Western Companies Should “Cease Doing Business in China, Especially Manufacturing,” Expert Says

It’s no secret China’s government poses emerging risks to U.S. economic and national security, and a panel convened by the U.S.-China Economic and Security Review Commission discussed what to do about it.

As frequent readers of this blog know, the United States faces a major threat in terms of industrial production from the People’s Republic of China.

The Chinese Communist Party (CCP) is alleged to have conducted a host of anticompetitive, illegal violations of international law that have led to millions of lost jobs, along with threats to American economic and national security. But while the United States has adopted a tougher stance on China in recent years, it has yet to enact the exact mix of policy needed to effectively counter these threats.

And tensions are high. The White House revealed that President Biden on Thursday took part in a telephone call with China’s leader, Xi Jinping, only the second time the two had spoken since Biden took office. Few details were revealed, but it’s safe to assume there wasn’t a ton of progress made.

In the meantime, the United States needs to find ways to address the emerging risks. The U.S.-China Economic and Security Review Commission examined just that during a day-long hearing on Wednesday — and the experts who testified before the commission were blunt in their assessments.

For one, the United States – and indeed, many of its allies – must finally give up the idea that doing business in China will help the situation.

One of the panelists, international attorney Dan Harris, noted that “China cares about both foreign investment and its own economy, but only to the extent that those bolster CCP power and help ensure its survival.”

The CCP encourages U.S. companies to do business there, but uses their investment as a means to an end to support its government — with no regard for the ill effects of their actions on American workers and consumers. In the meantime, the CCP demands companies hand over their intellectual property to gain market access, which it can cut off at any time. Everyone from small, independent-owned companies to giant Hollywood movie studios has been burned as a result.

“The U.S. government should encourage U.S. companies — and even companies from other countries — to cease doing business in or with China, especially manufacturing,” Harris advised.

It’s not just companies that operate in China that face risks, of course. American workers and companies that do business solely in the United States — and play by the rules — also have been burned by the actions of the CCP.

China has been accused of illegally subsidizing many of their domestic industries in order to make them competitive internationally — including in steel, rail rolling stock, shipbuilding, solar panels, and other sectors. China has been accused of using forced labor to manufacture products, particularly textiles, including labor from Uyghur internment camps that provide contracts for multinational firms. China has also been accused of stealing intellectual property from foreign companies that do business there, and giving those stolen trade secrets to their own companies to out-compete the inventor of the technology. And China has been accused of mining data and surveilling foreigners — which has posed a major security concern as companies like Huawei attempt to dominate the global 5G rollout.

For American workers, however, these concerns are personal. Companies have been offshoring for decades, often moving production to China where they enter into a faustian bargain to comply with China’s illicit rules to increase their profits. The end result has been the loss of millions of American manufacturing jobs, longer supply chains, and our national security threatened by a foreign government that lacks a real commitment to human rights.

Another issue is that “the PRC seeks U.S. technologies to further its military modernization, such as through diverting items from civilian to military applications… creating illicit procurement networks, and stealing intellectual property,” according to Jeremy Pelter, the acting undersecretary and deputy undersecretary of the Bureau of Industry and Security.

So what can policymakers do about it?

Kevin Wolf, a former assistant Secretary of Commerce for Export Administration during the Obama administration, urged the expansion of export controls to stop American companies from offshoring critical supply chains, particularly those of strategic importance.

“Export controls could be used in new ways to address China-specific policy issues,” he said.

Unfortunately, one major theme that came up during the discussion is the fact that many U.S. agencies and regulatory frameworks designed to counteract Chinese malfeasance are not up to date or not capable of being enforced properly. “The multilateral export control regimes…do not have, with rare exceptions, the mandate or legal authority to address supply chain security [and] intellectual property theft,” Wolf explained.

Another panelist, David R. Hanke of the National Security Institute at George Mason University Antonin Scalia Law School, discussed FIRRMA — one of the U.S. government’s chief legal tools to review foreign investments, which he argued was not sufficient.

“Unfortunately, FIRRMA can never have its true intended effect until either the process for controlling emerging technologies and foundational technologies is carried out as Congress envisioned or Congress enacts a better approach,” Hanke said. 

But that’s not to say those issues cannot be addressed, and policymakers in Washington must work to ensure that the United States is able to counter the economic threat posed by China.

As Hanke put it, “the onus is on Congress to assess the causal factors and decide on appropriate actions.”

Watch the full U.S.-China Economic and Security Review Commission hearing here.