Senate Republicans proposed on Thursday a move that would strip China of permanent normal trading relations (PNTR), a preferential trade status that allows its goods to be trafficked into the United States at lower tariff rates.
The move would require China to obtain the most favored nation (MFN) designation through annual presidential approval, according to Tom Cotton from Arkansas, the bill’s sponsor. The China Trade Relations Act would also expand the Jackson-Vanik Amendment, originally enacted in 1974 to punish the Soviet Union for preventing Jews from emigrating, to include human rights and trade abuses as disqualifiers for MFN status. These include forced labor, the use of concentration camps, forced abortion and sterilization, cracking down on religious freedom and economic espionage.
“For 20 years, Communist China has held permanent most-favored-nation status, which has supercharged the loss of American manufacturing jobs,” Cotton said in a statement. “China never deserved this privilege in the first place, and China certainly does not deserve it today. It’s time to protect American jobs and hold the Chinese Communist Party accountable for their forced labor camps and egregious human rights violations.”
The Senate voted to give China permanent most-favored-nation status in 2000, which in turn “paved the way” for China’s entry into the World Trade Organization (WTO). This, said Ohio’s J.D. Vance, another of the bill’s co-sponsors, contributed to the so-called “China trade shock” that “destroyed” millions of American jobs and made the Chinese Communist Party (CCP) “stronger and more dangerous.”
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“In the state of Ohio, we have lost over 130,000 jobs since Congress made the catastrophic mistake of granting China special trade privileges two decades ago,” Vance said in a statement. “I have seen the devastating effects of this job loss firsthand, and I know it’s past time we did something to reverse that trend. This legislation is a strong step toward defending American jobs and revitalizing our domestic manufacturing capacity.”
The China Trade Relations Act seeks to roll China back to its pre-2001 status quo, where its MFN status had to be renewed each year by presidential consent. By passing a joint resolution of disapproval, Congress could also veto the president’s extension of the designation.
“The CCP cares about one thing: undermining America. There is no reason why the United States should be helping a communist government’s trade operation through preferential treatment and most-favored-nation status,” said Rick Scott of Florida, who supports the bill. “That is absolutely absurd when they are working against us. It is time to put American interests first, not the CCP, and reverse this antiquated law.”
The Biden administration suspended last April Russia’s PNTR in order to wreak economic damage over its invasion of Ukraine. Imports from both Russia and close ally Belarus, both part of the WTO, became ineligible for MFN tariff rates that the United States applies to imports from all WTO member countries. Instead of 3.3 percent, the country’s goods are being taxed an average of 32.3 percent in additional duties. Other WTO member nations also revoked Russia’s MFN status.
But Russian President Vladimir Putin later accused Russia’s trading partners of handing out “illegal” sanctions that violated WTO’s rules of non-discrimination. Beijing could take a similar tack.
”While this kind of legislation seems to reflect the deep passions and concerns many in Congress have about China, it would also put the U.S. out of compliance with our own WTO commitments since the U.S. is required to forego conditional trade relations with fellow WTO members,” Steve Lamar, president and CEO of the American Apparel and Footwear Association, which lobbies on behalf of companies like Gap Inc. and J.Crew Group, told Sourcing Journal. “America’s future economic prosperity depends on the ability to access foreign markets and to ensure that our trading partners play by the rules.”
At a time when the United States is feeling increased competitive pressure from China, it should be “working harder than ever to ensure that China plays by the rules, and not create opportunities to break those rules ourselves,” he added.
Doing so could give the CCP license to retaliate, which “could have a significant impact on our economy, depending on what they chose to do,” said William A. Reinsch, the Scholl chair in international business at the Center for Strategic and International Studies, a Washington, D.C.-based think tank.
Plus, because the bill reverts to a system where Congress would have to vote annually on giving China MFN status, it isn’t a given that the designation will disappear. At best, it makes it very unlikely that Congress would allow it to continue, he said. In this sense, the China Trade Relations Act is just more saber rattling.
“I noticed that the bill is not bipartisan—it is Republicans only, and in the Senate they are a minority, so I don’t think its chances of moving forward in the Senate are very high unless the administration decides to support it,” Reinsch added. “If the Republicans in the House take up the idea, however, that would increase the possibility of it moving forward.”
Not that there haven’t been efforts by the U.S. government to economically decouple from the Asian superpower, as Lucas Myers, program coordinator and associate for Southeast Asia at the Wilson Center’s Asia Program, pointed out. In October, the Biden administration cracked down on semiconductor exports to China in a move meant to kneecap its technological and military development. At the same time, some U.S. officials touted the virtues of “friendshoring,” a.k.a. shifting manufacturing of strategic products away from authoritarian states like China and Russia and toward allied nations. Underpinning the concept is the promotion of more resilient supply chains by prioritizing geopolitics as a risk factor.
“However, the U.S. and China remain significant trade partners, and trade with China is likely to continue for the foreseeable future with decoupling targeted at highly strategic sectors, such as rare earth minerals, semiconductors, quantum technology and artificial intelligence,” Myers told Sourcing Journal. “The U.S. and China are likely to continue trading even while competing.”
“I don’t think this is a serious bill that is going to gain momentum,” added Rui Zhong, program associate for the Kissinger Institute on China and the United States at the Wilson Center. Without additional supportive policies in place, it will only result in mutually destructive actions that will harm the two country’s respective workforces, she said.
And when it comes to American fashion companies, that “deeply intertwined” connectivity becomes even more difficult to untangle, said Sheng Lu, associate professor of fashion and apparel studies at the University of Delaware. China is still the world’s No. 1 garment exporter. In the first 10 months of 2022, Chinese-made items accounted for 35 percent of U.S. apparel imports. In terms of value, they made up just over 22 percent.
Lu recently analyzed the quarterly financial reports and earning call transcripts that 30 top U.S. clothing and footwear brands published between Nov. 1 and Dec. 31. Many were concerned about the growing supply chain dangers of sourcing from China, from trade tensions to modern slavery, so it was “unsurprising” that some planned to shrink their footprint in the country to mitigate them.
“However, on the other hand, no evidence shows that fashion companies are trying to decouple with China,” he said. “Instead, U.S. fashion companies, especially those with a global presence, still hold an optimistic view of China as a long-term business opportunity.”
In fact, a number of American fashion purveyors planned to escalate their efforts in localizing their product offer to cater to the needs of Chinese consumers. In other words, Lu said, the “‘made in China for China’ strategy is becoming a more popular business model.”
“It is a consensus view that we need to address China’s unfair trading practices,” he added. “However, what is the best approach to change China’s behaviors and create a level playing field remains an open debate. For example, just like in the case of Section 301 tariffs against Chinese imports, there can be different voices in Congress regarding China’s PNTR status.”
Julia Hughes, president of the United States Fashion Industry Association, which represents textile and apparel brands, retailers, importers and wholesalers, agreed.
“USFIA does not support the current push to strip China of Permanent Normal Trade Relations status because, like the Section 301 tariffs, an action that is supposed to punish China actually will have a negative impact on American families,” she told Sourcing Journal. “While we agree that the U.S. Congress should develop legislation to support American jobs and American consumers, the proposal by Senators Cotton, Scott, Budd and Vance would not improve the competitiveness of American business or improve the global trading system.”