On Senate Floor, Portman Discusses Trade Negotiations With China, Importance of Structural Reforms in Any Agreement
WASHINGTON, D.C. – Last night on the Senate floor, U.S. Senator Rob Portman (R-OH) discussed the ongoing trade negotiations with China, the importance of securing enforceable and sustainable structural reforms to China’s economy as part of any agreement, and the need to create a level playing field on behalf of American employers and workers. Portman supports the Trump administration’s efforts to hold China accountable for violating prior commitments to not force U.S. companies to give Chinese competitors valuable intellectual property and engaging in nonmarket practices like subsidization and state-owned enterprises. He hopes a new agreement will bring greater equity and balance to the trading relationship between the U.S. and China.
“I am here on the Senate floor today to talk about the importance of trade and specifically our country’s economic relationship with China. As a trade lawyer, as a former U.S. Trade Representative, as a member of the Finance Committee that handles trade issues, I’ve been involved in these issues over the years. Most importantly, I’m from Ohio, which is a huge trade state. We’re concerned about trade because we have a lot of manufacturing and a lot of agriculture, where jobs depend on trade back and forth. In fact, in Ohio about 25 percent of our manufacturing workers make products that get exported. And one out of every three acres planted by Ohio farmers is now being exported. These are good jobs. These are jobs that pay, on average, about 16 percent more than other jobs and have better benefits. We want more of them. With only about five percent of the world’s population and about 25 percent of the world’s economy, America wants access to the 95 percent of the consumers living outside of our borders. It’s always in our interest to open up overseas markets, for our workers, our farmers, and our service providers. While promoting exports, we’ve also got to be sure we protect American jobs from unfair trade – from imports that would unfairly undercut our farmers and our workers, our service providers.
“Simply put, we want a level playing field where there is fair and reciprocal treatment. If it is fair, if we’ve got a level playing field, I believe American workers and businesses can compete and win. The sweet spot for America is always that balanced approach, opening up new markets for U.S. products while being tougher on trade enforcement so American workers have the opportunity to compete. In that context, I want to talk about the inequities in our relationship with China. We don’t have a level playing field with China, and it’s one of the most important policy issues that faces our country today. It’s certainly really important to Ohio.
“Ohio sells a lot of products, auto parts and aerospace parts and other things, to China. We also sell a lot of oilseeds and grains, particularly soybeans. About $700 million worth every year. China is actually our third biggest trading partner in Ohio after Canada and Mexico. And yet despite these exports, we have a trade deficit with China. Because they send a lot more to us than we send to them. And it’s not always fair trade. As an example, Ohio has been ground zero for steel imports coming in because of government-directed overcapacity in China. Our steel mills have been hit hard because, to put it bluntly, China has not been playing by the rules. In 2000, China produced about 15 percent of world’s steel. Today, thanks to massive subsidies and other forms of state intervention, they now produce about 50 percent. So, again, about 19 years ago they produced 15 percent of the world’s steel, now they produce 50 percent of the world’s steel. And they do it again through the government subsidizing. They often sell that steel at below its cost. They don’t need it in China so they’re trying to push it out to other countries. They transship it to try to avoid our anti-dumping duties or our counterveiling duty duties which were put in place because China wasn’t playing by the rules.
“So we find out they are selling below their cost, which is dumping, or we find out they are subsidizing. We win a trade case. Then China sends the product to a third country that then sends it to us, therefore evading the tariffs we put in place to deal with the unfairness. It hits our plants hard in Ohio but also reduces the cost of steel around the world. When it comes to our bilateral economic relationship, there is little or no transparency from China when it comes to their regulations, their approvals for inbound foreign direct investment into China, and the notification of subsidies that’s required by the World Trade Organization. This lack of transparency of course frustrates American businesses and it violates China’s international obligations.
“China also exhibits a lack of reciprocity. Its market is substantially more closed to American companies than our market is to their companies. We have Chinese companies in Ohio. They don’t have to be in a joint venture with a 51 percent Ohio partner, American partner. They can own the whole thing. They don’t have to go through this process of approvals that American companies have to go through where often their intellectual property is taken. China has relatively higher tariffs than the United States. On average about a 10 percent tariff in China versus our 3.4 percent tariff. But that’s not the biggest problem. The biggest problem is a host of what are called nontariff barriers. Some keep out our made-in-America products and others coerce the production of those products to be in China. If you want to sell in China, you have to produce in China. That’s in order to transfer this valuable intellectual property from U.S. companies to Chinese companies.
“Investments are not reciprocal either. According to the U.S. Trade Representative in its Section 301 report on China, in 2016 the OECD, Organization for Economic Cooperation and Development, ranked China the fourth most restrictive investment climate in the world, despite them being the second largest economy in the world. So of all the countries in the world, OECD ranked them the fourth most restrictive in terms of accepting foreign investment. Based on this report, China’s investment climate then is nearly four times more restrictive than that of the United States. So the confluence of these two factors -- the lack of transparency and reciprocity stem from China’s communist party-led non-market economy. While China made an effort after joining the World Trade Organization to become more market oriented, in recent years they’ve actually moved away from more market-based reforms and instead doubled down on the kind of mercantilism that you would expect in the last century but revamped for the 21st century. In doing so, China has placed enormous strain on the world’s trading system and in turn has undermined American jobs, American workers and America’s overall competitiveness.
“When I served as U.S. Trade Representative, I said that the U.S.-China trade relationship lacked equity, durability, and balance. Sadly, that’s still the case today. We didn’t have a level playing field then. Since that time, the conduct has even worsened. China has invested large sums of money in industrial capacity, subsidizing production that has impacted industries in places like the United States but also Japan, the European Union and many developing countries. China has embarked on so-called indigenous innovation campaigns backed by hundreds of billions of dollars and the full weight of its non-transparent regulatory apparatus. The intent of indigenous innovation seems to be directed primarily at us but also other countries around the world that are innovating. The United States has been a leader in many innovative technologies and now China is attempting to be the leader. Think of artificial intelligence or 5G. China’s embrace of techno-nationalism has undercut critical commitments it has made to open up its markets, protect intellectual property rights, adhere to internationally recognized labor rights and meet its WTO commitments on unfair trade practices such as illegal subsidies.
“So without changes to these practices, as long as the inequities and imbalances persist, the durability of our economic relationship remains in question. I understand that China is not going to become a market economy anytime soon. While I hope we can have a more market-oriented economy someday and we can move toward that in China, as they were moving that way after joining the WTO, I think it’s vital that we at least demand a level playing field in the meantime. That’s why I have supported the Trump administration’s efforts to demand structural changes as part of its ongoing negotiations with Beijing. This takes the form of a few different things. One is addressing our huge trade deficits, that’s part of the negotiation. So China would buy more soybeans, China might buy more LNG, liquefied natural gas. That’s all good. But this agreement must also deal with these other issues like forced technology transfers, like dealing with nonmarket practices like state-owned enterprises and other subsidies. Addressing the first issue by selling additional soybeans and liquefied natural gas to China is a positive step forward but a short-term reduction of our trade deficit, which is out of balance, isn’t enough. We’ve got to see progress on these sustainable structural changes so we can count on a fair trading relationship between two now mature trading partners.
“Ambassador Lighthizer who is the current U.S. Trade Representative is a tough negotiator. I feel confident that he understands this and he is going to ensure we not only improve the imbalance in our trade deficit but also we get the structural changes we need to bring home a strong, sustainable agreement. That leads me to my next point. Any agreement must not just address these important structural problems but also has to be enforceable. Without enforceability, it’s going to be impossible to make any meaningful progress in our economic relationship. We’ve got to do more than merely enforce by negotiation. I support consultations and consistent engagement. That’s all good. But there also has to be some enforcement mechanisms with some consequences. While I look forward to seeing the agreement that we can come up with China and I hope it happens soon, I would like to offer a few suggestions as it relates to enforceability.
“First, I favor reviving a China-specific safeguard to provide both due process and an effective response to surges with Chinese imports that injure U.S. domestic industries such as the high-tech products or those derived from nonmarket practices we talked about earlier. One model to consider is the Section 421 of the Trade Act of 1974. Now expired, Section 421 was a China-specific safeguard that was created pursuant to China’s WTO accession protocol to guard against increased imports from China, surges with less demanding requirements than that afforded market economies. I think it would be good to get back to that.
“Second, strong trade laws have been successful in addressing some of the externalities caused by China’s nonmarket practices and we ought to continue to enforce those laws. Consider the 266 percent tariff that is currently in place with regard to imports of cold-rolled steel from China. That’s because we brought a trade case and won the trade case using internationally accepted criteria as to what constitutes dumping and subsidies. Nonmarket economy methodologies gave our trade remedy tools extra heft when deployed against these unfair imports from countries, like China, which lacked the market-driven system found everywhere else in the world. China knows the effectiveness of our trade laws especially our nonmarket economy methodologies we used to get that 266 percent tariff in place and has challenged therefore the use of these methodologies. China has made this challenge at the World Trade Organization. I would hope as part of any commitments made pursuant to the current talks, China would drop its challenge to the use of non-market methodologies until such time as China actually becomes a market economy under established and accepted statutory criteria set out in U.S. law.
“Third, increased transparency requirements can help make enforcement more effective as long as key elements of the ways that China intervenes in the economy such as the provision of illegal subsidies, currency manipulation for that matter, the participation in the market of state-owned enterprises, and the application of laws. Without transparency it’s going to be difficult to effectively monitor compliance with the commitments that are made. We’ve got to know, we have a right to know. I thus urge the administration to secure enforceable transparency commitments to ensure we’ve got enough visibility on China’s nonmarket practices to make enforcement as effective as possible. I hope the administration takes some of these enforcement suggestions into account.
“Today pursuant to our Section 301 investigation, the United States has levied tariffs of 25 percent on $50 billion and 10 percent on $200 billion of exports from China to the United States. These tariffs are in place now. And they’re affecting a lot of our companies here in the United States because China in turn has retaliated against us, putting tariffs ranging from five percent to 25 percent on $100 billion of U.S. exports to China. So there’s been an escalation of tariffs as we’ve been in these negotiations. There’s been discussion about the United States keeping our 25 percent and 10 percent tariffs in place as a backstop even after an agreement is reached. I think that’s unlikely because I think it’s a recipe for no agreement or an inadequate agreement. I believe instead it’s important for both countries to reduce or eliminate all together the new tariffs under 301 and the retaliatory tariffs when the agreement is reached.
“Of course the United States would be able to quickly re-impose tariffs if China doesn’t live up to the commitments it makes and that would be appropriate. But I think we ought to make a commitment now to China that we’re willing to get rid of these tariffs or substantially all of them if a good agreement is reached. I hope over the next few weeks the president remains focused on reaching this agreement that addresses the structural inequities in our trade relationship. Buying more soybeans is important but this is a chance to resolve deeper issues especially when there’s such compelling evidence of commitments not met in the past and continued inequities in the U.S.-China trade relationship. As part of reaching an enforceable structural agreement, I urge the administration to give China certainty about what we want and exactly what we want. From what I’ve heard, I believe giving Beijing the security of an unwavering negotiating position will help unlock China’s last-best offer. My sense is that it’s not yet on the table because perhaps I think we’ve shifted in terms of our objectives and priorities. The agreement would then allow the United States to take a step forward toward a more balanced, equitable and durable U. S.-China relationship.
“Again I commend the administration and President Trump and Ambassador Lighthizer for engaging these negotiations. I think we’re headed in the right direction but let’s bring it to a close. I want to note that the current negotiations are only part of what must be a holistic and long-term strategy toward China. A good agreement and strong enforcement is essential. But to keep the United States competitive over the long term, we’ve got to invest more here at home. If you’re going to be in a sports competition, as an example, it helps to go to the gym once in a while. Until recently we hadn’t been hitting the gym too much. Tax reform and lifting burdensome regulations recently has given our economy a shot in the arm, that’s really important because it’s created jobs and increased wages but it’s also made our country more competitive particularly by investing in technology, investing in new equipment. Unfortunately we still have some challenges we need to address to be truly competitive.
“We have a workforce that too often lacks the skills necessary for the 21st century. We have an opioid epidemic that is undermining our economy as well as our communities. We have a crumbling infrastructure that’s holding back economic growth. Instead of people being awed at how quickly China can build a bridge, I want people to be awed at how effectively and how fast we can build a bridge here in this country. To do that we need to build on the permitting reforms we’ve enacted the last few years to make it easier to start, and quicker to finish, projects that keep our economy moving and growing.
“Reinvesting in America with world class career and technical education, infrastructure investment, pro-growth, pro-innovation economic policies that we started with tax reform and regulatory relief – these are the things that would send signals to China and to the rest of the world that we are a vibrant nation. We’re in the game. We’re focused on the future. We’re constantly innovating and we’re not a nation in decline. I believe the best days of our country can be before us.
“We need to show the world that America remains in fact the world’s preeminent power because of our free markets, because of our innovations, because of our work ethic. If we do that, we will be able to compete with China. If we don’t, even with these trade negotiations, it will be difficult. Unlike some, by the way, I don’t propose to compete with China by adopting policies and processes that mimic their system. Nationalizing our 5G deployment as an example or adopting five-year industrial plans as China does, is not the path to success. It gives into the critiques that we make of Beijing. Instead we need to double down on the American way. Big ideas, bold visions, grounded in principles unique to our origins. After all, we believe in freedom and free markets because it works.
“With regard to China, we should want to have a successful and mutually beneficial relationship on trade and other issues. China and the United States must be strategic competitors going forward, not enemies. I commend the Trump administration for entering into these difficult and very important negotiations with China and I encourage the administration to stay strong and to pursue long-term meaningful structural changes in that relationship. And I want our country to do the hard work here at home, to ensure American competitiveness is second to none. That combination, a successful resolution of long-standing issues with China and staying on the cutting edge here at home, will ensure the continued prosperity and global leadership of the United States of America.”