“China” Bills Trade War: House COMPETES Act Boosts U.S. Workers, Producers and Resilience; Senate USICA Would Make Things Worse

This first edition of Rethink Trade is a bit unusual: It’s actually about trade! That’s because the U.S. Congress is heading into the most consequential trade vote in years and most people don’t know.

President Biden’s State of the Union speech was smart and refreshing in its focus on economic policies aimed at workers to “build the economy from the bottom up and the middle out together” and policies, like bolstering Buy American procurement, to increase economic resilience and create good jobs. But with the word “trade” missing from the speech, it also did not spotlight the big vote on the horizon.

However, news junkies among you may have read that in the past few months the House and Senate each passed different bills ostensibly designed to fix our “China trade” mess. There is now a big fight over which version should become law.

These bills represent a huge which-side-are-you-on fork in the road for trade in the Biden era.

Let’s start with what is the same in the legislation. Both the Senate and House bills include significant funding to boost U.S. semiconductor production and investment in advanced research and innovation. As the administration’s February 24 executive order on our dangerously broken supply chain describes, we definitely need to bring back some manufacturing. This research initiatives and microchip money are aimed at that goal.

But both bills also have trade titles, and they could not be more different.

The Senate bill, called the United States Innovation and Competition Act or “USICA” (pronounced you-seek-kah), started as a piece of legislation called “Endless Frontier” to boost domestic microchip production and strengthen U.S. advanced research. Then some anti-China rhetoric and pro-U.S. supply chain elements were added and it was renamed USICA. The night before USICA’s June 2021 passage, some Senate Republicans threatened to block it unless their preferred trade bill, the controversial Trade Act of 2021, was added to the legislation.

These new trade provisions would not only increase imports of Chinese goods, but make the United States more dependent on Chinese production of key supplies. USICA also rolls back labor standards relative to improvements that congressional Democrats forced the Trump administration to include in the 2019 revised NAFTA. In sum, USICA is the opposite of the Biden administration’s stated trade and manufacturing agenda. Just consider these four examples:

1. USICA Rewards Firms That Did Not Diversify Supply Chains Away from China: USICA would establish a new process for U.S. firms to get tariffs waived on Chinese imports. U.S. firms had three years of previous waivers to avoid Section 301 tariffs imposed against China while they found new non-Chinese suppliers. This transitional waiver program ended. USICA would not only reward firms that failed to diversify supply chains away from China by opening a new waiver process, but would also force the U.S. firms that did adjust to compete against a new flood of duty-free Chinese imports.
2. USICA Would Enact New Tariff Cuts and Increase Chinese Imports: USICA also includes abuse of a “Miscellaneous Tariffs Bill” process that is supposed to provide tariff relief for U.S. manufacturers that cannot find U.S.-made parts and inputs and thus must rely on imports. USICA would grant new unilateral duty-free or -reduced access for 1,430 mainly finished goods, including many that are made here. That includes heaters, air conditioners, microwaves and other appliances, fitness machines, lighting, suitcases, and more as well as high-value auto parts. USICA’s MTB terms would allow this abuse to continue into the future. (Skeptical it’s all that? Check out Sections 74021–75444 of USICA.
3. USICA Has Weaker Labor Standards than the Revised NAFTA: USICA extends a trade program providing duty-free access for developing country goods called the Generalized System of Preferences (GSP) in a way that rolls back the labor standards improvements that congressional Democrats pushed the Trump administration to include in the revised NAFTA.
4. Reinforces American Dependency on China: USICA Section 72001 is the “Toomey Amendment,” which eliminates all existing tariffs, including even trade-cheating sanctions on China, on a long list of medical goods, drugs, PPE and more so as to maximize imports. One does not need to study the analysis my former Public Citizen colleagues and I did in 2020 to know the pandemic-preparedness goods on Toomey’s list come mainly from China and understand that slashing all tariffs and other duties on these goods would deepen our dependence on Chinese imports. Like other trade terms in USICA, this provision directly conflicts with Biden administration policy. A year ago, President Biden issued Executive Order 14017 on improving the resilience of American supply chains, with PPE and medicines a top focus, and then issued a 100-day Supply Chain Review calling for more U.S. production capacity and diversifying import sources.

In other words, the Senate version of the legislation was poisoned with a major dose of the exact trade policies that got us so extremely overly reliant on Chinese imports in the first instance and now in a never-ending supply chain hell triggered when COVID-19 shut down production there.

Not only do USICA’s trade terms fail to address the array of real China trade problems, they would directly facilitate more imports of subsidized Chinese goods and domestic dependence on China. Perhaps the key thing to understand is that the Senate bill is not a “China trade” bill in the sense of fixing our China trade mess.

Rather, USICA doubles down on the Bush-Clinton-Bush-Obama trade policies and the hyperglobalization they implemented, as if decades of policy and political disaster from the old trade model had not resulted in its broad rejection. No doubt USICA’s trade terms were toasted in Beijing.

Two other problematic aspects of USICA’s “trade” provisions are especially of note.

First, buried amidst retrograde trade terms is an alarming gift to Big Tech interests. A future edition of Rethink Trade will spotlight this particular provision. But the short of it is that congressional Democrats have long sought enhanced enforcement of labor rights around the world through what is called the “Special 301” process. Special 301 involves the U.S. Trade Representative (USTR) monitoring other nations’ policies pertaining to a specific policy area, issuing annual “blacklist” reports and sanctioning the worst offenders. Democrats never got Special 301 for labor rights violations, but USICA would establish it for Big Tech.

These provisions are particularly sly, given they are framed as countering online censorship by China. However, the actual provisions apply to the whole world. European policies would be hardest hit. Plus the concept of censorship is not defined, which is critical: Big Tech firms claim that they are communications platforms not retail, transportation, hotel or other service providers. So they also claim that if they are shut down by a government as a penalty for failing to meet domestic regulatory standards that apply to domestic and foreign firms alike, they have been censored. The undefined notion of “censorship,” which could mean a platform being shut down for violating labor, consumer or other standards, is then equated to policies that “disrupt digital trade” or deny “market access to digital service providers that are United States persons.” Such domestic policies are deemed to be illegal trade barriers subject to the Special 301 search-and-destroy process.

It is not easy to understand what these provisions in USICA do. They are presented as an amendment to the Trade Act of 1974. So, if you do not happen to know the statutory citation for the Special 301 mechanism, you easily could miss that Section 71011 of USICA would newly require USTR to monitor the digital governance policies and anti-monopoly enforcement of countries around the world and target for elimination pro-consumer, pro-worker, pro-privacy and pro-competition policies and proposals. Nations that maintain such policies would be subject to Section 301 investigations and sanctions under this amendment.

This boondoggle not only contradicts the Biden administration’s Executive Order on Promoting Competition in the American Economy. It also snubs efforts by scores of Senate and House Democrats and GOP and Biden administration agencies to fight Big Tech abuses of workers, consumers and smaller firms.

Instead of promoting labor rights and consumer protections in the digital sphere, which U.S. Trade Representative Katherine Tai spotlighted as administration goals, this provision could undermine the best public interest protections around the world just as the U.S. Congress and agencies are trying to catch up on digital governance.

Second, what is missing in USICA is just as important as the damaging terms it does include. That USICA fails to extend Trade Adjustment Assistance (TAA) is political and policy malpractice. The program, which provides extended unemployment benefits and retraining funds for workers who can show that they have lost jobs to trade, altogether expires at the end of the year. That is especially problematic as decade of job outsourcing means that COVID-related demand for goods helped to spur the largest trade deficit in U.S. history.

When TAA’s death spiral began in July 2021, the program already had reverted to a version that does not cover workers who lose jobs to China trade or service sector workers who lose jobs to offshoring. Republicans tend to oppose TAA, but vote to extend it again and again as the price for getting things corporations do want, such as GSP duty-free market access from low-wage countries and Miscellaneous Tariff Bills. Thus, USICA’s inclusion of the GOP-favored versions of GSP and MTB without a TAA extension was shocking.

It is worth noting that some Democratic Senators worked to try to detoxify USICA before it passed. Having had limited success, they looked to the House to improve the final product. Pro-worker, pro-U.S.-manufacturing Senate Democrats have recently come out in favor of the House bill’s trade provisions.

The House bill, called America Creating Opportunities for Manufacturing, Pre-Eminence in Technology, and Economic Strength Act of 2022 or COMPETES, could not be more different. It has an innovative trade package that actually could help fix our China trade mess. Here are some of the provisions in that bill.

1. Closes a Loophole Favoring Amazon Imports from China: COMPETES closes an obscene loophole added to U.S. trade law in 2015 that allows Amazon et al. to evade U.S. safety inspection, taxes, tariffs and even the ban on entry into the United States of Uighur forced-labor products while importing millions of express packages daily valued up to $800 each — mainly from China. This fix is accomplished by COMPETES’ inclusion of House Ways and Means Subcommittee Chair Earl Blumenauer’s Import Security and Fairness Act. These provisions take aim at the enforcement and consumer safety problems caused by 2015 amendments favored by online retail giants and express delivery firms to what is called the “de minimis” program. The 2015 Customs bill raised from $200 to $800 the value of imports that are considered “de minims” and can enter the United States “informally” without meeting normal customs rules. The U.S. $800 level is much higher than the rest of the world. European countries’ de minimis is just under $200 and Canada is $150. The Department of Homeland Security has documented how the number of de minimis shipments skyrocketed after the United States started allowing imports valued up to $800 to evade normal Customs rules. A future edition of Rethink Trade will hone in on this problem and its solutions. COMPETES’ new criteria for what imports can qualify for “de minimis” treatment would make significant progress by excluding those from non-market economies that are also on a U.S. trade-violation list, which means China.
2. Promotes Domestic Production of Key Goods: More broadly, COMPETES’ trade terms are designed to promote production of key goods here and/or our ability to source them reliably from countries with common values and goals. This includes provisions to improve U.S. trade laws used to counter dumping, subsidies and other trade-distorting moves and to review outward investment linked to production outsourcing. Corporate efforts to characterize COMPETES’ trade terms as a Democratic wish list have run into the reality that teams of GOP and Democrats in both chambers sponsored these provisions, which were free-standing bills called the Eliminating Global Market Distortions to Protect American Jobs Act led by Sens. Brown (D-Ohio) and Portman (R-Ohio) and Reps. Sewell (D-Ala.) and Johnson (R-Ohio) and the National Critical Capabilities Defense Act led by Sens. Casey (D-Pa.) and Cornyn (R-Tex.) and Reps. DeLauro (D-Conn.), Pascrell (D-N.J.), Fitzpatrick (R-Pa.) and Spartz (R-Ind.).
3. Embeds Stronger Labor Standards in Trade Rules: COMPETES also includes stronger labor standards in its version of GSP, and adds human rights and environmental standards so that duty-free access to the U.S. market is used to incentivize production that benefits workers and the planet. In other words, it is consistent with the Biden administration’s worker-centered trade policy.
4. Ends Import Abuses: It also shuts down the abuse of the Miscellaneous Tariff Bill process by explicitly amending the relevant statute to exclude finished products from getting tariff relief intended for inputs no longer produced domestically.
5. Includes Retraining and Extended Unemployment Benefits for Workers Who Lose Jobs to Trade: Finally, COMPETES extends the Trade Adjustment Assistance program that has been in place since President Kennedy signed it into law in the Trade Expansion Act of 1962, to help workers who lose jobs to imports and outsourcing with extended unemployment benefits and retraining funds.

If this descriptive tour of the two bills has piqued your curiosity, let me know in the comments section and I will post a side-by-side guide with citations to each element described above so you can take a look yourself.

What becomes clear from a broader view is that the House bill’s trade terms are a mix of policies that are designed to promote certain consistent goals: benefitting U.S. workers, ensuring reliable access to critical goods for U.S. consumers, building fair markets for U.S. manufacturers and farmers, and enhancing U.S. national and economic security interests.

The Senate bill’s trade terms, in contrast, conflict with the ostensible fix-China-trade goals of these bills and numerous Biden administration policies. And it’s not just bad policy, but bad politics of doubling down on what angers many Americans.

Thanks to COVID, workers and communities stripped of jobs and economic vitality were joined by everyone else in living with the damaging consequences of losing 70,000 U.S. manufacturing facilities and 4.6 million American manufacturing jobs in the last 26 years. The supply chain frailty and lack of resilience inherent to the trade model that USICA promotes meant we could not make or get key goods in a crisis. The malaise over shortages and higher prices adds to the dire political consequences of the economic inequality and “status anxiety” of working class voters that a toxic mix of corporate- rigged trade deals, merger mania and Big Tech totally off the leash delivered.

That may explain why two-thirds of Senate Republicans opposed USICA when it came for a final vote, including Toomey, whose absurd anti-supply-chain-resilience bill was included. That meant Senate Democrats had to vote for USICA, even if many did so in reliance that the House would improve the bill so they could vote on something good in the end.

Whether they have that chance adds up to more than whether the American public will get smacked down with more bad trade policy when we have a grand opportunity with COMPETES’ trade terms to build a new U.S. trade policy that works for people and the planet, not just the largest corporations.

The COMPETES-USICA debate also sets the scene for a broader battle between Trade Team Status Quo and a trade policy that actually helps, not hurts, people. This fight is beginning to play out in the context of very different notions about a possible trade framework element to the administration’s Indo-Pacific policy initiative.

Trade Team Status Quo has opened a Box of Pandoras with the USICA trade title move because it stirs up attention to many of the same issues including misbranding giveaways to Big Tech as “digital trade” and competing visions for trade. Some former Clinton-Obama administration staff who are sprinkled in think tanks and some important Biden administration positions view the Indo-Pacific process as the way to revive the Trans-Pacific Partnership (TPP), a deal that set the standard for extreme corporate-rigging of “trade” deals. deal. TPP could not garner majority support in Congress during the year after it was signed. The Obama administration’s relentless campaigning for the deal right through the fall of 2016 helped elect Trump, who buried TPP’s moldering corpse the next year. Many of the same people who want an Indo-Pacific Economic Framework deal to pave the way back to TPP are pushing for USICA and its 2015-era corporate-managed trade agenda.

That makes it even more critical that congressional Democrats use their control of the House and Senate to ensure that the House COMPETES trade components are what become law. Not only would that outcome deliver on improved resilience and create fair markets that deliver on pro-worker goals, it would set the right path forward for whatever international economic negotiations take shape this coming year.