property theft.
- It also proposes small- and medium-sized businesses that focus on these technologies receive a capital gains tax exemption.
The report also emphasizes securing mineral supply chains and the green energy transition.
- Years of government subsidies and other preferential policies have allowed Chinese battery manufacturers and EV makers to establish growing global dominance over those industries, shutting out competitors in Europe and the U.S.
- The report recommends passing legislation to direct the U.S. International Development Finance Corp. to prioritize investments in minerals and energy projects.
- It also advocates for creating a "resilient resource reserve" of cobalt, manganese, graphite and rare-earth elements.
The bottom line: "Never before has the United States faced a geopolitical adversary with which it is so economically interconnected," the report states.
- "Addressing this novel contest will require a fundamental reevaluation of U.S. policy."
