My work at Cato focuses on U.S. international trade and investment law and policy with a specific focus on the U.S.-China economic relationship. For that reason, I’m especially grateful for the opportunity to testify this morning.
Let me state unequivocally at the outset: China engages in abusive—and at times coercive— international trade and investment practices. These include the forced transfer of technology as a condition of doing business within China; utilizing opaque and unevenly applied licensing procedures; the widespread abuse of intellectual property; state-directed cyber hacking into commercial networks; deploying non-commercially-based outward investment practices; providing large scale subsidies to domestic companies; and forced labor in Xinjiang, among others. Many of these activities are done in support of widespread industrial policies.
My testimony will focus on the potential for abuse of national security-based protectionism and provide suggestions for outcompeting China in the 21st century.
Conflicts of Interest in Government Procurement
While I analyze public policy through a framework that favors openness and skepticism of heavy government intervention in cross-border trade and investment, free traders from Adam Smith to Milton Friedman have understood the need for limited exceptions for national security.
An American firm providing consulting services to the Department of Defense, for example, should not also be advising the Chinese government or the Chinese Communist Party. At the very least, American firms should be required to disclose potential conflicts of interest when bidding on U.S. government contracts for scrutiny by American procurement officials.
To the extent I have suggestions about legislation with such aims, it would be to ensure stringent guardrails are established to avoid stifling legitimate business practices. Too often national security is invoked as a pretext for simple protectionism.
The Trump administration’s national security tariffs on steel and aluminum imports, imposed despite President Trump’s defense secretary at the time noting the U.S. military required only 3 percent of total domestic steel and aluminum production, is a case in point. Indeed, the tariffs still apply to steel and aluminum from NATO members and other longstanding U.S. allies like Japan and South Korea. Those tariffs are extremely costly to the U.S. economy, harming industries that use steel and aluminum as inputs, U.S. consumers, and Americans targeted by foreign retaliation such as farmers and ranchers. In addition, the tariffs undermined confidence in the U.S. as a reliable trading partner. Imposed under the guise of national security, the tariffs inflicted considerable economic damage — the expected result of protectionist measures — while doing nothing to bolster the country’s defense.
