[Senate Hearing 115-818]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 115-818

                    A MULTILATERAL AND STRATEGIC
                       RESPONSE TO INTERNATIONAL
                      PREDATORY ECONOMIC PRACTICES

=======================================================================

                                HEARING

                               BEFORE THE

                      SUBCOMMITTEE ON MULTILATERAL
                       INTERNATIONAL DEVELOPMENT,
                     MULTILATERAL INSTITUTIONS, AND
                    INTERNATIONAL ECONOMIC, ENERGY,
                        AND ENVIRONMENTAL POLICY


                                 OF THE

                     COMMITTEE ON FOREIGN RELATIONS
                          UNITED STATES SENATE

                     ONE HUNDRED FIFTEENTH CONGRESS


                             SECOND SESSION
                               __________

                               MAY 9, 2018

                               __________


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                 COMMITTEE ON FOREIGN RELATIONS        

                BOB CORKER, Tennessee, Chairman        
JAMES E. RISCH, Idaho                ROBERT MENENDEZ, New Jersey
MARCO RUBIO, Florida                 BENJAMIN L. CARDIN, Maryland
RON JOHNSON, Wisconsin               JEANNE SHAHEEN, New Hampshire
JEFF FLAKE, Arizona                  CHRISTOPHER A. COONS, Delaware
CORY GARDNER, Colorado               TOM UDALL, New Mexico
TODD YOUNG, Indiana                  CHRISTOPHER MURPHY, Connecticut
JOHN BARRASSO, Wyoming               TIM KAINE, Virginia
JOHNNY ISAKSON, Georgia              EDWARD J. MARKEY, Massachusetts
ROB PORTMAN, Ohio                    JEFF MERKLEY, Oregon
RAND PAUL, Kentucky                  CORY A. BOOKER, New Jersey
                  Todd Womack, Staff Director        
            Jessica Lewis, Democratic Staff Director        
                    John Dutton, Chief Clerk        



           SUBCOMMITTEE ON MULTILATERAL INTERNATIONAL        
            DEVELOPMENT, MULTILATERAL INSTITUTIONS,        
              AND INTERNATIONAL ECONOMIC, ENERGY,        
                    AND ENVIRONMENTAL POLICY        

                 TODD YOUNG, Indiana, Chairman        
JEFF FLAKE, Arizona                  JEFF MERKLEY, Oregon
CORY GARDNER, Colorado               TOM UDALL, New Mexico
JOHN BARRASSO, Wyoming               CHRISTOPHER A. COONS, Delaware
ROB PORTMAN, Ohio                    EDWARD J. MARKEY, Massachusetts


                              (ii)        

                            C O N T E N T S

                              ----------                              
                                                                   Page

Young, Hon. Todd, U.S. Senator From Indiana......................     1

Merkley, Hon. Jeff, U.S. Senator From Oregon.....................     4

Goodman, Matthew P., Simon Chair in Political Economy, Center for 
  Strategic and International Studies, Washington, DC............     4
    Prepared statement...........................................     6

Wessel, Michael, Commissioner, United States-China Economic and 
  Security Commission, Falls Church, VA..........................    13
    Prepared statement...........................................    15

Glas, Kimberly, Executive Director, The Bluegreen Alliance, 
  Washington, DC.................................................    24
    Prepared statement...........................................    26

Atkinson, Ph.D., Robert D., President, Information Technology and 
  Innovation Foundation, Chevy Chase, MD.........................    29
    Prepared statement...........................................    31

                             (iii)        

 
                      A MULTILATERAL AND STRATEGIC
                       RESPONSE TO INTERNATIONAL
                      PREDATORY ECONOMIC PRACTICES

                              ----------                              


                         WEDNESDAY, MAY 9, 2018

                               U.S. Senate,
        Subcommittee on Multilateral International 
       Development, Multilateral Institutions, and 
 International Economic, Energy, and Environmental 
                                            Policy,
                            Committee on Foreign Relations,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 2:30 p.m., in 
room SD-419, Dirksen Senate Office Building, Hon. Todd Young, 
chairman of the subcommittee, presiding.
    Present: Senators Young [presiding], Gardner, and Merkley.

             OPENING STATEMENT OF HON. TODD YOUNG, 
                   U.S. SENATOR FROM INDIANA

    Senator Young. Good afternoon. This hearing of the Senate 
Foreign Relations Subcommittee on Multilateral International 
Development, Multilateral Institutions, and International 
Economic, Energy, and Environmental Policy will come to order.
    I want to thank the ranking member, Senator Merkley. I am 
grateful, once again, for our continued bipartisanship on a 
range of issues.
    The title for today's hearing is, ``A Multilateral and 
Strategic Response to International Predatory Economic 
Practices.''
    This hearing falls squarely within this subcommittee's 
jurisdiction, which includes multilateral institutions and 
international economic policy. Today, we have an impressive 
group of experts joining us to discuss this important issue. 
Our witnesses today include Mr. Matthew Goodman, the Simon 
Chair in Political Economy at the Center for Strategic and 
International Studies; Mr. Michael Wessel, a commissioner with 
the U.S.-China Economic and Security Commission; Ms. Kimberly 
Glas, Executive Director of the BlueGreen Alliance; and Dr. 
Robert Atkinson, President of the Information Technology and 
Innovation Foundation. Welcome.
    Given the excellent group of experts, I am eager to hear 
from each of you. Before we do so, however, allow me to make a 
few comments to frame and catalyze our discussion this 
afternoon.
    Let me state up front my premise for this hearing. I 
believe America's national security rests largely on an 
economic foundation, and that predatory economic practices by 
China and others have undermined that foundation for years. If 
left unaddressed, these predatory practices will further 
endanger not only the prosperity of Americans, but also our 
security. That is why I believe we need to respond in a smart, 
multilateral, and strategic manner.
    That requires us, as you write in your prepared statement, 
Mr. Goodman, to start with a coolheaded analysis of the 
challenges and opportunities that face the United States.
    It is clear that China is not the only country engaged in 
predatory economic practices. However, China's predatory 
economic practices are unique in their scope, nature, severity, 
and consequences.
    As you wrote in your prepared statement, Dr. Atkinson, 
China is in its own league when it comes to fielding predatory 
economic and trade policies and practices. Dr. Atkinson, you 
summarized quite nicely the challenges that many Hoosiers and 
Hoosier companies have confronted in dealing with China. I have 
seen it firsthand. You write, ``China has deployed a vast 
panoply of innovation mercantilist practices that seek to 
unfairly advantage Chinese advanced-industry producers.''
    These practices have included forced technology transfer 
and forced local production as a condition of market access, 
theft of intellectual property, curtailment and even outright 
denial of access to Chinese markets in certain sectors, 
manipulations of technology standards, special benefits for 
state-owned enterprises, capricious cases to force foreign 
companies to license technology at a discount, massive 
subsidies, and government-subsidized acquisitions of, or 
investments in, foreign enterprises. And that is not a 
comprehensive list.
    These deliberate and systematic practices by Beijing have 
not only hurt our economy, American businesses, and American 
workers. They have also undermined, as I started with, our 
national security.
    As someone who served in the U.S. Marine Corps, I know the 
U.S. military depends primarily on two things if we are going 
to maintain our superiority: number one, the quality of 
American service members; and number two, the maintenance of 
the U.S. military's technological advantages.
    Through a variety of means, including outright and 
systematic theft, China's predatory economic practices have 
eroded and continue to erode our military's technological 
superiority. In some key defense capabilities, China now fields 
military equipment and weapons that are as advanced or more 
advanced than what American service members have.
    As Chairman of the Joint Chiefs of Staff, General Joe 
Dunford has said our military's competitive advantage has 
eroded, and it is no longer as decisive as it was some years 
ago.
    Now, that is deeply concerning and, of course, not 
acceptable to we Americans. That eroding American military 
superiority makes conflict with China more likely and decreases 
the likelihood that America would prevail in the event of a 
military conflict.
    So, in short, to reiterate, both our prosperity and our 
security are at stake. What is also at stake is something more 
general, more systematic. It is the rules-based international 
economic order that helped the United States flourish for 
years, that the United States, incidentally, helped establish, 
that has served U.S. interests, and that has enabled the 
largest expansion in prosperity in world history.
    However, if we are candid, we must admit, as Thomas 
Duesterberg did in his Wall Street Journal article last month, 
that efforts to integrate China into the postwar system and to 
encourage political liberalization have not met expectations. 
China has failed to fulfill its obligations and commitments.
    And as you write, Mr. Wessel, the U.S. has essentially 
failed to address Chinese industrial policy since its 
membership in the WTO.
    Now is the time to change course. Based on this diagnosis, 
we must ask how best to respond to this fundamental and 
historic challenge.
    Now, that is why Senators Merkley, Rubio, and Coons joined 
me in introducing last month the bipartisan National Economic 
Security Strategy Act of 2018. This legislation would create a 
statutory requirement for the periodic production and 
submission to Congress of a national economic security 
strategy. This would complement and support the National 
Security Strategy with more focus on U.S. economic interests.
    This is not about undercutting our free market economy or 
promoting excessive government intrusion in the private sector. 
Far from it. The Federal Government has an appropriately 
limited but still important role in facilitating the ability of 
the United States to compete successfully in the international 
economy that is so vital to our prosperity and our security.
    We want that Federal role to be as optimal as possible. We 
want it to be thoughtful, effective, not reflexive, 
uncoordinated, ad hoc, and counterproductive. That is something 
Republicans and Democrats alike can agree on, I know.
    In many cases, that means catalyzing and empowering the 
private sector. It also means habitually and effectively 
standing up for Americans and American companies when they 
confront predatory economic and trade practices. It also means 
identifying allies and partners who have similarly suffered 
from Beijing's predatory economic practices in building an 
international multilateral coalition to apply maximal pressure 
to persuade Beijing to end its predatory practices.
    As you write in your prepared statement, Mr. Wessel, the 
entire world economy has been impacted by China's predatory 
international economic and business practices, and that 
provides an opportunity for coalition-building to address 
China's policies and practices.
    In short, and as I conclude, the goal of our legislation is 
to ensure Federal policies, statutes, regulations, and 
procedures are optimally designed and implemented to facilitate 
the competitiveness, prosperity, and security of the United 
States.
    That is why I believe our legislation is so important, and 
why I look forward to advancing it. I also look forward to 
hearing the assessments of our witnesses regarding our 
legislation.
    So with those thoughts in mind, I would now like to call on 
our ranking member, Senator Merkley, for his opening remarks.
    Senator Merkley.

                STATEMENT OF HON. JEFF MERKLEY, 
                    U.S. SENATOR FROM OREGON

    Senator Merkley. Thank you, Chairman Young. It is a 
pleasure to be here with you, working in a bipartisan way to 
look out for America's interests and to protect American 
workers from being hurt by international predatory economic 
practices.
    What really makes America great is our entrepreneurial 
spirit, looking at problems as challenges and challenges as 
opportunities. We are problem-solvers. We believe in innovation 
to improve technology and to improve standards for the social 
impacts of manufacturing, trade, investment, and other business 
activities.
    As Americans are focused on product innovation, some 
predatory nations are instead focused on gaming trade and 
finance systems. Our businesses and workers can outcompete 
anyone on a level playing field, but all too often, the field 
is not level.
    China is not the only country engaged in predatory economic 
practices, but it is a clear leader in flouting international 
standards and ignoring agreements and terms that get in the way 
of its drive to control markets.
    Too often in negotiating trade agreements, we have been 
mesmerized, almost hypnotized, by the mirage of bountiful 
Chinese consumer markets, and we have ignored, failed to 
understand, or failed to adequately respond to aggressive and 
often illegal barriers that China has erected to protect its 
own markets, to steal American intellectual property, and to 
disrupt world markets with a flood of goods and services 
subsidized by the Chinese Government in a whole host of ways.
    American companies and workers should not be penalized for 
adhering to fair, humane, responsible labor and environmental 
standards, to name just a few. It should not be our goal to 
race to the bottom. We need to, therefore, make sure that rules 
in trade, rules that relate to labor standards and 
environmental standards, are fairly enforced.
    I look forward to hearing from our witnesses today and to 
continue working with my colleague, Chairman Young, on how we 
can proceed to ensure that the American entrepreneurial spirit 
does well and that our businesses thrive.
    Senator Young. Thank you, Senator Merkley.
    Once again, I want to welcome all our expert witnesses. 
Your full written statements will be included in the record. I 
would ask each of you to summarize your statements here today 
within 5 minutes, so that we can engage in an extended Q&A 
period.
    Let us go in the order that I announced you, please.
    Mr. Goodman.

   STATEMENT OF MATTHEW P. GOODMAN, SIMON CHAIR IN POLITICAL 
   ECONOMY, CENTER FOR STRATEGIC AND INTERNATIONAL STUDIES, 
                         WASHINGTON, DC

    Mr. Goodman. Thank you, Mr. Chairman. And thank you, Mr. 
Ranking Member.
    In the few minutes I have, let me just make three main 
points.
    First, we have a problem. The international economic order, 
as you said--that is, the institutions, the rules, the norms 
that the United States created and championed for 70 years and 
have contributed enormously to our prosperity and security--
that order is under stress. It is under stress at home because 
it is seen as having failed to deliver the kind of strong 
growth and shared benefits in recent years that it did in the 
decades following World War II. This has undermined support for 
our engagement in the world.
    Abroad, the order is also under stress from new powers that 
are unhappy with the seating arrangement at the global 
governance table that was set when these new challengers were 
weak. They want change.
    Among these powers, China poses a unique and fundamental 
challenge for the United States. On the one hand, our economies 
are deeply intertwined, and we need China to help solve a range 
of transnational challenges. We cannot contain or isolate 
China. On the other hand, China is an economic and strategic 
competitor, as you said. China wants to sit at the head of the 
table, especially in the vital Asia-Pacific region.
    Moreover, this is no longer the China of Deng Xiaoping or 
Zhu Rongji, reformers. Under President Xi Jinping, China has 
slowed or reversed moves to reform and open the Chinese 
economy, and has reinforced some very problematic policies, 
from our point of view. The bill of particulars is well-known, 
and I am sure my colleagues are going to elaborate: subsidies 
to national champions, forced technology transfer, tilting the 
competitive playing field in favor of Chinese firms and against 
foreign firms.
    Most worrisome, Beijing has used those policies to support 
``Made in China 2025,'' its ambitious plan to capture dominant 
market shares in 10 key industries of the future, from 
artificial intelligence to advanced biotechnology.
    We cannot cede leadership in those areas without a fair 
fight.
    Abroad, meanwhile, China is using its newfound economic 
clout to coerce smaller countries. It is bending or breaking 
the rules in established institutions like the WTO while 
setting up its own parallel institutions. And it is using its 
ambitious Belt and Road infrastructure initiative to assert 
economic and geopolitical influence across Asia and beyond.
    So we have a problem, one of the most difficult and 
consequential of our age, in my view.
    My second point is that we can meet this challenge, if we 
are smart and confident and do not exaggerate our fears.
    We should begin with a coolheaded analysis, as you said, of 
what the most important threats and opportunities are. Not 
everything China does is motivated by a desire to beat us in 
the geostrategic game. Not all of its plans are likely to 
succeed. I would much rather have our hand than the one that 
China has been dealt.
    That said, to meet the complex challenge of a rising China, 
we need a comprehensive economic strategy that includes several 
key elements.
    First, we need to play offense as well as defense. Yes, we 
need to protect critical assets and technology. Yes, we need to 
brush China back when it does not play by the rules, and, in 
doing so, make sure that we follow the rules ourselves. But we 
also need a proactive strategy that promotes growth, opens 
markets, and creates high standard rules of the road for the 
international economy that others are incentivized to follow.
    With clear, neutral rules and contestable markets, American 
companies win every time.
    This is what the Trans-Pacific Partnership was intended to 
achieve. Withdrawing from it was a huge mistake, in my view. If 
we are not going to return to TPP, we need something to replace 
it. We need allies and likeminded partners for all of this, 
both the defensive and offensive parts. We should be pulling 
them in, not slapping them with tariffs or tearing up prior 
agreements.
    The strategy also needs to be whole-of-government--
actually, whole-of-nation--drawing in all the tools of U.S. 
power, all relevant government agencies, as well as State and 
local players, and the private sector and labor.
    And a smart economic strategy needs to rest on strong 
domestic foundations. We need to rediscover the winning formula 
that brought us such success in the postwar period: state-of-
the-art infrastructure, education, and skills training to 
prepare workers for the new economy; investment in basic R&D 
critical to leadership in industries of the future.
    My third and final point is that Congress has an important 
role to play in all of this. First, you can enact relevant 
legislation, starting with S. 2757 introduced by the chairman 
and ranking member to require the executive branch to prepare 
and regularly update a much-needed national economic security 
strategy.
    S. 2736, the Asia Reassurance Initiative Act introduced by 
Senator Gardner and others on this committee would also create 
useful tools to strengthen our economic statecraft in the vital 
Asia-Pacific region.
    I also like the BUILD Act, the CFIUS reform, export 
control, approval of a capital increase at the World Bank, and 
many other things. We also need to fund critical agencies like 
OPIC and EXIM.
    Finally, if I may say, I think you need to assert your 
constitutional authority over trade. I think that you should 
insist that the administration not do damage to our 
international obligations or our alliances, and that it come up 
with a coherent trade strategy to open markets and strengthen 
international rules.
    I will stop there. Thank you very much.
    [The prepared statement of Mr. Goodman follows:]

                Prepared Statement of Matthew P. Goodman

                              introduction
    Mr. Chairman, Mr. Ranking Member, Members of the Subcommittee, 
thank you for this chance to offer my thoughts on how the United States 
can respond strategically to practices in the international economy 
that pose a threat to U.S. interests.
    Let me begin by commending the Subcommittee for highlighting--
through this hearing and S. 2757, the National Economic Security 
Strategy Act of 2018, co-sponsored by the Chairman and Ranking Member--
the strategic role of economics in foreign policy and national 
security. Economics is often an uncomfortable topic for foreign policy 
experts, who prefer to leave these complex issues to finance or trade 
practitioners. But economic statecraft is a vital part of the 
diplomatic toolkit and can serve a country's broad strategic ends--from 
positive ones like advancing a rules-based order to more sinister ones 
like coercing smaller countries to follow a larger country's will. 
Enhancing understanding of ``strategic economics''--America's and other 
countries'--is essentially the mission statement of my program at CSIS, 
and I welcome the opportunity to lay out some of my thinking on the 
subject today.
                  strains on u.s. economic leadership
    Since World War II, the United States has been the principal 
architect and champion of a rules-based international economic order. 
The order was founded on principles of market-based growth and 
development, free and open trade, and the rule of law. It was supported 
by international institutions created in the wake of world war and 
designed to prevent its recurrence, such as the International Monetary 
Fund (IMF), World Bank, and World Trade Organization (WTO). The order 
delivered rising prosperity across the globe unprecedented in human 
history.
    Today, the international economic order--and U.S. leadership of 
it--is under stress. In the United States itself and other advanced 
economies, the order is viewed as having failed to deliver the kind of 
strong growth and shared benefits that it did in the decades following 
World War II. Externally, the order is under assault from new powers 
that are unhappy with a system of global governance established by 
advanced countries when the new challengers were weak.
                          the china challenge
    Among the new powers, China poses a unique and fundamental 
challenge to the United States. The relationship between the two 
countries is complex. On one hand, they are intertwined by trillions of 
dollars of two-way flows of trade and investment. Total U.S.-China 
bilateral trade exceeds $600 billion and, by one estimate, inbound 
investment supports 2.6 million jobs in the United States across a 
range of industries.\1\ The United States and China also share 
overlapping interests in ensuring a stable, growing global economy and 
addressing transnational threats, from terrorism to health pandemics to 
climate change.
    On the other hand, the United States and China are economic 
competitors--and increasingly so as the Chinese economy approaches the 
size of America's. Despite its nominal commitment to market-driven 
economics, the Chinese party-state continues to exercise a dominant 
role in the economy and society. Externally, China is a member of the 
main institutions of global economic governance, such as the WTO, World 
Bank, and IMF, but is dissatisfied with the balance of power in those 
institutions and increasingly willing to bend or break their rules to 
advance China's interests.\2\ Beijing has also begun to set up 
alternative institutions such as the Asian Infrastructure Investment 
Bank (AIIB) and New Development Bank (NDB or so-called ``BRICS Bank'').
    Under President and Communist Party leader Xi Jinping, Beijing has 
slowed or reversed earlier steps toward reform and opening of its 
economy. It continues to restrict access to the Chinese market and to 
limit competition for foreign companies operating in the country 
through a combination of measures, from equity caps on investment to 
regulatory harassment. Foreign companies are often forced to surrender 
important intellectual property and engage in joint ventures as a 
condition for market access. Beijing also provides generous domestic 
subsidies, easy access to credit, and state-backed investment funds to 
support the growth of Chinese industries.\3\ These unequal conditions 
have helped Beijing establish national champion firms--both state-owned 
and nominally private--that are increasingly competitive with U.S. 
firms in China and have begun to compete for market share in third 
countries.
    Since 2015, these efforts have been guided by ``Made in China 
2025,'' the country's ambitious plan to capture dominant positions for 
Chinese producers in 10 advanced sectors, from aerospace to robotics to 
biotechnology.\4\ As discussed below, the fact that China has ambitions 
to move up the value chain in key industries of the future is not 
surprising; in fact, it is a rational and legitimate goal for Chinese 
policymakers as they seek to improve economic outcomes and avoid the 
so-called ``middle income trap.'' The problem is the tools China is 
using to achieve this objective: heavy state subsidies that distort 
competition, forced technology transfer and outright theft from foreign 
companies, and restrictions on the competitive playing field in China, 
leading to imbalances in China's trading and investment relationships 
with the rest of the world.\5\ Made in China 2025 represents a 
significant challenge to U.S. economic interests; by one calculation, 
almost half of all U.S. manufacturing exports to China are in sectors 
targeted by the plan.\6\ If China's plans to achieve sectoral dominance 
outlined in Made in China 2025 depend on breaking the rules and 
distorting global trade and investment relationships, these efforts 
must be opposed at both national and multilateral levels.
    Beijing has also pursued assertive economic policies abroad to 
advance its economic and geostrategic interests. Some of these efforts 
have been coercive, others more complex in motivation and effect. On 
one hand, China has leveraged its economic size and purchasing power to 
intimidate smaller states into pursuing policies better aligned with 
Chinese strategic interests. A notable example was China's attempted 
economic coercion of South Korea over the deployment of the U.S.-built 
Terminal High Altitude Area Defense (THAAD) missile-defense system in 
2017.\7\ Other countries, from the Philippines to Norway, have also 
been subject to Chinese coercive diplomacy in recent years.
    At the same time, Beijing has launched an ambitious plan to build 
connectivity infrastructure across the globe under the rubric of its 
Belt and Road Initiative (BRI). In part this plan is designed to 
offload excess capacity in Chinese infrastructure-related sectors like 
construction, steel, and cement. Some BRI projects could produce 
broader economic benefits in terms of local development and expanded 
trade. But BRI also runs the risk of producing a dangerous rise in debt 
levels in vulnerable emerging economies (a warning recently echoed by 
IMF Managing Director Christine Lagarde)--and potentially a loss of 
sovereignty for the countries involved.\8\ It was this set of risks 
that led former Secretary of State Rex Tillerson to coin the phrase 
``predatory economics'' to describe Chinese practices in an October 
2017 speech at CSIS.\9\ Meanwhile, there are concerns that 
strategically placed ports and other infrastructure projects built 
under the BRI banner could become the basis for Chinese military power 
projection.\10\
                           responses to date
    Since the opening with China in 1972, the approach of successive 
U.S. administrations to bilateral relations has been to engage with 
Beijing to elicit cooperation where possible and manage competition 
where necessary. The Trump administration has chosen a more 
confrontational approach in some areas but in practice has, like its 
predecessors, pursued some mix of cooperation (e.g., on North Korea) 
and competition (especially on trade and investment).
    Recent administrations have used a range of bilateral, regional, 
and global tools to address economic differences between the two 
countries. These include:
Bilateral
   Since the opening of bilateral relations, all 
        administrations have set up some kind of formal process for 
        managing economic differences and pursuing opportunities for 
        deeper economic ties. There has been a succession of high-level 
        dialogues, from the Joint Economic Commission (JEC) set up in 
        the Reagan administration to the Comprehensive Economic 
        Dialogue (CED) briefly established but then suspended by the 
        Trump administration. These forums have involved enormous 
        commitments of high-level U.S. government attention, and the 
        tangible outputs have been few and far between, but the forums 
        have served a useful purpose in building habits of cooperation 
        and serving as a pressure valve for tensions in bilateral 
        relations.
   The Bush and Obama administrations also devoted consider 
        time and energy trying to negotiate a bilateral investment 
        treaty (BIT) with China to liberalize and create more certainty 
        in direct investment flows between the two countries. These 
        negotiations bogged down over a range of difficult issues and 
        have effectively been abandoned by the Trump administration.
   There have also been more forceful efforts to respond 
        bilaterally to problematic Chinese economic practices, from 
        direct pressure at the presidential level (e.g., President 
        Obama's personal demarche to President Xi Jinping not to allow 
        cyber-enabled theft of U.S. trade secrets); to blocking of 
        sensitive acquisitions (Ant Financial-MoneyGram); to sanctions 
        against individual companies (ZTE). These have been effective 
        in getting Beijing's attention and arguably modifying Chinese 
        behavior, but by their nature these interventions can only be 
        used episodically.
   The Trump administration has revived a number of trade 
        remedies under U.S. law, including Section 201 safeguards, 
        Section 232 national security provisions, and Section 301 
        procedures to deal with discriminatory and burdensome foreign 
        practices. These are legitimate tools but, as discussed below, 
        must be used judiciously to avoid causing undue harm to the 
        U.S. economy, our allies, or the international rules-based 
        order.
Global
   Successive administrations have also worked across a range 
        of international institutions to manage competition with China. 
        These efforts have included the filing of trade cases at the 
        WTO, most recently in March 2018 over China's forced technology 
        practices. For all the flaws and delays in WTO dispute-
        settlement procedures, the United States has won most of the 
        cases it has filed against China, and this remains an important 
        part of the economic policy toolkit.\11\
   Administrations have also worked through the IMF, 
        multilateral development banks (MDBs), and less formal 
        organizations like the G20 and G7 to shape rules and norms 
        that, by design or effect, have worked to improve or constrain 
        Chinese behavior in the international economy. While Beijing 
        has chafed at the governance structure of these organizations, 
        it has so far generally acceded to the substantive rules and 
        procedures of existing institutions, again making these useful 
        tools of U.S. economic statecraft.
Regional
   In the region of the world where U.S. and Chinese interests 
        most directly collide--the Asia-Pacific (the Trump 
        administration prefers to use the term ``Indo-Pacific'')--U.S. 
        policy over the past several administrations has been focused 
        on promoting trade and investment liberalization and 
        establishing rules and norms that were partly designed to shape 
        Chinese economic behavior.
   Since 1989, the Asia-Pacific Economic Cooperation (APEC) 
        forum has been the principal venue for advancing these 
        objectives. APEC's non-binding, consensus-based approach to 
        decision-making can be tedious and deliver few tangible short-
        term results, but the forum has resonance in an Asian context 
        and has proven over time to play a useful role in promoting 
        U.S.-preferred norms.
   At the heart of Asia-Pacific--and effectively China--
        economic strategy in both the Bush and Obama administrations 
        was the Trans-Pacific Partnership (TPP). This mega-regional 
        trade agreement brought together 12 Asia-Pacific countries 
        representing 40 percent of global GDP to slash tariffs and non-
        tariff barriers to trade and establish high-standard rules to 
        govern the regional trading system in important areas such as 
        the digital economy, state-owned enterprises, and labor and 
        environment standards. As I have argued before, TPP had a 
        powerful effect on Chinese thinking about its own economic 
        strategy--mostly a positive effect from a U.S. perspective.\12\ 
        But TPP became the victim of a contentious U.S. presidential 
        election in 2016 and--in one of the most consequential (and in 
        my view ill-advised) policy decisions of his presidency--
        President Trump withdrew from the deal on his third day in 
        office.
             key elements of successful economic statecraft
    Individually these bilateral, global, and regional approaches by 
recent administrations have been more or less effective, as discussed 
above. Missing so far in the Trump administration's approach is a 
comprehensive international economic strategy that would have a broader 
effect in shaping Chinese actions in a way favorable to U.S. interests. 
What follows are, in my view, some of the key elements of an effective 
strategy.
Fact-based analysis
    Smart economic strategy starts with cool-headed analysis of the 
challenges and opportunities that face the United States. There has 
been a tendency among Washington analysts recently to dismiss the 
benefits of economic engagement with China over the past 40 years and 
to exaggerate the current threat.\13\ The fact is that the United 
States has seen enormous benefits economically from the rise of 600 
million Chinese to the middle class and from the trillions of dollars 
of trade and capital that now flows between the two countries. To be 
sure, these aggregate benefits have come with distributional costs for 
many American workers and communities; and, as enumerated above, many 
Chinese economic policies and plans today are deeply problematic for 
U.S. interests.\14\ But this is no excuse for revisionist history that 
brushes past the undeniable benefits of U.S.-China economic engagement 
over the past four decades, or the continued opportunities in the 
relationship today.
    We should also be careful not to view all aspects of Chinese 
economic strategy as equally threatening to U.S. interests. China has 
reached the limits of a 40-year-old development model based on low-
value-added production. As mentioned earlier, it is no surprise that it 
wants to move up the value chain or has plans to succeed in new 
industries such as electric vehicles and advanced biotechnology. The 
problem is not so much what Beijing is doing as how it is doing it--via 
subsidies, forced technology transfer, restrictions on competition, and 
other discriminatory policies. Rather than signaling opposition to 
China's development objectives, the United States should be focused on 
forcing China to abandon or modify its problematic policies and to 
level the playing field for American companies.
    Moreover, China is not as capable or coordinated as it appears to 
many outsiders, and it is far from certain that Beijing will be able to 
pull off its ambitious plans. The country faces an array of daunting 
challenges, from managing escalating debt to staving off environmental 
catastrophe. China needs to pull off the rare feat of breaking out of 
the middle-income trap while dealing with a rapidly aging 
population.\15\ As CSIS documented in a report a few years ago, the 
Chinese government is notoriously compartmentalized and uncoordinated, 
both among central ministries and between Beijing and local levels of 
government.\16\ Xi Jinping's attempt to assert greater party control of 
economic affairs may produce better coordination of policy, but it is 
likely to come at the expense of lost initiative and slower progress 
toward its development goals.
    None of this is an argument for complacency; the challenges are 
real. But a U.S. strategy based on the premise that almost everything 
China does is a threat--or is bound to succeed--is itself likely to 
fail. Not only will we squander opportunities to serve a growing market 
of 1.4 billion consumers, or to win Chinese cooperation on shared 
concerns like terrorism and climate change, but we are also likely to 
target the wrong risks and fail to counter the ones that really matter. 
The Obama administration's handling of the AIIB launch in 2015 is a 
case in point: by implying that the United States was outright opposed 
to the initiative and working to kill it, the administration turned the 
spotlight back on U.S. behavior rather than on legitimate governance 
and operational questions about the new bank. Similarly, if the Trump 
administration gives the impression that its ``free and open Indo-
Pacific'' strategy is primarily designed to counter China's Belt & Road 
Initiative, the United States will ``lose the room,'' since most 
developing countries in Asia and beyond want--or at least feel they 
need, in the absence of alternatives--Chinese-financed infrastructure. 
Instead, we should be focused on specific concerns like debt 
sustainability and procurement practices that disadvantage competitors 
to Chinese companies abroad, to the detriment of recipient countries as 
well as the United States.
Playing offense and defense
    In addition to being based on clear-eyed analysis, a successful 
economic strategy must contain both offensive and defensive elements. 
Every baseball fan knows that winning consistently requires both great 
pitching and great hitting. As suggested earlier, there is a worrisome 
tendency in Washington to focus primarily on threats and the defensive 
policies needed to ward these off, potentially missing opportunities 
and imposing costs on our own interests that outweigh the benefits.
    The United States certainly needs to defend our interests against 
harmful foreign policies and practices, including by China. This 
includes ``protecting the crown jewels,'' i.e., ensuring that critical 
assets and technology are not lost to strategic rivals through 
acquisition or cyber-enabled theft. Among other things, this means we 
need a Committee on Foreign Investments in the United States (CFIUS) 
that has the resources and analytical tools to screen out foreign 
investments that genuinely threaten national security. The bipartisan 
bill submitted last fall by Senator Cornyn (R-TX) and others--S. 2098, 
the Foreign Investment Risk Review Modernization Act (FIRRMA)--is 
appropriately motivated by this objective. But it is important to avoid 
broadening the scope of CFIUS review so wide that it creates two 
unintended consequences: first, overloading the process with thousands 
of cases that causes CFIUS to miss the most serious threats to national 
security; and second, having a chilling effect on foreign direct 
investment more broadly, which has been an overwhelmingly positive 
force for growth and employment in the United States.
    Also on the defensive side of the ball, Washington needs to brush 
Beijing back when it pursues economic policies that harm our interests 
or damage the rules-based order. We should use all legitimate tools 
available--U.S. trade remedies; WTO dispute settlement procedures; 
tough, results-oriented bilateral negotiations--to protect our economic 
interests and defend a rules-based order that has served us well for 70 
years. But again, we need to be smart about how we do this, spending 
our time and political capital on foreign practices that are most 
harmful to long-term U.S. interests. This means targeting Chinese 
government subsidies, forced technology transfer, and restrictions on 
competition that, as discussed above, bolster the Made in China 2025 
plan. By contrast, trying to reduce the bilateral trade deficit through 
large Chinese purchases or export restraints is likely to produce at 
best temporary gains as long as deeper macroeconomic forces remain at 
play; at worst, it will create further distortions in the global system 
that could potentially harm the United States and our allies.
    Second, we need to use the right tools--and use them judiciously. 
Unilateral tariffs are likely not only to impose heavy costs on our 
consumers and downstream businesses, but also to violate our 
international obligations, do harm to the rules-based order, and punish 
key allies like Japan and the European Union that are critical to 
addressing a shared challenge from China.
    This leads to the other side of an effective economic strategy: 
smart offense. The United States needs a positive economic agenda that 
pulls allies and partners into collaborative work to promote growth 
around the world, open markets, and create high-standard rules of the 
road for the international economy. Working with like-minded countries 
in this way helps spread U.S.-preferred rules and norms and offers an 
alternative to the more statist Chinese approach. This was the 
organizing principle behind TPP and the Transatlantic Trade and 
Investment Partnership (TTIP), two mega-regional trade deals pursued by 
the Obama administration but effectively abandoned by President Trump 
early in his term.
    In the absence of initiatives like TPP and TTIP, the United States 
needs to find other tools on the offense side of the strategic economic 
game. The Trump administration is on the right track in calling for a 
``free and open Indo-Pacific'' (FOIP) in that critical part of the 
world. While still missing many details--including a credible trade 
strategy to replace TPP--the FOIP initiative contains two promising 
strands: creating alternative financing mechanisms to China's largesse 
in the region through BRI; and working in the World Bank, Asian 
Development Bank (ADB), and other multilateral institutions to promote 
high-quality infrastructure investment. The former has taken shape in 
the form of efforts to create a new Development Finance Corporation 
(DFC) with more resources and authorities (e.g., to take equity 
positions in large projects). The latter has been boosted by the 
administration's recent decision to support a capital increase at the 
World Bank. Both of these strands of work should be supported and 
extended.
    Two other areas for further work include pulling China into 
international arrangements that would help to constrain their 
problematic behavior. China is not a member of the Organisation for 
Economic Cooperation and Development (OECD), the club of advanced 
economies that agrees on codes of conduct in areas such as export 
credits and non-corrupt practices. These codes are not binding on 
members but use moral suasion to create a more level playing field in 
the international economy. Whether by pulling China into the OECD or 
extending these disciplines through other means, China's practices in 
these areas could be brought in better alignment with international 
norms.
    China is also not a member of the Paris Club, the informal 
gathering of creditor countries to coordinate solutions to payments 
problems by debtor nations. As mentioned earlier, concerns have been 
mounting about the sustainability of debt burdens in certain low-income 
and emerging countries that have been targets of Chinese largesse, 
including through BRI. Beijing has resisted signing on to well-
established rules of the road when it comes to avoiding unsustainable 
lending and addressing debt problems when they arise,\17\ including 
joining the Paris Club. Membership would require China to share 
information, including on financing terms, with other Paris Club 
members, as well as grant ``comparability of treatment'' with all 
bilateral creditors. It would also demonstrate China's willingness to 
play by the rules rather than seek advantage at the expense of debtor 
nations and other official creditors.
Whole of government, whole of nation
    Smart economic statecraft draws on all the resources of the U.S. 
government--and beyond. This begins with the President, who must put a 
visible priority on the strategic economic dimension of foreign policy 
and national security, including through a Presidential Policy 
Directive or equivalent statement. He should task the National Security 
Council and National Economic Council--working seamlessly together, 
including through co-reporting lines of relevant senior officials--with 
establishing a robust interagency process for development and 
implementation of an international economic strategy. They should pull 
in all relevant agencies--not just ones with an obvious economic focus 
like Treasury, Commerce, and Office of the U.S. Trade Representative, 
but also the State Department, which is a key player in economic 
diplomacy.\18\ And of course the White House needs to have robust 
processes for coordinating with Congress on these issues.
    It is not just the Federal government that needs to contribute to a 
successful economic strategy. Washington needs to do more to coordinate 
with states and cities, which are most directly impacted by both the 
opportunities and risks of economic ties with China. Washington also 
needs to leverage the private sector better, for example in shaping an 
effective response to BRI.
Rebuilding domestic foundations
    Finally--and arguably more important than another element--we need 
to invest in ourselves. A strong, competitive economy is the essential 
foundation for a successful international economic strategy. We need to 
rediscover the winning formula that brought us such success in the 
postwar period: modern infrastructure, education and skills training to 
prepare workers for the new economy, and investment in basic research 
and development critical to leadership in industries of the future.
    At the moment we are failing in all these areas. As other nations 
race ahead to build new infrastructure, ours remains vastly underfunded 
and continues to deteriorate. A McKinsey report from June 2016 
estimated that the United States would need to invest more than $150 
billion per year between 2017 and 2030 to meet the country's 
infrastructure needs.\19\ Meanwhile, we stand near the top of the OECD 
in terms of education spending per student, yet ranked 19th in the 2015 
PISA rankings of performance in science, reading, and mathematics.\20\ 
And while our private sector fuels the bulk of R&D investment in the 
United States, as a nation we commit the equivalent of just 0.6 percent 
to R&D through public spending, less than many other similarly 
developed nations.\21\
    These are areas where CSIS plans to do more work in the period 
ahead, in an effort to help rebuild domestic support for our 
international economic engagement.
                          the role of congress
    Congress has an important role in crafting and executing a 
successful international economic strategy. S. 2757, co-sponsored by 
the Chairman and Ranking Member, is a good start. It accurately 
diagnoses the challenges faced by the United States in the 
international economy and outlines many of the key elements of a 
successful strategy. In line with my earlier points about playing both 
offense and defense, it is important in my view for Congress to ensure 
that the executive branch, in developing its plan, keep an eye on both 
threats and opportunities in the international economy.
    There are other ways Congress can help. First, the U.S. government 
must be adequately resourced to support an effective economic 
statecraft. This means sustaining funding not only for economic 
agencies like the Treasury and Commerce departments and USTR, but also 
for the lead agency under this Committee's jurisdiction: the State 
Department. As I have written before, State brings something unique to 
the U.S. government's international economic policymaking, what I call 
``reach''; no other agency is present in over 190 countries around the 
world and able to operate across countries and societies.\22\
    Resources also mean people, and the Senate would contribute to an 
effective economic statecraft by acting as expeditiously as possible to 
confirm senior officials to key undersecretary, assistant secretary, 
and ambassadorial positions in the U.S. government; key vacancies at 
present include the Under Secretary of State for Economic Growth, 
Energy, and the Environment, and the ambassadors to South Korea, 
Australia, Saudi Arabia, and South Africa.\23\
    Congress can also ensure that the other unilateral and multilateral 
financial tools the United States has in its economic toolkit are fully 
supported and resourced. We will not be able to compete with China's 
economic statecraft unless we have fully functioning agencies like the 
U.S. Agency for International Development (USAID), the U.S. Trade and 
Development Agency (USTDA), the Overseas Private Investment Corporation 
(OPIC), and the U.S. Export-Import Bank (EXIM). To be clear, the 
combined financial firepower of these agencies will never match the 
trillions of dollars that China is promising to spend through 
initiatives like BRI. But competing in economic statecraft is not just 
a function of money; when added to the first-class products and 
services, non-corrupt practices, and capacity building that American 
companies bring to their international operations, relatively small 
amounts of financing from agencies like OPIC and EXIM can produce a 
winning formula.
    Against this backdrop, Congress can also give a boost to U.S. 
economic strategy through expeditious approval of relevant legislation, 
including S. 2463, the Better Utilization of Investments Leading to 
Development (BUILD) Act, as well as sensible reforms of CFIUS and the 
export-control regime. Early approval of the capital increase at the 
World Bank would also strengthen an important multilateral source of 
leverage for the United States, including in supporting U.S. efforts in 
the infrastructure competition in Asia.
    Finally, in my view it will be important for Congress to fully 
assert its constitutional authority over trade in the period ahead. The 
current administration has worrisome protectionist tendencies that risk 
doing harm to our economic and diplomatic interests, and it has yet to 
lay out a coherent trade-negotiating strategy. While supporting a tough 
line on China's bad behavior in the trade arena, Congress can insist 
that the administration not do damage to our international obligations 
or our alliances, and that it come up with a comprehensive and credible 
trade strategy to open markets and strengthen international rules.
                               conclusion
    Again, I commend the Subcommittee for shining a light on 
problematic practices in the international economy today and on the 
role of ``strategic economics'' in foreign policy and national 
security. With the right analysis, tools, and resources--and confidence 
in our position--the United States can develop and implement an 
effective economic strategy in response to these challenges.
    I thank you for the opportunity to offer my thoughts and look 
forward to answering Members' questions.

------------------
Notes

    \1\ Wayne M. Morrison, ``China-U.S. Trade Issues,'' Congressional 
Research Service. April 16, 2018.
    \2\ Ikenberry, G. John, and Darren Lim, ``What China's 
institutional statecraft could mean for the international order,'' 
Order from Chaos, Brookings Institution. April 13, 2017.
    \3\ Wu, Kane. ``Exclusive: Chip Wars - China Closing in on Second 
$19 Billion . . . '' Reuters. April 26, 2018.
    \4\ Kennedy, Scott. ``Made in China 2025.'' The New Southbound 
Policy. Center for Strategic and International Studies. June 1, 2015.
    \5\ U.S. Chamber of Commerce ``Made in China 2025: Global Ambitions 
Built on Local Protections.'' Mar 16, 2017.
    \6\ Setser, Brad, ``The Rising Bilateral Deficit with China and the 
Negotiations Over China 2025.'' Follow the Money. Council on Foreign 
Relations. May 03, 2018.
    \7\ Glaser, Bonnie S., Daniel G. Sofio, and David A. Parker. ``The 
Good, the THAAD, and the Ugly.'' Foreign Affairs. Council on Foreign 
Relations. March 17, 2017.
    \8\ Lagarde, Christine. ``Fix the Roof While the Window of 
Opportunity Is Open: Three Priorities for the Global Economy.'' 
International Monetary Fund. April 11, 2018.
    \9\ Tillerson, Rex. ``Defining Our Relationship with India for the 
Next Century: An Address by U.S. Secretary of State Rex Tillerson.'' 
The New Southbound Policy. Center for Strategic and International 
Studies. October 18, 2017.
    \10\ Funaiole, Matthew P., and Jonathan E. Hillman. ``China's 
Maritime Silk Road Initiative: Economic Drivers and Challenges.'' The 
New Southbound Policy. Center for Strategic and International Studies. 
April 23, 2018.
    \11\ Bown, Chad P. ``Is the WTO One of Trump's 'big Quagmire 
Deals'? Here's What's at Stake.'' The Washington Post. February 28, 
2017.
    \12\ Goodman, Matthew P. ``Chapter 2: Going on the Offensive.'' 
Meeting the China Challenge: Responding to China's Managed Economy. 
January 2018.
    \13\ Campbell, Kurt M., and Ely Ratner. ``The China Reckoning: How 
Beijing Defied American Expectations.'' Foreign Affairs. Council on 
Foreign Relations. February 28, 2018.
    \14\ Autor, David H., David Dorn, and Gordon H. Hanson. ``The China 
Shock: Learning from Labor Market Adjustment to Large Changes in 
Trade.'' National Bureau of Economic Research. University of Chicago 
Press. January 2016.
    \15\ ``China 2030: Building a Modern, Harmonious, and Creative 
Society.'' Development Research Center of the State Council, the 
People's Republic of China. The World Bank. 2013.
    \16\ Goodman, Matthew P., and David A. Parker. ``Navigating Choppy 
Waters: China's Economic Decisionmaking at a Time of Transition.'' CSIS 
Simon Chair in Political Economy. Center for Strategic and 
International Studies. March 2015.
    \17\ Hurley, John, Scott Morris, and Gailyn Portelance, ``Will 
China's Belt and Road Initiative Push Vulnerable Countries into a Debt 
Crisis?'' Center for Global Development. March 05, 2018.
    \18\ Goodman, Matthew P. ``Downgrading State's Economic 
Diplomacy.'' The New Southbound Policy. Center for Strategic and 
International Studies. June 29, 2017.
    \19\ Woetzel, Jonathan, Nicklas Garemo, Jan Mischke, Martin Hjerpe, 
and Robert Palter. ``Bridging Global Infrastructure Gaps.'' McKinsey 
Global Institute. McKinsey & Company. June 2016.
    \20\ ``PISA 2015: Results in Focus.'' Organisation for Economic Co-
operation and Development. 2018.
    \21\ Boroush, Mark. ``U.S. R&D Increased by $20 Billion in 2015, to 
$495 Billion; Estimates for 2016 Indicate a Rise to $510 Billion.'' 
National Center for Science and Engineering Statistics. National 
Science Foundation. December 14, 2017.
    \22\ Goodman, Matthew P. ``Downgrading State's Economic 
Diplomacy.'' The New Southbound Policy. Center for Strategic and 
International Studies. May 07, 2018.
    \23\ ``Trump Nominations Tracker: See Which Key Positions Have Been 
Filled so Far.'' The Washington Post.

    Senator Young. Thank you, Mr. Goodman.
    Mr. Wessel.

STATEMENT OF MICHAEL WESSEL, COMMISSIONER, UNITED STATES-CHINA 
       ECONOMIC AND SECURITY COMMISSION, FALLS CHURCH, VA

    Mr. Wessel. Chairman Young, Ranking Member Merkley, I want 
to thank you for the invitation to appear before you today. My 
name is Michael Wessel, and I am appearing before you today 
wearing two hats, first as a commissioner on the U.S.-China 
Economic and Security Review Commission and second as a 
representative of the AFL-CIO and its 12 million members. But 
as a disclaimer, the normal Washington disclaimer, I am 
speaking for myself, although my comments are informed by my 
service on the commission and my work with organized labor over 
my entire career in Washington.
    This hearing comes at a critical time. This subcommittee's 
broad jurisdiction over international trade, our country's 
participation in international trade organizations, protection 
of intellectual property and technology transfers make it a key 
player in the issues confronting our country.
    My prepared testimony focused on these issues in the 
context of China, although, of course, our problems are much 
broader. The USTR's most recent national trade estimates report 
is a more than 500-page catalog of the market barriers and 
trade constraints that our companies face around the globe. It 
identifies policies that limit our exports, destroy jobs, and 
undermine our economic and national security.
    We have seen the loss of millions of manufacturing jobs, 
the shuttering of tens of thousands of facilities, the rise of 
income inequality, and the stagnation of wages. Trade policy 
plays a significant role in each of those issues. We have seen 
workers' rights and environmental sustainability used as 
competitive tools by other countries to attract investment, 
helping to fuel outsourcing and off-shoring.
    China's predatory and protectionist policies right now are 
the greatest threat to our interests. We ran a more than $375 
billion trade deficit with them last year. It is not just the 
size of the trade deficit but its composition that should 
concern us. Last year, the U.S. ran an advanced technology 
products trade deficit with China of roughly $135 billion.
    China's practices run the gamut, as you said, Mr. Chairman, 
from dumping in subsidies to forced technology transfers, to 
licensing and joint venture requirements, bans on activities in 
certain sectors, and a broad range of other activities, many of 
which I outline in my testimony. On their own, these are of 
enormous concern, but other countries are emulating China's 
acts as they see the opportunity to receive some ``success'' in 
terms of advancing their own economic interests. Countries are 
continuing to support and build their state-owned entities. 
They are advancing their economic goals through state-led 
development policies and engaging in other actions.
    Our first priority is addressing the negative impact of 
China's actions on our economic and national security 
interests. Those issues cannot be treated as separate in-boxes 
on the President's desk. The two issues, as you noted, are 
inextricably intertwined.
    When China joined the World Trade Organization in 2001, 
many believed that they would reform their policies and become 
a more rules-oriented society. Unfortunately, those goals were 
not achieved, and our workers, our companies, and our economy 
have paid the price.
    The original protocol of accession had significant flaws 
and has contributed to our problems, and the WTO has not been 
up to the task of addressing China's mercantilism. I believe 
that we should have strong rules that are effectively enforced.
    China has made clear what its priorities are, and we should 
believe them. Through the ``13th Five-Year Plan,'' the ``Made 
in China 2025'' program, and many other policy pronouncements, 
they are seeking to advance their capabilities and dominate 
sector after sector. Some of the key sectors of the future--
artificial intelligence, telecom, robotics, autonomous 
vehicles, and others--are targeted for massive subsidies and 
state support. China is seeking to advance its capabilities 
indigenously through joint ventures, through acquisitions, and 
through other legal and illegal means.
    One of China's bilateral priorities is for the U.S. to 
relax its investment restrictions, but China's outward-bound 
investments are generally subject to government approval, and, 
as such, they should be viewed as what they are: policies to 
advance the interests of the Chinese Communist Party in a 
country without market economics as the key concern.
    In my brief remaining time, let me highlight two action 
items that were authored by members of this subcommittee.
    First, as was noted, is the National Economic Security 
Strategy Act of 2018, which is an important bipartisan bill 
requiring an assessment of our Nation's competitiveness and our 
security challenges, and provides for the publication of an 
action plan to address those issues. A comprehensive approach 
to these challenges is sorely needed.
    Second is S. 2566, the Level Playing Field in Global Trade 
Act of 2018 introduced by Senator Merkley. This legislation 
would ensure that trade agreements include enforceable 
standards to promote living wages and ensure sustainable 
production methods. We must not allow attacks on our workers 
and the environment to continue to undermine our own living 
standard and environmental regime. New trade agreements can be 
a force for progress if they are correctly constructed and 
properly enforced.
    Mr. Chairman, again, thank you. Mr. Merkley, thank you for 
your leadership. And I look forward to your questions.
    [The prepared statement of Mr. Wessel follows:]

                  Prepared Statement of Michael Wessel

    Chairman Young. Ranking Member Merkley. Members of the Committee. I 
want to thank you for your invitation to appear before you today to 
discuss a multilateral and strategic response to international 
predatory economic practices. It is an honor to appear before you.
    My name is Michael Wessel and I am appearing before you today 
wearing two hats: First, as a Commissioner on the U.S.-China Economic 
and Security Review Commission (China Commission), where I have served 
since its creation in 2001. Second, as a representative of the AFL-CIO 
and its 12 million members. But, as a disclaimer, I am speaking for 
myself, although my comments are informed by my service on the 
Commission and my work with organized labor over my entire career in 
Washington.
    The Commission was created by Congress in 2001 in conjunction with 
the debate about the grant of Permanent Normal Trade Relations (PNTR) 
to China, paving the way for its accession to the World Trade 
Organization. The Commission was tasked with monitoring, investigating 
and submitting to Congress an annual report on the national security 
implications of the bilateral trade and economic relationship between 
the United States and the People's Republic of China, and to provide 
recommendations, where appropriate, to Congress for legislative and 
administrative action.
    The grant of PNTR ended the annual debate about whether to extend 
most favored nation status to China. But even as it passed PNTR, 
Congress created the Commission because it did not want to forego the 
annual review of our relationship with China. Since the creation of the 
Commission, our mandate has been extended and altered as the U.S.-China 
relationship has evolved.
    The Commission is a somewhat unique body: We report to and support 
Congress. Each of the four Congressional leaders appoint 3 members to 
the Commission for 2-year terms. In 7 of the last 10 years, we have 
issued unanimous reports. In the 3 years where it was not unanimous, 
there was only one dissenting vote. In many ways, the evolving 
challenges and opportunities posed by the relationship with China have 
united us in our analysis.
    I also serve as the staff chair of the Labor Advisory Committee 
(LAC) to the USTR and Department of Labor. The LAC is a statutory 
committee made up of more than 20 unions that provides advice on U.S. 
trade policy and negotiations. Each of the LAC principals, and their 
liaisons, are cleared advisors and are able to access the text of 
negotiations, to the extent they are made available, as well as 
interact with our negotiators and their teams.
    These hats offer a 360-view of what is happening in the economy and 
the intersection of our international and domestic economic policies. 
While the American people and our producers have unique advantages and 
capabilities, as well as latent strength, we face enormous pressures in 
the world. Those pressures are well known to the Members of this 
Committee.
    The title of this hearing is broad and testimony that does justice 
to its sweep could encompass several volumes. I hope that my thoughts 
will address some of the key concerns of the Subcommittee and I welcome 
the opportunity to work with you as you assess these issues.
    This hearing comes at a particularly important time. Last week, 
senior Administration officials were in Beijing to engage their 
counterparts in seeking to address the predatory and protectionist 
policies of the Chinese. China stands out in terms of the extensive 
public pronouncements it has made and actions it has taken to advance 
its interests and expand its economic and military power and 
capabilities.
    But, while I will focus most of my comments on China, as I have 
spent considerable time as a Commissioner evaluating their policies, 
China is not necessarily unique. Its state-led development policies, 
coupled with a non-market approach, is being emulated by other nations 
as the benefits of such an approach have become clear, as have the 
failure of the U.S., and multilateral institutions, to update and 
reform their approaches. India, Brazil and other countries are taking 
cues from China.
    The Administration is seeking to confront these policies. Needless 
to say, we can all find fault with how they have approached some of 
these challenges. But, what we cannot question is the fact that the 
predatory policies of our trading partners--led by China--must be 
addressed. Time is growing short in terms of being able to tip the 
balance back in our favor or at least level-the-playing field, and 
ensure that market-led policies that will keep America as the world's 
technological and economic leader and ensure broadly-shared prosperity 
here at home.
    China's leaders have solidified their power and, in turn, the 
ability to fulfill their plans to become a global technology leader, if 
not the global technology leader in the not-too-distant future. China 
has well-developed and aggressive plans in this area. Their plans are 
public and provide a clear roadmap for them to follow, and for us to 
assess.
    Unfortunately, until only the last 2 years, public policy leaders 
either largely ignored China's public pronouncements or simply didn't 
properly assess their competence in, and commitment to, reaching those 
goals. That has been a huge mistake and has led to rapid advancements 
by China in ways that have been fueled by U.S. omissions and 
commissions.
    This hearing is also particularly timely in light of the 
President's actions to confront Chinese policies in the intellectual 
property arena. The press is writing about the threatened imposition of 
tariffs by both the U.S. and China, but has not focused sufficiently on 
the underlying issues that have plagued U.S. businesses, innovators and 
workers for years. China's actions have had a clear and substantial 
impact on our productive capacity and the employment of our people. 
This hearing, in part, will help to shed light on some of those issues.
    China is committed to achieving its goals and will engage in legal 
means if possible, and illegal means if necessary, to achieve those 
goals. In the Administration's December 2017 National Security Strategy 
of the United States of America document, examples of illegal practices 
by China were identified as ``cyber enabled economic warfare.'' There 
are many areas that fall under the jurisdiction of this Subcommittee 
that bear on China's future success, and ours.
    In your invitation letter, you posed a number of questions. I do my 
best to respond to concisely below:

    1. What sort of Chinese international predatory economic and 
business tactics do the U.S. and American companies confront (e.g. 
tactics related to market access, regulatory environments, 
protectionism, distortive subsidies, foreign ownership, coercive 
technology transfer, and intellectual property theft)?

    The Chinese government employs a labyrinth of policies, with 
associated strategies and tactics to advance its economic and national 
security interests. Indeed, the government views economic and national 
security policies as inextricably intertwined. The government must 
support significant levels of economic growth to ensure that their grip 
on power can be maintained. If growth diminishes, unemployment and 
dissatisfaction may rise, causing substantial pressures on the 
government to reform. President Xi has solidified his grip on power 
with the recent change allowing him to serve more than two terms in 
addition to steps he has taken to magnify his control and leadership of 
the People's Liberation Army and the Chinese Communist Party. Cracking 
down on dissent must be coupled with steps to alleviate economic and 
social stress and China's economic policies often fulfill those 
objectives.
    China has a coordinated strategy to advance its interests and 
dominate sector after sector. This is clearly identified in public 
documents, the most notable being Five Year Plan and the Made in China 
2025 plan. That latter plan identifies the goal of becoming close to, 
if not, self-sufficient in ten key sectors. In several sectors, the 
government identifies that a majority of the products and services 
utilized must be developed and produced indigenously. In robotics, for 
example, the goal is 70% of 2025.
    That goal will be achieved in a variety of ways. China's approach 
is far from perfect. But, as it is a non-market, state-led economy that 
has amassed trillions of dollars in foreign currency reserves via 
protectionist and predatory policies--including currency manipulation 
and misalignment strategies--China can afford to make mistakes.
    Many of China's top firms are state-owned. They aren't judged 
primarily on their ability to turn a profit or on efficient spending 
but on their ability to fulfill state directives and needs. They have 
access to low-cost or, indeed, no-cost capital as non-performing loans 
might be rescheduled or forgiven. They benefit from state procurement 
preferences, the design of standards either at the government level, or 
within standards-setting bodies. There are a variety of other 
supporting policies and programs as well, including direct subsidies, 
tax abatements, free land and other preferences.
    But even firms that want to be considered as ``private'' aren't 
free of government's hand--in positive and negative ways. Thilo 
Hanneman of the Rhodium Group, said at a hearing of the China 
Commission last year, that ``It is difficult to properly classify 
state-owned entities and the distinction between private and state-
owned companies for policy analysis based on nominal equity ownership 
is problematic. China's state-dominated financial system and the lack 
of rule of law means that state involvement can be pervasive, even if a 
firm is nominally privately owned.''
    And, while the rules change on a regular basis, large outward 
investments by these firms must be reviewed and approved by the Chinese 
government. Major investments advance only if they further the 
interests of the government and the Party. So, for example, in the 
robotics sector, one of the leading international firms, Kuka, was 
taken over by China's Midea Group in 2017 to accelerate China's 
industrial robotics capabilities.
    Last year, the China Commission heard testimony as to the possible 
activities of Chinese actors to diminish the value of acquisition 
targets prior to purchase. This possibility, if true, raises 
significant issues that need further attention. As China seeks foreign 
acquisition targets to enhance its capabilities, if they are engaged in 
cyber and human espionage activities to reduce the cost and 
attractiveness of assets it wishes to acquire, it poses a significant 
threat to our economic and national security interests.
    In addition to the network of policies supporting Chinese 
indigenous production, where needed, China's government supports 
development and acquisition strategies. This may occur through legal, 
coercive and illegal means, including cyber and human espionage. In the 
intellectual property area, this was well-documented by the USTR in its 
Section 301 report that was the basis for the Administration's recent 
action against China for IP violations.
    But, China also targets U.S. universities, colleges and research 
institutes to help support its technology programs. China's 111 
Program, and its 1,000 Talents Program, is designed to cultivate 
foreign experts to come to China and help advance Chinese technological 
and scientific capabilities. The 1,000 Talents Program has an array of 
benefits including a signing bonus that is roughly equivalent to 
$158,000.
    In addition to the above, China is engaged in a broad array of 
other predatory practices including dumping and subsidization, forced 
and coerced technology transfers, the use of unlicensed software, the 
production of counterfeit copyrighted, patented, and trademarked goods, 
continuing additions in productive capacity in sectors such as steel 
and aluminum where there is already substantial domestic and global 
overcapacity, the violation of internationally recognized worker 
rights, and other practices. China simply does not play by the rules.

    2. Does China provide U.S. companies reciprocal access and 
treatment? If not, what are the most prominent or significant cases 
where American companies do not have reciprocal access in China?

    Across a broad range of sectors, China does not provide reciprocal 
access. Even in those sectors that are supposedly ``open'' the 
government often maintains a role in limiting access. From services to 
technology to aerospace to agriculture, China has a managed economy and 
engages in managed trade.
    China did abide by many of its commitments to lower tariffs in 
compliance with its protocol of accession to the World Trade 
Organization. But behind those reduced tariffs are often layer upon 
layer of protectionist policies. In major sectors, China's leading 
firms are state-owned entities where foreign competition is severely 
limited, if not outright prohibited.
    In an increasingly informationalized and globalized economy, 
China's technology restrictions are significant barriers. China's 
requirements for restrictions on data flows, limits on foreign cloud 
providers access to the market, requirements that source code be 
provided by certain players all confound the ability of foreign firms 
to access and operate on a global basis.
    Additionally, access to China's market is often subject to joint 
venture requirements. Many of these requirements were accepted as part 
of China's accession agreement--a fundamental flaw of that agreement. 
But, in other areas, access to the Chinese market does not legally 
require joint ventures, but it's tough, if not impossible, to access 
the market without a partner. Often, as was noted in the USTR's Section 
301 report, the joint venture partner requires that technology be 
transferred as a condition of engaging in the partnership.
    Last June, the National Development and Reform Commission and the 
Ministry of Commerce jointly issued the Catalogue of Industries for 
Guiding Foreign Investment. This catalog replaces the earlier catalog 
and is designed to identify those sectors where investment is welcomed. 
The investments are designed to help fill gaps in Chinese capabilities 
and advance the goals of the 13th Five Year Plan and other government 
programs. It represents some liberalization from past catalogs but 
still maintains significant limitations.
    In my own view, we have to be careful about the concept of 
reciprocity as there are many sectors I would argue should not be 
opened to Chinese state-owned, state-controlled or state-invested 
enterprises at this point. Even if we were to have China commit to 
access in their market, it might not be in our own interests to provide 
such access on a reciprocal basis. And, as is well-documented, Chinese 
promises are often broken, while the U.S. keeps its promises. The 
quality of market access, even in an area where we might wish to access 
the Chinese market, might be substantially undermined by their 
government policies and practices. This should be done on a case-by-
case basis.
    As a result, I believe it would be unwise to restart Bilateral 
Investment Treaty negotiations with China. There is no indication that 
the Administration is preparing to restart the BIT negotiations but 
Congress should be aware of the serious peril that exists if BIT 
negotiations resume.

    3. What are the national security and foreign policy implications 
of these international predatory economic practices for the U.S.? How 
have the U.S. government and American companies responded to predatory 
practices? How should the U.S. respond?

    China has targeted a broad range of industries for development and 
preferential status in their Five-Year Plan and other policy 
pronouncements. These range from agriculture to metals to autos to high 
technology and other sectors. As today's hearing is focused primarily 
on technology issues, my comments will center around those sectors.\1\
    China's Made in China 2025 Initiative identified 10 key sectors the 
government would further support with the goal of fostering Chinese 
leadership in areas of technology with significant economic and 
national security implications. They include:

  1. New Energy Vehicles

  2. Next-Generation Information Technology

  3. Biotechnology

  4. New Materials

  5. Aerospace

  6. Ocean Engineering, High-Tech Ships

  7. Railway

  8. Robotics

  9. Power Equipment

  10. Agricultural Machinery

    Each of these sectors in China has benefited from a whole-of-
government approach to ensuring that Chinese companies stake out 
dominant positions in the global market. And, they are promoting the 
idea of ``national champions'': companies that have significant market 
share and presence in China to dominate the market.
    These national champion companies, many of which are state-owned 
enterprises, are benefiting from strong state funding (including 
provincial and local level support), foreign talent and technology 
acquisition, an insulated domestic market and even industrial 
espionage.\2\ China is effectively leveraging international openness, 
particularly that of the U.S. market, academic community and research 
institutes, to augment domestic capacity and capabilities with the 
ultimate goal of self-sufficiency in advanced technologies.
    In the case of the next generation of electric vehicles (EVs), the 
Chinese government has sought to secure global leadership in EVs 
through the use of significant state-support in production and 
infrastructure, overseas acquisitions and the use of state-sponsored 
incentives to artificially boost domestic demand. Identified in the 
Made in China 2025 strategy, EV production has been the recipient of 
hundreds of billions of dollars in subsidies at the central, provincial 
and local government levels.\3\ EV charging stations have been provided 
additional subsidies to meet the goal of 12,000 stations being 
installed in China by 2020.\4\ Yet, while investing billions of dollars 
in fostering the industry, the Chinese government has insulated the 
market from foreign competition.
    Out of the gate, any foreign-made automobile entering China is 
subject to a 25% tariff, however; if a foreign company agrees to form a 
joint-venture with a Chinese counterpart, and agrees that any EVs sold 
will be sold under a Chinese brand, that tariff can be waived.\5\ Yet, 
these joint-ventures often require that technology be transferred and 
raise threats of intellectual property theft.
    In 2015, the U.S. and China each sold roughly 190,000 EVs. One year 
later, China's sales grew to over 350,000 EVs, eclipsing U.S. 
leadership.\6\ China's use of non-market economy tactics has led to its 
successful rise to the position of global leader in EV production, to 
the detriment of foreign competitors forced to compete on a massively 
uneven playing field. China's approach to EVs is only one, of many 
examples of the nation's state-dominated economic system that has 
wreaked havoc on American producers and their workers over the last 17 
years.
    When China joined the World Trade Organization in 2001, many 
economists overestimated or, indeed, were limited by ideological 
blinders in thinking China would just continue to compete against the 
U.S. in low-value products likes toys and textiles. Last year, China 
ran a surplus in Advanced Technology Products trade (ATP) with the U.S. 
of $135.3 billion. The quantity and composition of our trade with China 
has changed dramatically since 2001.
    Some of China's advances are the result of U.S. naivete and policy 
mistakes.
    The U.S. has essentially failed to address Chinese industrial 
policies since its membership in the WTO. Before that, as early as the 
mid-1990s, the U.S. took only limited acts against Chinese intellectual 
property rights violations. Over the years, several memorandums of 
understanding were signed between our two countries meant to throttle 
back some of China's policies. But, their illegal acts continue and, 
indeed, increased in effectiveness. The China Commission has tracked 
these mistakes over the years. Numerous public and private reports have 
documented these violations as well as these industrial policies and 
their cost to the U.S. in terms of production, jobs and lost economic 
benefits.
    The U.S. was naive in thinking that China wanted to be just like us 
when it acceded to the WTO. Those who supported China's accession 
viewed the commitments from a ``Western'', free market, rule-of-law 
perspective. China simply had and retains a different view of what its 
commitments meant or, perhaps, simply had no intention of abiding by 
the promises they were making.
    America's lopsided trade relationship with China has also fueled 
China's development and advances in the science and technology arena. 
Since China joined the WTO, the U.S. has amassed an accumulated 
merchandise trade deficit of roughly $4.3 trillion. That is a transfer 
of wealth. It has allowed China to make massive investments in its 
future--many of which are to our nation's disadvantage.
    U.S. multinational companies have responded to Chinese policies and 
practices in a variety of ways. During the ``honeymoon'' period after 
Chain's accession to the WTO in 2001, companies flocked to China with 
the hope of accessing its more than 1 billion consumers. Of course, 
there were successes. But, over time, Chinese companies--often as joint 
venture partners--were able to harvest the benefits and learning from 
those relationships, to advance their own interests.
    This led to the next phase of responses where multinational 
companies began to question the long-term value of their operations 
there. Many were still hopeful and continued to invest. Many were 
coerced with the perceived ``threat'' of lost sales if they did not 
invest. Others continued to flock to China with no intention of selling 
to the Chinese market--but solely to take advantage of cheap production 
methods and produce for the U.S. market. Still other companies chose, 
in the light of their concerns, and rising intellectual property theft, 
to limit the technologies they transferred to second and later-
generation activities.
    At the same time, China was beginning to ``squeeze'' foreign 
companies through a variety of efforts including stricter rules 
relating to data transfers, competitive activities and other areas. 
During this period, China continued to promote export-led growth and 
foreign invested enterprises found that China could serve more as an 
export platform than as a market opportunity. Recent data indicated 
that 46% of Chinese exports emanated from foreign-invested enterprises. 
This was directly counter to the interests of U.S. domestic producers 
and their workforce.
    Of course, many companies chose to double-down on their operations 
and relationships with China. General Electric, for example, engaged in 
a joint venture with AVIC, one of China's state-owned aerospace firms, 
transferring avionics technology. China is now poised to become a world 
leader aerospace leader with the ARJ-21 and Comic's C-919 which have 
taken advantage of U.S. technology. In addition, China's use of offsets 
has pressured other aerospace firms to transfer production to China to 
ensure that they are able to sell their products there.
    These and many other Chinese practices have largely gone 
unchallenged by the U.S. Private sector petitions on dumping and 
subsidies have led the way in addressing those practices. Despite our 
government having the authority to self-initiate action under these 
authorities, only one case--against aluminum products--was lodged 
during the past 20 years.
    In several other areas, it was the petitions of private sector 
parties that led to challenges to Chinese practices--this occurred with 
regard to auto parts, green technology and surging imports of tires. 
Dialogue has been the principal tool of past administrations to get 
China to change its actions, and those efforts have met with limited 
success.
    The Administration has chosen to broadly challenge Chinese 
policies--with Section 232, Section 301, Section 201 and otherwise. 
It's clear that the business-as-usual approach of the past of dialogue 
and denial wasn't working--one can measure that by rising trade 
deficits, shuttered facilities and lost jobs. Now that serious 
engagement has started, it is not the time to let up: We need to see 
this through, although there certainly could be some pain along the 
way, if we are to address the competitive threats our nation faces.

    4. To what degree have the U.S. government and American companies 
sought remedies in international/multilateral fora? What have been the 
results? How can we more effectively take advantage of these venues to 
protect American economic competitiveness? From a U.S. perspective, are 
key international/multilateral organizations fulfilling their mandates? 
Do they need to be reformed to address current predatory economic 
practices and to reflect the characteristics of the modem, global 
economy? If so, how?

    As noted, the U.S. government has had a limited agenda in terms of 
seeking to address our trade challenges in international fora. Clearly, 
if bilateral or multilateral dialogue and engagement can address our 
problems, that would be the preferred course. But, over time, with 
China and other countries, that engagement has often proved fruitless.
    Indeed, with regard to the WTO, challenges often take 2-5 years to 
resolve. Many challenges are lost as the WTO, through the appellate 
body, has imposed obligations that were never negotiated. This 
``overreach'' has become a fundamental problem for the U.S. and is 
being challenged by the USTR. This has occurred in cases ranging from 
the ruling against the so-called ``Byrd Amendment'' to certain dumping 
methodologies.
    And, relief under our trade laws and at the WTO is prospective in 
nature. By the time relief may be available, much of the injury has 
already occurred. Of course, the relief is important but a firm may 
never recover lost sales and workers may never recover their jobs or 
wages. Other countries know that they can often get away with their 
predatory practices for significant periods of time.
    In addition, while our trade laws have been updated somewhat by 
Congress in the past several years, with important changes, more must 
be done. For example, the potential for foreign state-owned and 
invested enterprises to increase their operations here--through 
acquisitions or greenfield investments--poses a serious threat to the 
operation of our trade laws and for market-based firms to compete. 
Take, for example, the case of Tainjin Pipe, a Chinese state-owned firm 
setting up operations in Texas. The U.S. pipe market is already in 
trouble with operations shutdown, idled or operating at reduce 
capacity. Tainjin will have access to low-, or no-cost capital that 
directly challenges the operating margins of our firms. Tainjin may 
import so-called ``green pipe'' to avoid existing antidumping and 
countervailing duty orders and undergo minor finishing operations 
resulting in further cost advantages which can't be met by our firms. 
And, to top it off, under our trade laws, Tainjin will have standing to 
try and undermine potential trade cases opposing them from even 
proceeding as they would qualify as a domestic producer.
    Our trade laws need to be more actively used by our administration 
to pursue relief. Self-initiation authority exists, but has only been 
used once by this Administration. The burden should not be on private 
companies and workers to fight for trade enforcement--it should be an 
automatic right. We also need to examine, as the USTR has been doing, 
how to reform the WTO and need to look at whether other avenues for 
relief exist. We need to engage our trading partners to develop 
coalition efforts. And, we must not be reluctant to directly challenge 
our trading partners--China and others--when they break the rules and 
threaten our future.

    5. Besides the U.S., what other countries are most negatively 
impacted by China's predatory international economic and business 
practices? Do these countries represent natural allies for the U.S. in 
an effort to put an optimal multilateral pressure on China to reform 
its practices?

    It's not hyperbole to say that the entire world economy has been 
impacted by China's predatory international economic and business 
practices. From the U.S. to Latin America to Africa to Europe and other 
portions of the globe, China's policies have had an impact. China's 
thirst for resources has changed world markets as it has taken steps to 
secure resources to support its economy and its interests. It has 
invested billions of dollars in nations across the globe to ensure that 
it has the energy and mineral resources it needs. Many of these 
investments have skewed markets, empowered regimes and changed 
economies.
    Often this investment is welcomed as the U.S. has substituted trade 
for aid, and that trade often comes with ``strings'' including anti-
development requirements, financial deregulations and requirements that 
increase the price of medicines for needy people.
    China's continued development of its industrial capacity has 
resulted in massive productive capacity, often significant overcapacity 
that threatens market-oriented producers here in the U.S. and around 
the globe. While much attention has been given to China's steel and 
aluminum overcapacity, it extends to many more sectors including 
shipbuilding, rubber, glass, chemicals and others.
    Suffice it to say that China's activities effect virtually every 
country's economy.
    That provides an opportunity for coalition-building to address 
China's policies and practices. For some cases, such as the current 
challenge to China's intellectual property violations, the EU, Japan 
and other countries have either indicated support, or are likely to 
support us. On overcapacity, there are ongoing talks at the OECD and at 
the Global Forum on Steel spurred by action by the G-20.
    At the same time, China has influence operations--direct and 
indirect--targeted at key trade allies who should be on our side. From 
contracts to investments to political support, to other activities, 
China seeks to ensure that it can continue its practices without 
interference from the world community.
    Much more can be done, but we also have to recognize that, with 
regard to some multilateral fora, such as the World Trade Organization, 
they have not been up to the task. While formal complaints can be 
adjudicated, although it may be 2-5 years before final relief is 
available, the organizations can be disabled by consensus-oriented 
rules. And, China is very good at utilizing its vast power to delay, 
deter and deny action to address its activities.
    China also often refuses to acknowledge its illegal actions when 
confronted directly. The decision by the UN Convention on the Law of 
the Sea (UNCLOS) in the case filed by the Philippines against China's 
activities in the South China Sea was ignored by China. And, to date, 
there have been no real repercussions to China's actions as it has 
continued to reclaim rocks and reefs and militarize them. Many believe 
that the U.S. has limited ability to engage on the specifics of the 
case as it is not a signatory to the Convention.
    The current tension in the global economy may provide an 
opportunity to address China's activities. The U.S. has led the effort. 
But, it's time for other countries to stop holding our coat while we 
bloody our nose. International engagement and support for our efforts 
to address China's predatory and protectionist policies can help 
resolve these matters and ensure that market-oriented approaches guide 
the results. That is the preferred course, but we cannot wait for 
others to join in. Negotiations have been launched and pushing our 
chairs away from the negotiating table while we wait for multilateral 
engagement will only embolden China to continue on its present path.

    6. What are the current U.S. legal, regulatory, and other tools to 
protect U.S. interests in cases where there is an identified threat? 
How can the U.S. better use those tools? What additional tools are 
needed?

    The U.S. has a broad array of existing tools to address U.S. 
economic interests. As has been noted, one of the problems is that 
Administration has largely left enforcement and action on these issues 
to the private sector. Indeed, while President George W. Bush initiated 
action under Section 201 on steel early in his Administration, that was 
only after it was clear that the Senate Finance Committee was poised to 
act, under its authority to seek action.
    The current Administration has shown a willingness to use a variety 
of tools to act, including Section 301 (to address violations of trade 
agreements and unjustified, unreasonable or discriminatory acts), Title 
VII authority (antidumping and countervailing duty authority), Section 
232 (to address imports that threaten national security), International 
Emergency Economic Powers Act (IEEPA), the Committee on Foreign 
Investment in the United States (CFIUS), and other authorities.
    My view is that we have many of the tools, we just have not either 
been willing to use them, or need to be more creative in assessing 
their utility. For example, Section 482 of the Internal Revenue Code 
allows for action against transfer pricing schemes. This authority was 
used as a tool when Japan was alleged to have engaged in transfer 
pricing abuses in the past to diminish the stated profits of their 
subsidiaries here in the U.S. As foreign firms expand their operations 
and investments in the U.S., we need to make sure that they are not 
using transfer pricing as a means to essentially subsidize their 
operations.
    The Securities and Exchange Commission has broad authority to 
assess the operations of entities listed on U.S. exchanges to determine 
whether there are ``material'' events that investors should be aware 
of. A number of Chinese state-owned firms are listed on the New York 
Stock Exchange and many other Chinese firms are listed elsewhere. 
China's desire to access U.S. capital markets is clear, especially 
noted by their recent failed attempt to acquire the Chicago Stock 
Exchange. The SEC can evaluate these companies to ensure that U.S. 
investor interests are not being put at risk.
    The SEC, in cooperation with law enforcement and intelligence 
authorities, should also assist in evaluating potential acquisitions of 
U.S. companies to determine whether there have been efforts to 
undermine the market value of the acquisition targets. This is an area 
of extreme importance.
    Similarly, as the China Commission recommended last year, 
``Congress should consider legislation to ban and delist companies 
seeking to list on U.S. stock exchanges that are based in countries 
that have not signed a reciprocity agreement with the Public Company 
Accounting Oversight Board (PCAOB).'' The inability of our auditors to 
have full and unfettered access to the work papers associated with the 
financial operations of companies listed on our exchanges puts at risk 
the integrity of the information provided to investors.
    The Department of Commerce has extensive authority to collect 
information on the activities and operations of firms operating in the 
U.S. market. For the China Commission, we have been trying to learn 
about how Chinese firms operating here operate similarly, or 
differently, from their U.S. counterparts. We have been unable to 
identify comprehensive business school type case studies that would 
help shed light on these operations. The DOC's existing authority to 
issue questionnaires and collect data could help advance our 
understanding of the operations of foreign firms in our market and 
determine whether any actions might be appropriate to address problems, 
if they exist.
    I believe that there should first be an assessment of existing 
authorities, their utility and the willingness of authorities to 
utilize them before we have an expansive examination of what additional 
tools are needed. In my view, the failure of government to act has 
created a climate that essentially tells our trading partners they can 
engage in predatory acts with virtual impunity. That must change.
    But, there are three quick suggestions I will make that will be 
further discussed as a response to the last question posed by the 
Subcommittee.
    First, Congress should consider S. 2757, the National Economic 
Security Strategy Act of 2018.
    Second, the underlying authority for the Committee on Foreign 
Investment in the United States must be updated to address new 
challenges and threats.
    Third, we should act on S. 2566, the Level Playing Field in Global 
Trade Act of 2018 to ensure that trade agreements include enforceable 
standards to promote living wages and sustainable production methods.

    7. What is your assessment of S. 2757, the National Economic 
Security Strategy Act of 2018? Do you support this legislation? Why do 
you believe it is necessary?

    I want to commend the Chair and Ranking Member, along with Senators 
Rubio and Coons for coauthoring and introducing this legislation. I 
believe it should be a priority for this Congress to consider how to 
address the important issues raised by this bill, in particular, the 
development of a national economic security strategy.
    Last year, the China Commission assessed China's activities in the 
high technology sector. In assessing China's activities, and U.S. 
policies, the Commission recommended that
    Congress direct the National Science and Technology Council, in 
coordination with the National Economic Council and relevant agencies, 
to identify gaps in U.S. technological development vis-a-vis China, 
including funding, science, technology, engineering, and mathematics 
workforce development, interagency coordination, and utilization of 
existing innovation and manufacturing institutes, and, following this 
assessment, develop and update biennially a comprehensive strategic 
plan to enhance U.S. competitiveness in advanced science and 
technology.
    S. 2757 takes a more expansive, and appropriate view, of the need 
for a broader national economic security strategy that looks beyond the 
high technology sector to U.S. interests at large. It requires the 
periodic preparation, and publication of a national economic security 
strategy for the U.S. That approach will fill a critical gap in public 
policy and enable an all-of-government and public understanding of the 
challenges facing our nation, and the action plan to address those 
challenges.
    In the 1980s, America faced similar questions about its 
competitiveness. While the impact of Japans' economic policies pale in 
comparison to those posed by China and other countries today, the 
concerns nevertheless generated enormous debate. Policy, labor, 
corporate and academic leaders opined about what the state of America's 
economy was, what our future had in store for us and what actions might 
be appropriate to take.
    A pivotal event during that period was the convening of the 
President's Commission on Industrial Competitiveness, chaired by John 
Young, who was then the President and CEO of Hewlett-Packard. The 
report of the Young Commission, and subsequent public debate, triggered 
action by government and the private sector. It also helped foster the 
development of the Omnibus Trade Act of 1988 which was a comprehensive 
approach to address many of the challenges that existed at the time and 
expanded trade law provisions to respond to predatory acts, increased 
support for the research and development and expanded the role of the 
National Institutes for Standards and Technology, enhanced the 
authorization for the Committee on Foreign Investment in the United 
States (CFIUS), and authorized a number of other important programs and 
initiatives.
    I spend an enormous amount of time with labor leaders, workers and 
domestic corporations to try and identify ways to promote production 
and employment in the U.S. Unfortunately, there is no well-defined 
strategy that gives confidence that the challenges facing our nation 
are understood, and that there is an action plan to address those 
challenges. Your legislation, much like the National Security Strategy 
that focuses on our military security challenges, will help ensure that 
there is a coordinated, comprehensive and clear plan to enhance our 
nation's competitiveness and, in turn, our economic and national 
security. That is a vital step forward.
    As part of the assessment, the critical question of income 
inequality and measures to address it should be included. The 
International Monetary Fund and others have recognized the impact of 
inequality on the economy.
    It is also critical that an action plan puts the nation's and not a 
political party's interests first. The balanced, bipartisan authorship 
of the legislation is a strong indicator that a national economic 
strategy can be developed that can address today's challenges and 
prepare our country for the future.

    8. Please provide specific policy/legislative recommendations to 
improve American economic competitiveness and security.

    In my testimony, I have identified several areas that demand 
attention and action. Let me reiterate some of those here, and 
elaborate, where appropriate.
    As noted, the authorship by several members of this Subcommittee of 
S.2757, the National Economic Security Strategy Act of 2018 signifies 
an important bipartisan opportunity to provide an assessment of our 
nation's competitiveness and our security challenges and provide for 
the publication of an action plan to address those issues. A 
comprehensive approach to these challenges is solely needed.
    Congress should also act to update the authority for the Committee 
on Foreign Investment in the United States. The AFL-CIO recently 
endorsed the bipartisan Foreign Investment Risk Review Modernization 
Act (FIIRMA) that is before the House and Senate. It is a reasoned 
approach that balances the desire to continue our open investment 
climate and our security interests. The AFL noted that the scope of the 
legislation should not be diminished but, rather, Congress should 
consider the inclusion of a net-economic benefit test as countries such 
as Canada and Australia have in their investment screening regimes.
    Congress should act on S. 2566, the Level Playing Field in Global 
Trade Act of 2018, introduced by Senator Merkley. This legislation 
would ensure that trade agreements include enforceable standards to 
promote living wages and ensure sustainable production methods. Many 
other countries use low wages and lax environmental standards as an 
incentive to outsource production and offshore jobs to those areas. We 
must not allow attacks on workers or the environment to continue to 
undermine our own living standard and environmental regime. New trade 
agreements can be a force for progress if they are correctly 
constructed and properly enforced.
    As the China Commission recommended in its 2016 Annual Report, 
Congress should ``enact legislation requiring its approval before 
China--either the country as a whole or individual sectors or 
entities--is granted status as a market economy by the United States. 
This is a critical issue and has been a high priority for the Chinese 
leadership, having been raised, once again, in the bilateral talks with 
the U.S. last week. China is far from being a market economy, but the 
Department of Commerce has the unilateral authority to change its 
current designation. There is no sign that Commerce has any intent of 
changing the designation, but Congress should affirm that it is the 
view of Congress that no action can occur on this substantive matter in 
the future without its consent.
    In an additional recommendation made by the China Commission in 
2016, Congress should ``require that under antidumping and 
countervailing duty laws, Chinese state-owned and state-controlled 
enterprises are presumed to be operating on behalf of the state and, as 
a result, do not have standing under U.S. trade laws against unfair 
trade to block a case before proceeding.
    A critical issue that is vital to ensuring a competitive economy is 
expanding investments in infrastructure. In addition to expanding the 
capacity for economic growth, infrastructure investments can expand our 
ability to bring products to market, equip our citizens with access to 
high-speed internet, enhance educational opportunities and meet other 
critical needs.
    The above are just some of the many actions that Congress should 
consider as it evaluates this important subject area. I would welcome 
the opportunity to work with you and your staffs as your work 
continues.
    Again, thank you for the invitation to appear before you today and 
I look forward to your questions.

------------------
Notes

    \1\ See China's Technonationalism Toolbox: A Primer, Katherine 
Koleski & Nargiza Salidjanova, U.S. China Economic and Security Review 
Commission, March 28, 2018.
    \2\ 2017 Annual Report to Congress, U.S.-China Economic and 
Security Review Commission.
    \3\ November, 2017, Economics and Trade Bulletin, U.S.-China 
Economic and Security Review Commission.
    \4\ Ibid.
    \5\ Ibid.
    \6\ Ibid.

    Senator Young. Thank you, Mr. Wessel.
    Ms. Glas.

 STATEMENT OF KIMBERLY GLAS, EXECUTIVE DIRECTOR, THE BLUEGREEN 
                    ALLIANCE, WASHINGTON, DC

    Ms. Glas. Thank you so much. Thank you, Chairman Young, 
Ranking Member Merkley, for inviting me here today. On behalf 
of my organization, our national labor unions and environmental 
partners, and the millions of members and supporters they 
represent, I want to thank you for holding this important 
discussion.
    I want to start out by acknowledging and agreeing that we 
need to take a holistic approach to ensuring American 
industries are competitive in the global marketplace. A 
national strategy is needed to address illegal, unfair, and 
predatory trade practices that deprive the American people of 
their economic and national security, many of which I list in 
my testimony, and many have been discussed by witnesses today.
    These and other practices drive down labor costs, increase 
off-shoring and job loss, and, at the same time, contribute to 
the erosion of our environment and increase pollution.
    This subcommittee's attention and discussion about a more 
comprehensive, thoughtful, and coordinated strategy comes at an 
important time. Other nations are making long-term economic 
plans to dominate the global economy. If we fail to plan, we 
will lose the race for jobs and clean energy technology, clean 
vehicles, and the materials that go into them, like steel and 
aluminum, among other industries. We cannot allow that to 
happen.
    We believe that the issues of fair trade, workers' rights, 
and the health of our environment are inextricably linked to 
America's success. Trade agreements should have strong 
enforcement mechanisms and include strong and binding labor and 
environmental protections, including wage and environmental 
standards, in their core text. These standards must be 
enforced. We cannot allow other nations to ignore environmental 
and labor standards in an attempt to undermine our markets and 
gain competitive advantage.
    Let me give you a couple quick examples. As you will note 
in my written testimony, the relocation and off-shoring of a 
lead battery processing facility from the United States to 
Mexico is well-documented. This off-shoring was the result of 
weak labor and environmental standards in Mexico, and had 
tremendous consequences for the economy here in the U.S., and 
resulted in very real, public health impacts in Mexico. Just 
one battery processing plant in northern Mexico emitted 33 
times the amount of lead that a plant owned by the same company 
was expected to emit in South Carolina.
    As we all know, many energy-intensive, trade-exposed 
industries in the United States like steel, aluminum, cement, 
paper, and many others have been under siege as a result of 
predatory trade practices. The off-shoring of these industries 
to countries with weak or unenforced labor and environmental 
laws has exacerbated carbon pollution and environmental 
degradation, and is crippling both our economy and our 
environment, as well as the environment of our trade 
competitors.
    This is why we must defend and advance policies that reward 
companies that play by the rules. The BlueGreen Alliance has 
long supported Buy America and other procurement policies that 
support workers and industries.
    One such procurement policy that is complementary to Buy 
America policies has been passed into law in California, 
actually, just last year. The policy is called Buy Clean, and 
it promotes spending taxpayer dollars on infrastructure, 
supplies, and materials that are made in a cleaner, more 
efficient, and environmentally friendly manner.
    As many of you may be aware, the San Francisco Bay Bridge 
reconstruction project procured steel from a Chinese 
manufacturer instead of an American company. The BlueGreen 
Alliance Foundation research found that an estimated 180,000 
tons of carbon emissions would have been averted, equivalent to 
taking 38,000 cars off the road, had the steel been procured 
from a U.S. supplier.
    It would also have shifted the purchase of steel to an 
American company rather than a foreign competitor. There is a 
large difference in the amount of pollution generated by our 
industry compared to that of other nations. Steel production 
from China alone accounts for roughly 4 percent of global 
emissions.
    The story about the Bay Bridge project led the State of 
California to establish the first-of-its-kind Buy Clean 
procurement criteria to incentivize the use of more cleanly 
produced materials like steel. We strongly support replicating 
this model in other places across the country and federally.
    Procurement policy is just one tool but not the only tool 
to help level the playing field for both workers and the 
environment. There are many other enforcement mechanisms that 
would be deployed in conjunction with these policies.
    We are glad that both the chair and the ranking member are 
taking action on this issue and amplifying the need to develop 
a broader, more comprehensive plan to ensure that our own 
industries are safeguarded, supported, and allowed to flourish 
in the global economy. There is a lot of work to do, and we 
welcome the opportunity to work with you.
    In closing, Chairman Young, Ranking Member Merkley, allow 
me to thank you for the important work that you are doing and 
for granting me the opportunity to speak today.
    [The prepared statement of Ms. Glas follows:]

                   Prepared Statement of Kimberly Glas

    Thank you Chairman Young, Ranking Member Merkley, and members of 
the Subcommittee for inviting me here today. My name is Kimberly Glas, 
and I am the executive director of the BlueGreen Alliance. On behalf of 
my organization, our national labor unions and environmental partners, 
and the millions of members and supporters they represent, I want to 
thank you for holding this hearing today.
    The BlueGreen Alliance brings labor union members and 
environmentalists together around three key areas:

   Innovating, building and installing the clean economy--clean 
        energy, energy efficiency, safe chemicals, and clean vehicles--
        which protects the environment, creates quality jobs, and 
        ensures the health of workers and the environment;

   Repairing America's infrastructure to create quality jobs, 
        protect the health of workers and communities, reduce the 
        emissions driving climate change, and build stronger, more 
        resilient systems for the future; and

   Supporting fair trade practices.

    I appreciate the hearing discussion today and want to start out by 
acknowledging and agreeing that we need to take a holistic approach to 
ensuring American industries are competitive in the global marketplace. 
A national strategy is needed to address the illegal, unfair and 
predatory trade practices that deprive the American people of their 
economic and national security. This includes but is not limited to:

   The use of prohibited subsidies, dumping, overcapacity of 
        steel and aluminum in countries with weak environmental laws;

   Non-reciprocal market access rules that have denied U.S. 
        firms the ability to compete on a level playing field;

   Denial of national treatment and refusal to open market 
        access to U.S. firms;

   Forced technology transfer and intellectual property 
        infringement; and

   The denial and enforcement of internationally recognized 
        workers' rights and environmental standards.

    These and other practices drive down labor costs, increase 
offshoring and job loss, and at the same time contribute to the erosion 
of our environment and increase pollution.
    This Subcommittee's attention and discussion about a more 
comprehensive, thoughtful and coordinated strategy comes at an 
important time. It's critical that we work together to find solutions 
that combat predatory trade practices that have exacerbated our the 
U.S. trade deficit, undermined our national security, driven inequality 
by suppressing wages and workers' rights, and harmed our environment.
    Other nations are making long-term economic plans to dominate the 
global economy. That is why it is vital that we develop our own 
comprehensive, strategic plan to ensure we level the playing field for 
American workers and protect our environment for generations to come. 
If we fail to plan, we will lose the race for jobs in clean energy 
technology, clean vehicles, and the materials that go into them like 
steel and aluminum, among other industries.
    We cannot allow that to happen.
    We believe that the issues of fair trade, workers' rights, and the 
health of our environment are inextricably linked to America's success. 
We must set aside the race to the bottom that weakens workers' rights 
and environmental standards. Instead, we must make sure that our trade 
partners rise up to meet our standards on a level playing field.
    Trade agreements should have strong enforcement mechanisms and 
include strong and binding labor and environmental protections--
including wage and environmental standards--in their core text. These 
standards must be enforced to level the playing field. We cannot have 
fair trade agreements if they do not adhere to the concept that working 
people ought to earn a fair day's wage for a fair day's work in a job 
that is safe and healthy, or if we allow other nations to ignore 
environmental standards in an attempt to undermine our markets.
    As we all know, many energy-intensive, trade-exposed industries in 
the United States, like steel, aluminum, cement, paper, and many 
others, have been under siege as a result of predatory trade practices. 
The offshoring of these industries to countries with weak or unenforced 
labor and environmental laws has exacerbated carbon pollution and 
environmental degradation and is crippling both our economy and 
environment, as well as the environment of our trade competitors.
    According to a well documented report:

    ``For years, U.S. factories recycled used car batteries, which 
contain lead--a neurotoxin that can cause learning problems for 
children and heart disease in adults. In 2009, the U.S. Environmental 
Protection Agency increased U.S. air quality standards to protect 
communities from toxic exposure to lead.
    Instead of complying with the new, hard-fought protections and 
limiting their pollution, corporations started exporting used car 
batteries--and the associated pollution--to Mexico, where lead 
standards are one-tenth as strong and poorly enforced. Immediately 
after enactment of the new U.S. regulation, lead battery exports to 
Mexico spiked. Over the next 6 years, they quadrupled. NAFTA ensured 
the corporations could export their polluting batteries to Mexico free 
of charge.
    For the U.S., this effort to evade domestic lead standards spelled 
a loss of jobs as U.S. battery-recycling factories shut their doors. 
Today no more than eight such companies remain in the U.S.
    For Mexico, it meant an influx of imported lead pollution. In 2010, 
more than six metric tons of lead were reportedly released into the air 
at just one of the plants in northern Mexico that processed the flood 
of imported lead batteries. By comparison, that is 33 times the amount 
of lead that a battery-processing plant in South Carolina--owned by the 
same company--was expected to emit.
    In the Mexican communities that now process used lead batteries 
from the U.S., reports of learning disabilities, kidney damage, and 
other symptoms of lead poisoning have become all too common. One recent 
academic study finds that the boom in lead battery imports is causing 
babies in such communities to be born underweight, with high lead 
levels in their blood. The authors conclude, `unbalanced stringency in 
environmental standards may spur flows of pollution intensive 
activities to countries with lax environmental standards.'' \1\
    American jobs were lost and lead pollution in Mexico has risen 
dramatically, all because certain companies chose to seek out weak or 
non-existent environmental protections in other countries.
    Another chilling example can be found in the depths of rare earths 
mines, which produce minerals critical to the manufacture of high tech 
devices such as solar panels, batteries, smart phones and wind 
turbines. Utilizing significant subsidies and ignoring massive 
environmental degradation, Chinese production of rare earth minerals 
skyrocketed over the last 30 years from producing 27 percent of the 
world's minerals to now over 90 percent.\2\
    The U.S. used to produce a majority of these minerals, mostly out 
of its Mountain Pass mine in California, which was subject to our 
environmental laws and safeguards as rare earth mining can be a highly 
toxic effort. It should be noted that the mine was not always perfect, 
but it still had to abide by our laws. It should be noted that the mine 
was not always perfect, but it still had to abide by our laws.\3\ China 
eschewed even the most basic safeguards and its people and land have 
suffered, while the Mountain Pass mine closed because it could not 
compete.\4\
    We have lost so much to other nations already; it is time to stand 
up for our workers, industries, and the environment.
    This is why we must defend and advance policies that reward 
companies that play by the rules. The BlueGreen Alliance has long 
supported ``Buy America'' and other procurement policies that support 
our workers and industries. One such procurement policy that is 
complementary to Buy America policies has been passed into law in 
California. The policy--called ``Buy Clean''--promotes spending 
taxpayer dollars on infrastructure supplies and materials that are made 
in a cleaner, more efficient and climate-friendly manner.
    As many of you may be aware, the San Francisco Bay Bridge 
reconstruction project procured steel from a Chinese manufacturer 
instead of an American company. The BlueGreen Alliance Foundation 
research found that an estimated 180,000 tons of carbon emissions would 
have been averted--equivalent to taking 38,000 cars off the road for a 
year--had the steel been procured from a U.S. supplier.\5\ It also 
would have shifted the purchase of steel to an American company, rather 
than the foreign competitor.
    There is a large difference in the amount of pollution generated by 
our industries compared to that of many other nations. The amount of 
greenhouse gases that come from China's steelmaking alone is massive. 
By roughly extrapolating from the Intergovernmental Panel on Climate 
Change's 5th Assessment Report, \6\ steel production from China alone 
accounts for roughly four percent of global emissions. According to the 
Stockholm Environmental Institute, \7\ Chinese steel produces 2.4t of 
CO2 per ton of steel. This is among the worst CO2 
intensity in the world, alongside Russia and the Ukraine.
    The story about the Bay Bridge project led the State of California 
to establish first of its kind ``Buy Clean'' procurement criteria to 
incentivize the use of more cleanly produced materials in 
infrastructure investment. These criteria will not only result in 
significantly lower emissions, but fairer competition, improved safety 
and overall decreases in cost. We strongly support replicating this 
model in other places across the country.
    Policies like ``Buy Clean'' at the state or national level would 
help ensure manufacturers who operate the most polluting plants would 
no longer be given a ``free pass'' for their pollution and 
manufacturers who have invested in reducing their pollution would see 
the returns. Procurement policy is just one tool, but not the only 
tool, to help level the playing field for both workers and the 
environment. There are many other enforcement mechanisms that could be 
deployed in conjunction with these policies to help level the playing 
field for American workers and the environment.
    We are glad that both the chair and ranking member are taking 
action on this issue and amplifying the need to develop a broader, more 
comprehensive plan to ensure that our own industries are safeguarded, 
supported and allowed to flourish in the global economy. There is a lot 
of work to do and we welcome the opportunity to work with you.
    In closing, Chairman Young, Ranking Member Merkley, and members of 
the Subcommittee, allow me to again thank you for your important work 
and for granting me the opportunity to appear at today's hearing. I 
know that you--like the BlueGreen Alliance--are working every day to 
achieve the goals of building a robust, sustainable American economy 
that provides opportunities for businesses to thrive, American workers 
to prosper, and a cleaner economy to protect the public and the 
environment.
------------------
Notes

    \1\ Sierra Club, NAFTA 2.0: For People or Polluters.
    \2\ U.S. Geological Survey, China's Rare-Earth Industry.
    \3\ High Country News, Why Rare Earth Mining in the West is a Bust.
    \4\ The Guardian, ``Rare Earth Mining in China: The Bleak Social 
and Environmental Cost.''
    \5\ Greenhouse gas calculation made using the U.S. Environmental 
Protection Agency's Greenhouse Gas Equivalencies Calculator.
    \6\ Intergovernmental Panel on Climate Change, IPCC 5th Assessment. 
P. 757 and 749.
    \7\ SEI International, International Trade and Global Greenhouse 
Gas Emissions.

    Senator Young. Thank you for being here, Ms. Glas.
    Dr. Atkinson.

  STATEMENT OF ROBERT ATKINSON, PH.D., PRESIDENT, INFORMATION 
     TECHNOLOGY AND INNOVATION FOUNDATION, CHEVY CHASE, MD

    Dr. Atkinson. Good afternoon, Chairman Young and Ranking 
Member Merkley. It is a pleasure to be here.
    ITIF has long focused on these questions of U.S. economic 
competitiveness and the role that foreign, unfair, or predatory 
practices play in hurting our ability to be competitive.
    I could not agree more, Senator Young, with your comment 
that national security depends upon economic security. That 
understanding, frankly, has not been widely shared in 
Washington. I still think that we stovepipe those issues. We 
see national security as one group of responsibilities and 
economic security as another.
    Mr. Wessel alluded to this, but in the 1990s, this was 
quite a heady time for Washington. There was a Washington 
Consensus on trade. It helped form the World Trade 
Organization, which was going to lead to a new world of better 
trade disputes; more products, processes, and measures covered; 
more countries covered. We looked forward to China joining the 
WTO with the belief that their deeper participation would be a 
fundamentally liberalizing force.
    It was supposedly, according to one pundit at the time, the 
end of history, which meant it was our model that was going to 
dominate the world. It was the end of all these other models. 
Unfortunately, we have learned very clearly and painfully that 
that was not the case.
    The WTO has simply proven itself less than fully capable of 
challenging rampant innovation mercantilist practices, 
particularly for non-rule-of-law countries. It just simply was 
not set up to adjudicate practices for non-rule-of-law 
countries, and the Chinese know how to use that loophole to 
their advantage. And China, clearly, rather than moving toward 
our model, has gone in the other direction.
    You mentioned a number of different practices. I will not 
go through all of those, but I will say that the China model, 
the Chinese menu or playbook, is really elegantly simple. 
People think it more complicated than it is. It is elegantly 
simple. It is really four key steps.
    Number one, it is their understanding and commitment that 
they want to be global, have global competitive advantage, if 
not domination, in virtually all technology industries. Most 
countries embrace Ricardian trade theory, which is that we are 
good at some things, and others are good at things, and then we 
trade. The Chinese do not believe that, fundamentally. The 
Chinese Government wants to be good at everything, at least in 
advanced industries.
    Second, they lack the technology, the capability, and the 
knowledge to be able to be dominant right now. It is going to 
take them a long time to catch up in an organic way, and they 
know that. So their whole strategy is about stealing it, 
coercing it, or buying the technology and the knowledge with 
state-backed subsidies.
    Once their national champions get this knowledge or this 
technology, the government then lavishes subsidies and other 
protections and benefits, so those companies can scale up in 
the Chinese market. Once they have done that, they then, again, 
lavish a whole set of export subsidies and other benefits, so 
that they can take over global markets.
    There are some who assert that this has not hurt the U.S. 
economy. I would differ. I think when you look at careful 
studies, you find that about half of the U.S. manufacturing job 
loss in the 2000s was due to unfair foreign trade practices. I 
think the risk very well could be worse going forward, because, 
in the past, those may be industries that eventually would have 
been shed naturally in global trade, leaving us the advanced 
industries that we are good at, but today, as we have heard, 
the Chinese are going after those advanced industries. This 
will not only have an economic effect, but it will certainly, 
as the chairman and you have alluded to, have a national 
security effect.
    So what should the Federal Government do?
    I think, number one, and Mr. Goodman alluded to this, we 
have to do this with our allies. As history has shown, when our 
allies, particularly the Europeans and the Japanese, 
collaborate with us and force and pressure the Chinese, they 
will back down. We have to continue to do that and step that 
up.
    There are steps we can do unilaterally and that Congress 
can take a lead role in. One that several people have mentioned 
is to update CFIUS. The Chinese have been very good at 
manipulating and finding loopholes in the CFIUS process. The 
current efforts in the Senate and the House to strengthen that 
are well-advised.
    Secondly, we support the passage of the National Economic 
Security and Strategy Act, if for no other reason than to begin 
to get all the Federal agencies and the White House and the 
different bodies to really think as one body and one mind to 
connect all the dots and really move forward with that.
    There is quite a simple step, we have argued, which is that 
while USTR publishes several reports, including the national 
trade estimates, you can read that long, long report, and you 
still really do not get a sense of who is the worst and who is 
the best. We have argued that USTR needs to produce a ranking. 
We have called it a global mercantilist index that ranks every 
country in the world on how egregious their practices are. And 
for the bottom worst ones, we should just simply start making 
them have penalties.
    I do not see any reason why we provide foreign aid through 
AID or Generalized System of Preferences tariff relief to 
countries that are unrepentant mercantilists. The World Bank 
continues to do that. They provided billions of dollars of 
funding to China most recently. Again, I do not see any logic 
for giving money to mercantilist countries until they change 
their behavior.
    Finally, we need to take steps here at home.
    I think, and a number of people have mentioned this, expand 
EXIM bank financing.
    We have established under congressional rules the RAMI Act, 
Revitalize American Manufacturing and Innovation. We have a 
number of centers. Continue to fund those.
    STEM education.
    I know Congress just passed a tax reform bill, but I would 
encourage at some point going back and expanding the R&D tax 
credit. We are ranked 27th in the world in R&D tax credit 
generosity.
    Finally, I think we need our own Made in USA 2030, not the 
way the Chinese do it, but we know some of the key technologies 
going forward in the future, and we need to support 
precompetitive research in those areas.
    Thank you.
    [The prepared statement of Dr. Atkinson follows:]

            Prepared Statement of Robert D. Atkinson, Ph.D.

    Dr. Atkinson's prepared statement can be accessed at the following 
url: [https://itif.org/publications/2018/05/09/testimony-us-senate-
committee-foreign-relations-
responding-international]

    Senator Young. Thank you, Dr. Atkinson.
    So I started with the premise that was actually included, I 
believe, in the testimony of many of you, but I just want to 
make sure that operating under this premise is something on 
which we have, if not universal agreement, at least broad 
agreement.
    In my opening statement, I asserted America's national 
security rests largely on an economic foundation, something 
just reaffirmed by Dr. Atkinson. Predatory economic practices 
by China and others, India and Brazil come to mind, have 
undermined that foundation for years. If left unaddressed, 
these predatory practices will further endanger not only the 
prosperity of Americans but also our security.
    A yes or no question, Dr. Atkinson, you just answered it 
yes. There is a linkage between the predatory practices and 
security. Do you agree, sir?
    Dr. Atkinson. Yes.
    Senator Young. Ms. Glas?
    Ms. Glas. Yes.
    Senator Young. Mr. Wessel?
    Mr. Wessel. Yes.
    Senator Young. And, Mr. Goodman?
    Mr. Goodman. Yes.
    Senator Young. Okay, very good.
    Mr. Wessel, you mentioned a rules-based international 
economic order, I believe. You may have also done so, Mr. 
Goodman. I know you are familiar with the concept. I am going 
to ask you, Mr. Goodman, how has the rules-based economic order 
over the years helped the American people?
    Mr. Goodman. Thank you, Senator. As I alluded to in my 
testimony, if you create a system with neutral rules and 
contestable markets, American companies win every time. I have 
no doubt that, if we have rules that work to the general 
advantage on a neutral level, we are going to win, and that has 
been proven over and over again over the last 70 years.
    So I think the rulemaking part of these efforts are still 
critically important. I know that there are some who feel that 
we have created a system of rules that is easily exploitable, 
and that is not untrue. But if we enforce the rules, I think 
that is the best path forward.
    I think this order has been spectacularly successful for 
us, and I think that we should extend it.
    There are new rules that need to be established. For 
example, in the digital economy, where, again, not to flog a 
dead horse, TPP had a good set of disciplines.
    Just before he left office, Mike Froman, the USTR who had 
negotiated the TPP, produced something called the ``Digital 2 
Dozen,'' which I am sure Rob and others are familiar with, 
highlighting some of the rules that were established, things 
like free flows of data, an open Internet, no duties on cross-
border digital commerce. Those rules really would have worked 
in our advantage. The fact that we do not have that, we have to 
do something else to try to establish those rules.
    So I am a big believer that the rules-based order has been 
good for the United States, and we should extend it and enforce 
it.
    Senator Young. Okay. I have a follow-up to that, because I 
read your materials and Dr. Atkinson, some of his thinking on 
this matter. And Dr. Atkinson has reminded me that the world 
does not operate the way a neoclassical economics textbook 
operates. That is, it is not only firms or enterprises that 
compete in the world. Countries actually compete with one 
another economically, which, in turn, impacts not just your 
economic competitiveness, but your security and advancing your 
values as a country.
    Is there a tension between this rules-based international 
economic order on one hand, which is not supposed to advantage 
any particular country, but also a recognition that it does 
advantage the United States of America? How would we reconcile 
that fact?
    Mr. Goodman. Thanks, Senator. I believe that, at the end of 
the day, you are right, that states do compete, and I think 
others are putting their thumb on the scale. There is no 
question. China is in that top group.
    Senator Young. Incidentally, I have to interject. I 
unapologetically want America to win.
    Mr. Goodman. Right. Understood. We all do.
    I think the point is, at the end of the day, we compete 
best when there is an open rules-based system. If we try to 
shut things down, if we try to play this game the way others 
are playing it, I think we lose. I think we are better off when 
we have, basically, a commitment to openness, to markets, to 
rules. That has been proven over and over again.
    I think we do have a challenge with China. I am not 
diminishing that challenge. But I think we can win.
    Senator Young. Dr. Atkinson, do you think the Chinese can 
also win in the long term, that their people can benefit from a 
rules-based international economic order?
    Dr. Atkinson. I think the Chinese people would be much 
better off if the Chinese had a different economic strategy. 
For example, when you look at a program they had called SEI, 
the Strategic Emerging Industries program, this was a massive 
funneling of hundreds of billions of dollars into a few 
industries. We calculated that, if they were successful in 
that, they would have achieved essentially an equivalent of 
what about 14 months of productivity growth would have been.
    China, fundamentally, is going to follow the path of Korea 
and Japan, which is very high productivity and innovation in a 
few sectors that export, but the rest of their economy is 
incredibly inefficient, their retail sector, their banking 
sector. They fundamentally do not focus on that, and we do in 
the U.S. Our view is that markets should allow innovation and 
productivity in all sectors.
    So I do not even think the Chinese strategy is a good 
strategy for the Chinese people. It is maybe a good strategy 
for the Chinese Government.
    Senator Young. When China joined the WTO, Dr. Atkinson, in 
order to get access to global markets and be protected from 
unilateral actions against its unfair trading practices, it 
made a binding set of commitments to all the other signatories 
that it was going to live by.
    Dr. Atkinson, Mr. Wessel, for Americans who may not be 
following this issue as closely as you do, which is just about 
every single American, what general types of commitments did 
Beijing make in order to get WTO membership? And generally 
speaking, has Beijing fulfilled these commitments?
    Dr. Atkinson. So my colleague Stephen Ezell wrote a report 
for ITIF called ``False Promises.'' What it did is it looked at 
what the WTO president at the time was hearing from China and 
expected China to do in 2000 and 2001. There was an entire book 
that he wrote with a colleague, and they listed everything the 
Chinese were going to do: a less dominant role for state-owned 
enterprise, more protection of intellectual property, fewer 
subsidies, et cetera, et cetera.
    We went through and looked at every commitment the Chinese 
made, and it turns out they committed to none of them. So they 
made, essentially, a wide array of false promises, and they did 
not live up to any of them.
    Senator Young. Mr. Goodman, your assessment?
    Mr. Goodman. I agree. I have not actually read Stephen's 
report, but that sounds right. There were a lot of promises 
that have not been fulfilled.
    On the other hand, China did do some things early on to 
formally implement WTO, and that produced some huge benefits 
for our companies who are investing there and trading there. So 
I think it is a little more complex than that, but I do not 
disagree that there are a large number of areas where they did 
not follow through.
    Mr. Wessel. Mr. Chairman, if I could just add, part of the 
problem is one of perception, in the sense of what we believe 
we mean when we negotiate and what they hear may be two very 
different things.
    A good example was the MOU on cybersecurity 3 years ago. 
China committed that it would not engage in cybersecurity for 
economic gain. I think they left the negotiating table laughing 
because, as your original proposition was, they view economic 
security and national security as the same thing. So committing 
to not engaging in cybersecurity for economic gain was easy. It 
meant nothing.
    When you look at many of their early commitments, they are 
a non-market-based economy, state-led capitalism. They view the 
commitments in a different way from the ones that were being 
made.
    Senator Young. I am looking forward to asking some more 
detailed questions about particular ways the Chinese are 
violating this rules-based order we benefited from, but I am 
going to turn it over to Senator Merkley.
    Senator Merkley. Thank you.
    Dr. Atkinson, you mentioned that China often engages in 
stealing technology. One of the things they often do is require 
joint partnerships, joint ventures, for American companies 
doing business in China. When I looked into it, it appears that 
this is something that we agreed that they could do in the 
agreement when they entered the WTO. Is that correct?
    Dr. Atkinson. My understanding is, the WTO protocol says 
that you cannot condition market access on technology transfer. 
What the Chinese do is, they do not have a written rule. They 
do not have a law or regulation that says that. And they know 
specifically why they do not want to have that written down on 
a piece of paper, because it would bring a WTO case against 
them.
    All of those conditions of market access--I should not say 
all, but a lion's share of those are all informal discussions. 
They are informal messages. They are subtle things that are 
very clearly, though, told to a company that, if you want to be 
in our market, you have to do a joint venture or you have to 
give technology access.
    Senator Merkley. Okay, that is very interesting, because 
what I saw was saying that had been stipulated, that they had 
permission to do that.
    Anyone disagree with that?
    Mr. Wessel. They do have the permission, and there are many 
areas where foreign participants are required to engage in 
joint ventures. I think what Rob was saying is that the 
government cannot condition the technology transfer by the 
government, but by requiring you to engage in a joint venture, 
and when you engage in that, your joint venture partner says, 
if you want to join with us, you have to transfer your 
technology. It is, again, going back to the way I described it 
earlier. It is form over substance.
    Senator Merkley. So when the time comes when we need to 
renegotiate the terms for the accession to WTO, or their 
continuation, does it still make sense to have an agreement in 
which they can require our companies to be part of a joint 
venture but we do not require their companies to do the same?
    Mr. Wessel.
    Mr. Wessel. Certainly, I think we should be eliminating 
most of those requirements, but I also believe that we have to 
be careful about using a bilateral investment treaty as the 
vehicle to do it. We have seen that the Chinese do not 
necessarily adhere to the rule of law. We do. So if we give 
them enhanced access to our investment market, our FDI, here, I 
am not so sure they are going to do it there.
    Forty-six percent of Chinese exports emanate from foreign-
invested enterprises. So the problem we may also have is, by 
easing the way for U.S. companies to move there without JVs, 
they may still use China as an export platform undermining job 
growth and production here in the U.S.
    Senator Merkley. Thank you.
    I want to show you all a few charts. I am going to start 
with a map of the United States. This essentially shows, state-
by-state, the net U.S. jobs displaced due to the goods trade 
deficit with China as a share of total state employment.
    Now, if you could see a list like the one I have in my 
hand, but would be too small to read, you would see that Oregon 
is at the top of the list for the most displaced jobs due to 
the trade deficit with China. Indiana is number 11.
    I do find this interesting because, often, a coastal state 
such as mine says that this must be doing us a lot of good 
because we have all these links overseas. But here is the 
thing, when you have all those links, it is much easier for a 
company to take its business overseas, so you have a 
disproportionate impact. We see that with Oregon on this list 
and on this map.
    I want to go to a second chart, which just shows the total 
U.S. jobs displaced by the growing trade deficit with China 
since 2001, obviously a steady upward climb.
    Now I am going to go to a third chart. On this third chart, 
the line that is in blue has one slope up through 2001 and then 
an accelerated slope after 2001. Did our loss of manufacturing 
jobs as a result of the trade deficit with China increase 
significantly after their admission to the WTO?
    Ms. Glas, is that something you would like to comment on?
    Ms. Glas. I think the chart speaks for itself, Senator. I 
think it illustrates the point that I think you are trying to 
make, that as part of China's accession to WTO, those are 
standards that we not only need to relook at, but we need to 
ensure that, if there is a renegotiation of China's accession 
to the WTO, that they are enforceable standards.
    You are seeing this play out in key areas across the 
country. It is not just the industrial Midwest. It is coastal 
states. I think these are very illustrative of the really deep 
problem that we are seeing across America.
    Senator Merkley. All we essentially see in this chart, in 
summary, is, as product penetration went up and increased 
substantially after 2001, American jobs lost to that trade 
deficit continued.
    And it makes fundamental sense. If we have a company here 
that is abiding by American rules, and that means in wages, in 
environmental standards, certainly in labor standards, and we 
are competing against a company playing by Chinese rules, which 
may mean no enforcement of even minimum environmental 
standards, and you noted some of the examples in the case of 
NAFTA and what is going on in Mexico--this is different; this 
is China--then the foreign company is going to be able to make 
things for less. And our American company has two choices: one, 
go out of business; or two, move their factory overseas. So we 
would lose jobs.
    I just want to keep accentuating this basic story, because 
it is something that seems straightforward, and yet people have 
a hard time getting their hands around it. If you let the 
competitor have full access to a market but play by a different 
set of rules, you give a huge advantage to your competitor, and 
that means the loss of American jobs.
    So one of the things that I put forward--and, Mr. Wessel, 
you mentioned it--was the Level the Playing Field in Global 
Trade Act, which is essentially that very low labor and 
environmental standards in foreign countries, below the norm 
for their country, would, in fact, be a form of social dumping, 
and we could use American antidumping laws.
    Does that strategy of building on an existing mechanism for 
a form of unfair subsidy that would address the race to the 
bottom make sense?
    Mr. Wessel. I think it not only makes sense, it is vital 
that we include a provision like that in future trade 
agreements. When we look at trade agreements and evaluate the 
opportunities that may exist by engaging those agreements with 
other countries, we have certain expectations about how they 
are going to develop their market, whether we are going to have 
consumers we can sell to, whether they have consumers who can 
buy their own products, whether our companies are going to 
outsource offshore, or whether we are going to have a fair and 
level playing field.
    We have found, over time, that provisions on environment 
and labor have been difficult to enforce, if they are enforced 
at all. With Guatemala, it took 8 years to get a trade case to 
the arbitral panel, and then it failed because of a legal 
argument about a certain standard.
    The result is that producers, workers, farmers, ranchers 
here in the U.S. have suffered because of the social dumping 
that is inherent in those agreements.
    Senator Merkley. Thank you.
    Ms. Glas, any comment on that?
    Ms. Glas. Absolutely. I think your legislation is 
innovative in terms of its approach. I think it is part of a 
more comprehensive strategy of addressing these predatory trade 
practices. It essentially penalizes countries and industries 
that do not play by the rules.
    We have a huge overcapacity of steel issue in places like 
China, and there have been well-known documentaries done. There 
is one title that comes to mind called ``Under the Dome,'' 
which talks about the really significant public health impacts, 
the overcapacity of steel, and the fact that they have weak 
environmental laws. This documentary played for a couple days 
in China and was quickly taken down, because it started some 
social unrest there.
    So what your bill is doing is essentially giving the United 
States companies a chance to compete. It is leveling the 
playing field. And we want to work with you on pushing forward 
this and your joint effort across the committee.
    Senator Merkley. Thank you.
    Senator Young. We will now turn to the chairman of this 
committee's Subcommittee on East Asia and the Pacific, Senator 
Gardner.
    Senator Gardner. Thank you, Chairman Young. Thank you for 
holding this hearing today. Thank you to all of you for being 
here and a part of this. This is a very important issue, and I 
am grateful that this hearing is being held to discuss matters 
today.
    Dr. Atkinson, it is great to see you in front of the 
Foreign Relations Committee. I normally work with you at the 
Commerce Committee. Dr. Atkinson was a key part of the 
reauthorization of the America COMPETES legislation, the 
American Innovation and Competitiveness Act, which went into 
effect last Congress.
    So thank you for your great work on STEM education, 
engineering, science, and the research that we are able to 
further because of your outstanding work. Thanks.
    And to all of you, thank you.
    Senator Young. He is a whole-of-Congress witness.
    [Laughter.]
    Senator Gardner. A whole-of-Congress witness, that is 
right.
    Thank you for your constant advocacy.
    Chairman Young, also thank you for being a part of the bill 
that we just introduced a couple weeks ago, the Asia 
Reassurance Initiative Act.
    Mr. Goodman, thank you for highlighting that in your 
testimony today. The chairman is a cosponsor of the 
legislation, S. 2736, the Asia Reassurance Initiative Act.
    This hearing comes at a critical time. It is pretty 
remarkable to think that, by 2030, 66 percent of the global 
middle-class population will be in Asia. Fifty-nine percent of 
middle-class consumption will be in Asia. We know that the 
largest standing armies in the world are in and going to be in 
Asia. We know that five of our seven defense obligations are in 
Asia. We cannot afford to fall behind as a result.
    According to the Asian Development Bank, 16 Asian countries 
have signed 140 bilateral or regional trade agreements, and 75 
more trade agreements with Asian countries are under 
negotiation or concluded and awaiting entry into force.
    In the meantime, the U.S. has signed trade agreements with 
only three nations in the Indo-Pacific region, namely 
Australia, Singapore, and the Republic of Korea. That is why 
ARIA, the legislation that we talked about, calls on the 
administration to engage in: one, multilateral, bilateral, or 
regional trade agreements that increase U.S. employment and 
expand the economy; two, formal economic dialogues that include 
concrete outcomes; three, high-standard bilateral investment 
treaties between the United States and nations in the Indo-
Pacific region; four, negotiations with the trade and services 
agreements and the environmental goods agreements that include 
several major Asian economies; five, the proactive, strategic, 
and continuing high-level use of the Asia-Pacific Economic 
Cooperation forum, APEC, the East Asia Summit, and the Group of 
20 to pursue U.S. economic objectives in the Indo-Pacific 
region.
    ARIA also provides an authorization for a more robust U.S. 
commercial presence throughout the Indo-Pacific region to 
promote U.S. exports and additional trade facilitation efforts; 
authorizes the imposition of penalties on entities and 
governments engaged in the theft of U.S. intellectual property; 
and requires a new, comprehensive U.S. policy to promote energy 
exports to the Indo-Pacific.
    I think, in addition to Chairman Young, we are joined in 
the legislation by Senator Markey, Senator Cardin, Senator 
Rubio. So it is a bipartisan effort to really create a 
generational strategy as we look at Asia.
    I know the chairman is working on a national economic 
security strategy as well, and I appreciate your work on that, 
so thank you very much for that.
    We will be holding hearings as well in the committee to 
talk about the bill but also to further this discussion because 
it is that important.
    So I guess the question I would ask to all of you, and I 
think it is important, too--let me frame this. In recent 
discussions with some leaders in Southeast Asia, one of the 
highlights of a conversation was simply this: They worry that 
there are no more Ted Stevens, Dan Inouyes, or Bob Doles in the 
U.S. Senate as it relates to Asia. So the question is, what is 
this generation of Senators going to do, leaders in Congress, 
to be that face in Asia of the U.S., to make sure that we have 
that presence that is so desperately sought in Asia, especially 
those who wish to counter the rising power of China? I think 
ARIA can help do just that.
    So do you agree or believe that initiatives like ARIA would 
help the U.S. to build a more robust, long-lasting economic 
commercial presence in the Indo-Pacific region?
    Mr. Goodman.
    Mr. Goodman. Absolutely. Thank you, Senator. I mean, I 
think this is a terrific effort. I do not worry about the 
makeup of the Senators interested in Asia, because you and some 
of the other Senators you mentioned, and others, Dan Sullivan 
and others, have been real leaders in this area, and I feel 
very optimistic that there is a great new group of people who 
understand the importance, as you said, of Asia.
    It is about 50 percent of the world population, the world 
economy, and world GDP, and we have to be successful there. 
Being successful there means doing a lot of the things that you 
outlined there in the ARIA bill. And the region wants it.
    I think this is where I am sort of more optimistic about 
our opportunities here, because I think there is a strong 
demand pull still for United States influence in that region. I 
was in Myanmar, of all places, a few weeks ago where you think 
that we do not have much traction there, and we have some very 
specific, difficult issues there. But every meeting I was in, 
they said that they want three things. They want electric 
power; they want human capacity; and they want an alternative 
to China, frankly.
    So I think we can provide all those things. I think we are 
in a great position, and I think the kind of legislation that 
you are talking about, and the 2757, the National Economic 
Security Strategy Act, together, those things, I think, will 
put us in a very good position in the region.
    Senator Gardner. Thank you. Just to point out, too, that 
this committee has passed legislation, at least in an amendment 
to a bill that has passed out of the committee, on the 
electrification needs of Myanmar, so building on the successes 
that we have had with Power Africa, looking at that as an 
example of what we possibly can do in Myanmar. So I am glad 
that the committee has embraced sort of a Power Myanmar 
concept, because I know that it is critical to show that this 
new civilian government has made progress in Myanmar.
    Mr. Wessel, Ms. Glas, Dr. Atkinson, quickly, we have about 
a minute left.
    Mr. Wessel. A quick comment, and, number one, thank you. I 
have to admit, I am not familiar with the legislation.
    Senator Gardner. It is just the best bill ever.
    [Laughter.]
    Mr. Wessel. I will read it this evening, and I look forward 
to it.
    But I do not think there is any question that we need to be 
engaging in Asia and all around the world. I was in Vietnam as 
a government official for the commission 2 years ago. The 
embrace that we get from the Vietnamese Government, the people, 
in terms of American values, American vision, and American 
leadership, is something that is exhilarating. We have 
relations like that and opportunities around the region.
    The real question is, though, what are the terms of trade 
as it relates to any kind of increased engagement? I think the 
Trump administration is looking at all the agreements that are 
on the books, determining whether there can be changes that are 
acceptable and be passable, and also acceptable, of course, to 
our trading partners.
    So I think the engagement is vital. We have to look at what 
the terms of trade are.
    Senator Gardner. With the indulgence of the chairman, can I 
get the last two quickly?
    Ms. Glas.
    Ms. Glas. I will save you some time. I agree with Mr. 
Wessel's assessment. Apologies, I have not read the bill, but I 
look forward to doing that.
    Senator Gardner. Thank you.
    Dr. Atkinson. Senator, I have not read the bill either, but 
from your description, I think it is vital that we counter the 
Chinese efforts there. They are trying to develop their own 
regional trade agreement on terms that many countries that I 
have spoken with, the officials do not like those terms, and 
they are basically presented with something they have no choice 
over. They would much rather have a global trading agreement 
where we are at the hub of that. I think that is central and 
critical for us to be able to move forward and do that.
    Senator Gardner. Great. Thank you all.
    Thanks, Mr. Chairman.
    Senator Young. Thank you, Senator Gardner.
    One of the key concerns I hear from my constituents is 
about the theft of our intellectual property. It inhibits our 
ability to grow not just jobs but incomes. It undermines our 
national security.
    Dr. Atkinson, you provided some specific examples. One that 
I found compelling was this notion of a USTR mercantilist index 
that might, in turn, be used to apply pressure to different 
countries, if they happen to fall low on that index. I would 
ask you if there are additional measures that you believe, 
specific steps, that we might take to better protect American 
IP?
    And, Mr. Wessel, Mr. Goodman, if you have additional 
thoughts on this, I would appreciate it.
    Dr. Atkinson. One step, if you look at the USTR 301 report, 
it lists the scofflaws, the worst ones every year, and there 
really are no consequences for being on that list other than 
naming and shaming. For a lot of these countries, naming and 
shaming is not really a high-level motivation for them to not 
do that.
    So we could do things like make sure that we simply do not 
give them economic aid, that we do not allow them to have 
tariff-free access to our markets. But I think, more 
importantly, the big kahuna here, if you will, really is China.
    I think we made a big mistake with how we deal with China 
in the sense that they are not rules-based. We are trying to 
deal with them from a rules-based regime. We have to 
fundamentally switch to a results-oriented trading system with 
China, and we have to hold them, I would say, to two or three 
big results that we expect in the next 6 to 12 months. One, a 
massive reduction in their subsidies to their advanced 
industries--for example, $160 billion they are giving to their 
semiconductor industry alone. Number two, real and demonstrable 
measures on no more forced technology transfer and 
significantly reduced cyber theft of our intellectual property. 
The FBI and other government agencies, they know how much cyber 
theft is going on. We can hold them accountable for those 
things.
    I think, fundamentally, that is what our trading pressure 
has to do with China. Otherwise, they are just going to keep 
doing it.
    Mr. Wessel. If I could just quickly add, I think there are 
a number of other things. I agree with all that Rob just said.
    Several years ago, 2014, as you may know, five PLA hackers 
went after five U.S. companies and the Steelworkers. The 
indictment was sealed. Because of that seal, the government was 
unable to give to the USTR the underlying information to 
potentially bring a trade case. That has ultimately been 
resolved, but we have a number of impediments internally in 
terms of how we coordinate activities.
    Economic espionage does not qualify as espionage under the 
Espionage Act. It is national security. It is a very old 
statute. It is important, et cetera.
    So I think there are a number of tools and cooperation that 
can be developed that would help us do a better job doing what 
we should be for U.S. companies and workers.
    Senator Young. Thank you. I will look into that.
    Ms. Glas. Mr. Goodman.
    Mr. Goodman. I agree that we need results, and I think in 
the areas that Rob mentioned, subsidies, cyber theft, that we 
should be much tougher with China. But I also believe in the 
rules.
    I still think we need rules on things that will help 
constrain them. As I said, in TPP, there were strong digital-
related rules there. There were strong intellectual property 
protections. I think if we had done that and had used our 
allies and partners who were aligned with us on those things, I 
think we could hold China's feet to the fire.
    Senator Young. Did you have something, Ms. Glas?
    Ms. Glas. Just one thing to add, since I raised it in the 
last comment around the overcapacity in certain energy-
intensive, trade-exposed industries, including steel and 
aluminum. China has made various commitments to curtail that 
overcapacity, has said that they will be transparent in that 
process of bringing the overcapacity in line, and that, in 
fact, reports coming out of China say that a lot of what they 
are sharing in terms of government documents is inaccurate. So 
what are the repercussions for not living up to agreements that 
we have made with the Chinese?
    That is why a lot of our comments today, from almost all of 
us, about enforcement is a key priority for all of us.
    Senator Young. I would like to turn to the principle of 
reciprocity within the context of economic statecraft. What is 
it? Do we have it with China? If we do not have it, how do we 
get it? And then if you have additional views on this notion of 
reciprocity, I would welcome your sharing them with us.
    Why do we not just go down the line? Dr. Atkinson, please?
    Dr. Atkinson. Reciprocity is the notion that they treat us 
the way that we treat them and vice versa. We definitely do not 
have that in a wide variety of areas. Again, because we are a 
rule-of-law country, we treat the Chinese differently, and 
their investments, and others differently.
    I think, for example, with regard to CFIUS, we just need a 
regime that treats Chinese investment differently than we 
would, say, treat Canadian investment or German investment. The 
Chinese, as Mike Wessel has said, they do not allow us to 
invest in most of their industries without a JV. Why would we 
allow them to invest in our industries, if they do not give us 
that same reciprocity?
    That is why I also agree with Mike Wessel on the whole 
notion of a BIT. I think us adopting a bilateral investment 
treaty with China would be a mistake, because it would mandate 
us to rules that we would have to live by, and they have shown 
that they are not going to live by the rules.
    Senator Young. Anything else, Ms. Glas, Mr. Wessel, Mr. 
Goodman, about reciprocity? Okay, if no, then I would like to 
briefly turn to this national economic security strategy, 
legislation that Senator Merkley has joined with me along with 
Senators Rubio and Coons in introducing last month, bipartisan 
in nature.
    Dr. Atkinson, in your prepared testimony, you indicated 
that we should pass it. Why do you believe that Congress should 
pass this legislation?
    Dr. Atkinson. I think there are two main reasons to pass 
this legislation. One is, we simply do not have the kind of 
analytical capabilities and focus in the White House. And I am 
not saying it is this administration; all administrations, 
frankly, have not focused on this. Making that a mandate that 
they have to come up with a plan for Congress on the linkage 
between economic security and national security will just make 
them think harder about this and do the kind of legwork they 
need. That will lead to the kind of institutional cooperation 
we need with different agencies to move forward.
    But I think perhaps even more importantly, we need a much 
stronger national consensus politically around our ability and 
need and requirement to take stronger actions in these areas. 
That has been harder to do. When we link it to national 
security, it becomes a lot easier to do because everybody can 
get behind national security, and rightly so.
    So I think tying economic security and national security 
together just makes it easier for us to take the kind of steps 
that we are going to need to take to be competitive and secure.
    Senator Young. Does anyone else have anything to add on the 
importance of this legislation?
    Mr. Wessel. I think it is a vital piece of legislation, and 
I believe I referred, in my testimony, it pales by comparison, 
but a similar challenge that occurred in the 1980s when we were 
looking at Japan's competitive threat, what they were doing in 
semiconductors and a number of other sectors.
    The President convened the Young commission, which in many 
ways would do what you have suggested. And it is a good title, 
a new Young commission. That really raised the debate 
nationally. It looked at everything from what we were going to 
do in these leading-edge industries to what we were going to do 
about STEM education, what we were going to do about 
investments, et cetera. It helped give people an understanding 
that their government was on their side and that there was an 
action plan, and people were being led down that process.
    It was an important action then. I think it would be very 
important now.
    Mr. Goodman. Can I just have one point? This act was 
really, in a way, music to my ears, because I have worked in a 
foreign policy context at a think tank focused on foreign 
policy and national security in which economics is kind of an 
afterthought, or the tail on the dog. So my whole life is about 
trying to make the point that economics is a key part of 
national security and power. So I think it is totally in-line 
with what I believe we need to do.
    We need to integrate this. And I think structurally in the 
government, we need to do a better job of integrating 
economics.
    So, for example, the NSC and NEC, I think they need to work 
even more closely and seamlessly together in the White House. I 
think the State Department needs to have stronger economic 
diplomacy capabilities. The fact that there had been talk about 
diminishing that role or not funding it I think is a big 
mistake. I think at the Treasury Department, where I worked, I 
was on the international side with 200 people, and there were 
thousands of people doing domestic economics. I think we needed 
to have a better integration of those structures.
    So I think there are a lot of things that we can do to 
structurally improve the way we handle economics and national 
security.
    Senator Young. I could not agree more, based on my 
consultation with you and others. And thank you for your 
encouragement.
    Mr. Merkley.
    Senator Merkley. Thank you.
    Mr. Goodman, you mentioned that you had been in Myanmar, 
also known as Burma. Myanmar has just engaged in a massive 
process of ethnic cleansing. Was that a topic that you 
discussed with the officials while you were in that country?
    Mr. Goodman. The purpose of my trip was to look at economic 
issues, and I did not focus specifically on that, but, of 
course, it was a major issue of concern when we met with the 
U.S. Embassy. It is a major focus of what they are paying 
attention to. We were looking at some of the activities of 
China in the north of Myanmar economically, and they have a 
special economic zone and a port up near the Rakhine area, so 
we were talking about their involvement economically in the 
context of that problem.
    I am not an expert on that issue per se, so it is not 
something that we were particularly investigating on this trip. 
But it is a terrible problem, and one that the U.S. needs to be 
deeply engaged in.
    Senator Merkley. It is horrific. And our Foreign Relations 
Committee has passed out sanctions against their military, but 
their military is engaged in the denigration of the Rohingya 
people since they took over in a military coup decades ago, to 
the point that the rest of the country views that ethnic 
minority as almost subhuman. The ethnic cleansing is 
tremendously popular.
    If countries like the U.S. do not push back and stand up 
against the massacre of ethnic minorities and lead the world, 
who will? There is always a group that says, well, we should 
pursue the economic opportunities and kind of look the other 
way, but I certainly hope that is not the way our country 
proceeds.
    Ms. Glas, I wanted to turn to your comment about the Buy 
Clean in California. Can you describe, just very briefly, very 
quickly, how California gives preference for clean products?
    Ms. Glas. So California passed this first-of-its-kind 
legislation this last legislative session, and it was signed 
into law by Governor Brown at the end of last year. 
Essentially, it provides benchmarking. Under California law, 
there is not a Buy America requirement for procurement of 
products. There were actually a lot of newspaper articles 
around pollution and the overcapacity of the steel industry in 
China and how that was impacting air pollution on the West 
Coast in the United States. Because that started getting media 
attention and people started looking at, ``Well, where are we 
procuring our steel from? Where are we getting some of our 
insulation products?'' For some of these heavier industries, 
what could we be doing here in the State of California to 
really reward the good players, not just U.S. companies, but 
the better than average in terms of environmental standards?
    So there is a lot of benchmarking that exists out there for 
some of these heavy industries. It is an innovative piece of 
legislation. The State of Washington is moving forward with a 
sort of demonstration bill that we would love to work with you 
on.
    Senator Merkley. Thank you. I wanted to note that you 
started by describing how that was inspired in part by the 
Chinese steel being used in the San Francisco Bay Bridge. That 
particular instance was done through something called the 
segmentation loophole where the contractors split the cost of 
that bridge into small sections in order to bypass Buy America 
at the national level.
    That is an issue that I put on the floor of the Senate as 
an amendment, and we did get bipartisan support to close that 
loophole, so they could not, today, build that bridge in that 
fashion, thankfully. But I had never thought about the 
pollution effects of that, so thank you for bringing those up.
    I wanted to turn to a piece of the strategic puzzle, which 
is, when China runs up a massive trade surplus, what do they do 
with the funds that they have piling up in China? One of the 
things they do is they buy American companies. Another thing 
they are doing is prestige projects around the world, like 
stadiums and highways infrastructure to gain goodwill. A third 
thing they are doing is buying up mineral assets around the 
world that will be very important in the future economy.
    As we look at that part of the strategy, which often gets 
forgotten, does it add anything to understanding how important 
it is to take on this imbalance?
    And by the way, Dr. Atkinson is very involved in Oregon, so 
I wanted to mention how delighted we are that you are bringing 
your expertise to our State or contributing to the world from 
our State.
    Dr. Atkinson. Thank you. I am a proud Duck.
    I think people make a mistake when they say, well, China 
used to buy our T-bills and now they are investing in our 
companies, so is that not good? There is no difference. In 
fact, the latter is worse. They are recycling their money in 
order to keep their currency lower, but they are also buying up 
our companies.
    They are using that surplus cash to come buy up our 
companies as a direct way--or invest in our companies. I think 
I mentioned the DUIX report in my testimony where they have 
estimated--I believe it is 10 percent to 20 percent of all 
venture funding now in Silicon Valley is Chinese-backed. So 
they are recycling the money, basically, to buy our technology. 
In many, many cases, that is what they are doing, and then 
taking that technology back to compete with us.
    Senator Merkley. So we should recognize that as a 
competitive challenge.
    Yes, Mr. Wessel.
    Mr. Wessel. We certainly should do that, and I think Rob 
has talked about the need for CFIUS reform. I think there are 
number of things that will get at the venture capital funds and 
accretive transactions, et cetera, that are now sort of going 
under the radar.
    In addition to that, and I believe Rob talked about it in 
his testimony, in the area of 5G, which is the new telecom 
standard, the South China Morning Post said China is spending 
$411 billion. So building up these massive reserves is also 
giving them the capital they need to be able to invest in these 
technologies to buy companies to ensure that they have the 
wherewithal to succeed and make mistakes, because in all of 
these developments, you are going to make mistakes.
    In a market-based economy, as you know, you make a mistake, 
it is hard sometimes to get the next round of funding. China 
does not have that problem.
    Senator Merkley. Yes, Mr. Goodman?
    Mr. Goodman. Can I just add one other dimension, which you 
alluded to, which is China's Belt and Road-related initiatives 
of building infrastructure around the Asia-Pacific and the 
world? This is a major--in fact, I would say it is the central 
legacy item for Xi Jinping in terms of external power 
projection. He has this ambitious plan that may be $1 trillion 
of spending, ultimately. A lot of that money is going to be 
wasted, by the way. Talk about money that is spent poorly. But 
some of it is going to stick.
    And I think we need to be in this game. I know it is a 
faraway story, and infrastructure is four syllables that puts 
people to sleep, but it is actually a really important 
competition out in that region. As I mentioned, in Myanmar and 
other places, one of the first things you hear is people want 
infrastructure. And they know that the United States is not 
going to bring $1 trillion of government money, but we might 
liberate, if we do the right things, a lot of pension monies. 
We have trillions of dollars that would come into 
infrastructure as a long-term investment class, if, life 
insurance money, others, if they thought they could get a 
return on this investment.
    That gets to the conditions under which this investment is 
made, and we bring a lot of the best practices that would help 
make for better infrastructure investment in the region, not 
create social and environmental damage in these countries, not 
create huge debt problems for the borrowing countries, which is 
a huge issue that the IMF and others have expressed warnings 
to.
    So I think it is really important for us. And in that 
context, I mentioned breathlessly, because I was running out of 
time, in my opening statement that the BUILD Act, which some 
other Senators are sponsoring to move forward with a new, 
supercharged OPIC with some additional funding capability, the 
ability to invest in equity positions, is very important.
    It is much smaller than the China Development Bank's 
firepower, but it is an important piece of what we bring to the 
table: great companies, great products and services, rule of 
law, and an ability to sort of release this trillions of 
dollars of private money.
    Mr. Wessel. If I could just add quickly with regard to 
OBOR, One Belt, One Road, but also, as you noted, investments 
in other nations, China often brings its own people over there, 
often their own workers. They often supply the materials, so 
that the benefits to those economies are limited. They often 
build a rail line simply from the mine to the port, so that 
they can get the materials for their own use rather than really 
investing in the country, the kind of things that we do to 
ensure broadly shared prosperity.
    Senator Merkley. Yes, a significant difference there.
    I did have to smile for a moment, Mr. Goodman, when you 
were talking about the BUILD Act, because we now have three 
BUILD Acts. We have my former legislation from last cycle, 
which was about restoring shop classes across America as part 
of a CTE effort, and then we have the BUILD Act you referred 
to, and now we have the BUILD Act, which is the new name for 
the TIGER grants. So we are all going to be very confused in 
the conversation going ahead.
    Thank you.
    Senator Young. At least the BUILD Act has one syllable.
    [Laughter.]
    Senator Young. Dr. Atkinson, this proposal that you have 
advocated for, Congress mandating USTR producing a global 
mercantilist index, this report would comprehensively identify 
all of the innovation mercantilist policies of America's 
trading partners and rank the worst offenders.
    My question for you is this. Should a low ranking trigger 
more scrutinizing treatment under CFIUS?
    Dr. Atkinson. I certainly would think it should trigger 
more scrutinization of many, many things that we do as a 
government to help other countries. I think with regard to 
CFIUS, yes, but it does not necessarily mean that it should 
trigger it. It means that it should have a review.
    So some countries are mercantilist, but they do not really 
have a strategy to buy up our companies. Sometimes, when the 
acquisitions are made, they really are business-to-business. 
They are capitalists in their country with our capitalists. I 
think what is different about China is even the private sector 
investments are really government-led, government-backed. That, 
to me, is the fundamental difference.
    But I agree, it should certainly trigger some deeper look.
    Senator Young. Okay, thank you.
    I am going to turn to the topic of using existing tools 
more effectively.
    Mr. Wessel, you write in your prepared statement that you 
believe we already have many tools we need to address China's 
predatory economic practices, but we just have not been willing 
to use them, have not found the wherewithal, or we have not 
been creative in bringing them to bear.
    Can you briefly elaborate on that point and highlight maybe 
one or two of the most effective tools that are available to us 
that we are not optimally employing right now?
    Mr. Wessel. A quick piece of history, very quick, which is, 
right after China joined the WTO, there was a honeymoon period. 
People wanted them to abide by the rules, et cetera, and give 
them time. That honeymoon period was far too long. We gave them 
too much leeway.
    Congress has the ability, and I think it was mentioned 
earlier, of reclaiming jurisdiction over Congress' section 1, 
chapter 8 authority over international trade to self-initiate 
cases or to demand that cases be filed. So when one looks at 
what this administration has now done on intellectual property 
with the 301, that case could have been filed 7, 8 years ago.
    All the things that we are experiencing now could have been 
done then. Congress had the authority and, I believe, should 
have stepped in. That is true in green technology, in auto 
parts, and in any number of things. That is number one.
    Number two, finding out about subsidies is very hard, but 
U.S. companies, those that are publicly traded, are under the 
jurisdiction of the SEC, and that information is material, and 
the SEC, without releasing the data to the public, can help 
gain information from what is happening with these companies, 
both in terms of the subsidies they are getting as well as the 
IP that they are being forced to transfer, and action can take 
place on that.
    There are a number of other self-initiation authorities, 
section 201, section 337, and others, all of which together 
would send a message to the public that our laws are going to 
be properly enforced.
    Senator Young. You mentioned the Public Company Accounting 
Oversight Board, or PCAOB. What specific action do you believe 
Congress should take with respect to reciprocity and this 
board?
    Mr. Wessel. The fact is that China has refused to sign a 
memorandum of understanding that would allow our auditors to 
get access to the work papers. That is something vital under 
the SEC--I believe it is the 1934 act--so that investors will 
have adequate information. If China does not allow that, we 
should not be allowing them to list on U.S. exchanges.
    Senator Young. Very good. Do our other witnesses have 
anything to add on the topic of using existing tools more 
effectively?
    Dr. Atkinson. I would add one to what Mike said, and that 
is, under the WTO rules, the Chinese are supposed to report all 
subsidies and trade-distorting measures to the WTO, and they 
have not really done it. Therefore, we are somewhat in the dark 
on that.
    We need to insist on that. And if they do not do it, we 
need to bring a WTO case against them for doing that.
    Assuming that they do it, that will then open up a whole 
other set of avenues to bring cases against them for WTO-
illegal subsidies. That is something we could do quite quickly.
    I 100 percent agree with Mike on self-initiation. One of 
the reasons we have not brought more cases is the USTR looks to 
industry to bring cases. Industry will oftentimes not want to 
bring cases because they know they will be singled out for 
punishment by the Chinese Government. So we need to start self-
initiating cases on behalf of both U.S. industry and the U.S. 
economy.
    Senator Young. Thank you.
    Mr. Goodman, in your written testimony, you say that 
Washington needs to leverage the private sector better. Moments 
ago, you referenced the opportunities that we might have to 
open up investment from public pension funds, from insurance, 
and others in infrastructure overseas. As certain public 
pensions are seeking higher ROIs, it might make some sense to 
allow them to do so domestically as well as internationally. We 
are already looking into that as an office.
    Are there other ways in which you believe the Federal 
Government can better work to bring to bear the private sector 
to respond to international predatory economic policies?
    Mr. Goodman. Yes, Senator. I think it is critically 
important to have the private sector engaged in this. As you 
said, they have access to huge amounts of capital but also to 
great goods and services.
    I mentioned, in Myanmar, this human capacity point. A lot 
of these great companies like GE and others bring Myanmarese 
engineers to the U.S. and train them. I think we need the 
private sector in a lot of ways involved in this story.
    I think that we could engage them more through mechanisms 
that are similar or equivalent to what we have in APEC, as 
somebody alluded to--I think you did, or Senator Gardner--the 
Asia-Pacific Economic Cooperation forum, where they are 
integrated into the policymaking formulation process. I think 
if we did that in other contexts, that would be quite helpful.
    I agree that we need them. I mean, I agree with Rob's point 
that they are afraid of filing cases, and they are afraid of 
really sticking their necks out, because they have a lot at 
stake in China, for example. I think that we should find ways 
to encourage them to, if not file cases, at least provide more 
evidence, more willingness to step forward and say what the 
real problems are, because there are serious problems for our 
investors over there, and I think they could be very helpful in 
shining light on those practices.
    Senator Young. There might be instances in which we could 
anonymize the information and encourage private companies to 
report to our government, so that we might, in turn, where 
appropriate and where possible, be able to respond 
diplomatically in other policy realms. Does that make sense?
    Mr. Wessel. As I understand it, and I will supply you some 
more information afterward, but I believe it was the cotton 
case against Brazil where the administration, through a WTO 
case, was able to aggregate the market effect rather than have 
to show a specific injury for a company. There are ways of 
doing that across-the-board in steel, in paper, in any number 
of areas where you could show that there has been hacking, for 
example, and that there has been a market effect in terms of 
penetration by the Chinese or other players, et cetera.
    So I think a lot of work could be done here that would 
protect companies, which we are not looking for them to be 
bloodied in the fight, as well as advance U.S. interests.
    Senator Young. With respect to the WTO, are there other 
things we might be doing to improve the dispute settlement 
procedure? It is often 2 years, 5 years, sometimes longer, as I 
understand it, before final relief is available. Justice 
delayed is justice denied, in the economic realm.
    How about ways to more expeditiously adjudicate these 
situations and provide relief? Any recommendations on what we 
might advocate for?
    Mr. Goodman. There is no question that the WTO dispute 
settlement mechanism is unwieldy and needs reform. I think this 
is a bipartisan issue. The Obama administration, I think, was 
trying to work on that. Obviously, the Trump administration is 
very concerned about that.
    At the same time, we win most of the cases we file, so we 
want to not throw out the baby with the bathwater. I think it 
is important to try to use those mechanisms. The fact that we 
have filed a case on forced technology transfer I think is a 
good thing.
    I have not myself studied the dispute settlement system to 
be able to give you detailed recommendations, but there are 
people who have done that. Maybe the gentlemen here have done 
more work on that. But I think there is definitely a need to 
improve it and make it faster and more likely to produce the 
kind of results that are going to challenge practices like 
China's.
    Senator Young. Thank you.
    Senator Merkley.
    Senator Merkley. So China charges us 15.5 percent tariff on 
our Ag products, and we charge 5.2 percent on theirs. Why 
should we not charge them the same tariff that they charge on 
us? Anyone who would like to jump in?
    Dr. Atkinson. We wrote a report before the administration 
came out with its tariff proposal, and one of the arguments we 
made, if you look at what the Chinese have threatened with 
their retaliatory tariffs to the President's tariffs, they were 
largely all on consumer final goods, wine and things like that. 
The administration had many more of its tariffs on producer 
goods and capital goods, including things like computers.
    So my nuanced answer, Senator, is, yes, we should have 
reciprocity in general, but there are certain things like, for 
example, when a U.S. company buys a machine tool to improve 
their productivity or buys a server to improve their 
productivity, putting tariffs on those Chinese products 
basically raises the cost of capital goods for our companies 
and makes them less competitive. So I would fully agree on 
many, many products, particularly consumer products like food 
and others, it makes perfect sense. Autos would be another 
example.
    Senator Merkley. The auto tariff differential is 25 percent 
versus 2.5 percent. But would it not kind of catch their 
attention if we said we are going to invoke reciprocity?
    Dr. Atkinson. It is a little bit like hitting a mule over 
the head to get them to come to water. You have to use a lot of 
sticks there, and this would be one stick to get their 
attention, absolutely.
    Senator Merkley. I think it would get their attention. I am 
not saying necessarily that is directly the right thing to do, 
but the fact that we have set up a system where we continue to 
give them far lower tariffs in our market than vice versa says 
something is wrong.
    I think at one point we viewed their economy as so far 
behind ours that this made some sense, but, I must say, I have 
had different trips to China. I went there and saw back in the 
1990s a lot of bicycles. I went back and saw a lot of cars. I 
went back again and saw a huge amount of infrastructure, bullet 
trains, metro systems, and came back and said, in many ways, on 
my most recent trip, their cities look more developed than 
ours.
    I mean, that bullet train trip I took was the very first 
one from Beijing to Tianjin. Now they have a whole network of 
them around the country. I mean, massive changes there. So that 
buildup of resources from the trade surplus with the United 
States is not only helping in all those other things that I 
mentioned but also investment in their own internal 
infrastructure.
    It seems to me like we may have come to a point where the 
impact on our jobs in this country, not just the factories but 
the supply chains to the factories, and not just the supply 
chains but the loss of those paychecks in our retail stores, so 
it hits us three different ways. Maybe we should start 
rethinking it.
    In that regard, I wanted to turn, Mr. Wessel, you made a 
reference to the ``Made in China 2025'' strategy, which is 
specific, intense planning by the Chinese Government to be 
self-sufficient in 10 key sectors. So they have that plan, and 
then they have this other plan massively subsidizing their 
manufacturing to undercut the market in the United States, run 
a trade surplus, take those funds, by strategic minerals, do 
prestige projects around the world, buy shares in American 
companies or buy control of American companies.
    They have a plan, and they are moving forward with massive 
momentum. Where is our plan?
    And after Mr. Wessel completes, I think it is an important 
enough question to have any of you weigh in.
    Where is our plan?
    Mr. Wessel. My response is that plan will probably come 
after the bill that you two have co-authored passes and is 
implemented by the administration.
    I think we are just waking up to the challenges and threats 
of China's activities, not only China 2025, the 13th Five-Year 
Plan, what is known as the Thousand Talents Program, the 111 
Plan, a whole slate of programs that, quite frankly, I do not 
think we really had our hands around or understood the impact.
    China now has the two fastest high-performing computers in 
the world. We will probably catch up, and it will be traded 
back and forth. 5G, Huawei, I believe, has 10 percent of the 
patents.
    We are seeing the Chinese succeed because of the massive 
amounts of capital being invested; our companies who are 
assisting willingly and unwillingly at times; of course, 
technology transfers; and outright theft of intellectual 
property.
    We need a plan. Your bill would help do that. I think this 
administration is looking carefully at it. Their National 
Security Strategy did have more of an economic component than I 
think past strategies did. But we are essentially asleep at the 
switch still.
    Senator Merkley. Where is our plan, Ms. Glas?
    Ms. Glas. I will reiterate everything that Mike Wessel 
said, but I would say to you that that is the right question to 
be asking.
    I can speak from some of my own personal experience having 
worked at the Commerce Department on trade issues, and I 
traveled extensively to Southeast Asia. Reflecting on some of 
the conversations I had with chief economic officers in the 
region, not just China but in Vietnam and other locations, all 
of these countries are strategizing around their economic 
development plan, not just China. China has seen exponential 
growth that you have seen with your own eyes in your trips over 
the past few years and the past few decades.
    It is time to change the conversation with China. We should 
be demanding more. We should be asking for more. And this will 
take leadership from both you and others in Congress, and the 
administration, to put feet to the fire on this issue.
    We should be asking for reciprocal market access for our 
goods that we are making here. We should be constantly 
evaluating new goods that are emerging in our various tariff 
categories that are growth opportunities for U.S. producers to 
export product abroad. These are conversations that need to 
continue to evolve and not just be reflective of when China 
joined the WTO.
    So that is the right question to be asking. It is time to 
get much more tough on China than we have been. With both of 
your leadership, we look forward to engaging in that effort.
    Senator Merkley. Thank you.
    Mr. Goodman. I think the fact that you had to draft that 
legislation shows that we do not have a plan and we need one, 
so I think it is a great start.
    I do think that we have to also, and this is kind of in a 
way heretical because the term ``industrial policy'' in the 
United States is a dirty word, and I think sort of rightly so. 
We do not do that. We do not do that in a sort of organized way 
and should not.
    But the fact is we have invested strategically in the past 
in things like the Internet, in biotechnology through NIH, and 
so forth. We, I think, need to be more focused on those 
targeted, strategic--back in the 1980s, I am originally a Japan 
guy, and back in the 1980s, when we were threatened by the 
Japanese in the semiconductor space, we got together with 15 or 
16 companies and set up SEMATECH, and that actually worked.
    So I think if it is done in a smart way, I think a targeted 
plan of trying to invest in strategic technology is right. I do 
not think we should do across-the-board industrial policy, but 
targeted investments like that make sense.
    Can I just circle back on your earlier question, Senator 
Merkley? China as a developing country, they should not be 
allowed to get away with that anymore. Yes, they still have 500 
million, 600 million people who are in abject poverty that they 
need to bring out of poverty, so to be fair to them, they have 
a huge challenge there domestically still. But as you mentioned 
from your example of seeing the advanced technology and the 
infrastructure and so forth in China, this is an advanced 
country in the ways that matter in this conversation, and I 
think that we should be holding China to a higher standard in 
terms of being an advanced country. So they should not have 25 
percent tariffs on automobiles, at this stage.
    I personally am a little uncomfortable saying we ought to 
try to be as market-restrictive as they are. In other words, 
the goal of reciprocity should be to get them up to our level 
of openness. I mean, they should be lowering those things. As a 
means to an end, we may need to threaten to do things to get 
their attention, as you said, but the goal should be to bring 
down their tariffs and other barriers to advanced country 
levels.
    Senator Merkley. Absolutely. But they are very happy with 
the situation as it is with low tariffs to our market and high 
tariffs to theirs. So at some point, we have to be determined 
to have the leverage to change that.
    My time is up. Thank you very much.
    Senator Young. Dr. Atkinson, I would like to turn to our 
industrial base, our defense industrial base. How have China's 
predatory economic policies undermined our industrial base and, 
thus, our ability to provide the most sophisticated, most 
capable weapons to our warriors?
    Dr. Atkinson. Thank you. This is, I think, one of the most 
important components of your legislation. There is, I think, a 
fairly widely held view in the government that there is a thing 
called defense industries and non-defense industries. If you 
are defense industry, think of Lockheed Martin or Raytheon, as 
long as they are doing okay, everything is fine. I think part 
of it misses the fact that there are many, many industries that 
are not in that space but are suppliers of or have capabilities 
that are related to that.
    So, for example, capabilities in the U.S. economy related 
to advanced fiber and materials that can go into jet engines 
and wings and the like, those are not all going to be developed 
by defense contractors. They are going to be developed by 
commercial companies in the U.S. that our defense contractors 
could use.
    The same thing with semiconductors. If we lose 
semiconductors, we might still be able to have the Defense 
Department say we will mandate or we will subsidize a few fabs 
for defense-specific chips. But if we do that, the cost for 
those chips goes massively through the roof, and the technical 
capability of innovating in that space goes way, way down.
    So to answer your question, we have lost, I think, in a 
number of different areas. Some of the folks who have done good 
work on that are Willy Shih at Harvard Business School. For 
example, things like thin films or flexible displays--flexible 
displays is a really important technology for the Defense 
Department going forward. We simply do not have the 
capabilities that we should have in that technology. We could 
have had them. Another is optoelectronics on-chip computing. We 
certainly have not done well there, as much as we should.
    So I think there are a number of different areas where the 
Chinese have shown that they are advancing quite rapidly, and 
we have not been able to catch up as much as we should.
    Mr. Wessel. Mr. Chairman, one quick comment on this as 
well. We also have to understand that our military capabilities 
are second to none. You know that. But China is looking at 
asymmetric warfare. So our capabilities in terms of fighter 
jets that are fourth, fifth generation are unquestioned. So 
they are looking at cyberspace and space. Many of the 
technologies that Rob was talking about are in those domains.
    That is where China is trying to advance its interests 
quickly. They think the next war is going to be fought with 
bits, bytes, and bots, as they say.
    Senator Young. A related point that I think is worthy of 
mentioning is that we have defense supply chains, and they 
cross borders now. So one area that has received particular 
attention is trusted microelectronics. We have to be able to 
trust that the microelectronics that are part of our weapons 
systems are not going to be compromised. They will not fail 
when our warriors need them most to protect us.
    Does that suggest that we need a robust and reliable 
domestic U.S. capability to produce and certify technologies 
like trusted microelectronics?
    Dr. Atkinson. There was a CRS report, I believe, a number 
of years ago that looked at that. I do not remember the exact 
numbers at the time, but it was a very concerning number of 
processors that were in our supply chain that had flaws that 
appeared to be intentional. You do not know exactly how those 
flaws would play out if a missile is fired or a jet is in 
combat. Would they play out then?
    We are never going to make all our equipment in the United 
States. The world is too complex now. We are not big enough 
anymore to do that. So, certainly, when we have supply 
partnerships with our allies, I think we can generally trust 
those to be in our interests.
    I think it is concerning that we are increasingly relying 
on China for many, many, many of our technology products. I 
think that is a very risky path to go down. If they wanted to, 
they could cut those off. There is certainly some potential for 
infiltration or manipulation of those products.
    There is also a big problem, frankly, with fraudulent 
products. We need to do a better job. One of the things that we 
have argued is we need to step up our border controls. The 
massive amount of Chinese intellectual property that comes back 
into this country in products that are pirated or fraudulent, 
we should have a zero tolerance policy toward that.
    Mr. Wessel. Let me also add, probably 2 decades ago, I 
believe it was the Defense Science Board looked at this issue 
and the Trusted Foundry program was set up. I believe we have 
one remaining Trusted Foundry. So your idea of looking at key 
components and having trusted foundries here in the U.S. that 
hopefully are at the first generation and not two and three 
generations old, that would be a very worthy idea.
    Senator Young. We will continue for roughly 10 minutes, so 
I want to you to know that there is light at the end of the 
tunnel here. Your stamina has been impressive, and we are 
grateful for your thoughtful testimony.
    Mr. Goodman, in your prepared testimony, you argue, 
``Washington needs to do more to coordinate with States and 
cities, which are most directly impacted by both the 
opportunities and risks of economic ties to China.''
    I have certainly heard from Hoosiers regarding the problems 
they encounter conducting business in China, entrepreneurs all 
the way up to our large, publicly traded companies. Can you 
provide some suggestions for us on how the Federal Government 
can more effectively coordinate with States and localities to 
counter international predatory economic policies?
    Mr. Goodman. I admit that this is more something that we 
are starting to explore because of the lessons I learned in the 
last election. The debate on both sides about our position in 
the world was that it was so deeply linked to what is happening 
on the ground in local communities and the economies of States 
and localities. I think folks like me, who had been focused on 
making the case for our international engagement, were not 
having our eye on the ball on what was actually going on. So 
that was the spirit of what I was trying to say. We need to 
understand those local challenges and problems.
    So we are starting a new line of work at CSAS to look into 
those issues and try to make connections with Governors and 
mayors and local community leaders.
    To try to answer your question, I will be honest, I do not 
have a good list of recommendations today. But I think that it 
is critical to come up with solutions that help address both 
the anxieties and problems economically in those localities and 
to tap into the huge opportunity that those States and 
localities can provide, because they have huge opportunities to 
sell into overseas markets. And we need them to succeed at 
that, so we need to help them as well with that business.
    But I will, as we develop this program, try to come up with 
some recommendations to help you with that.
    Senator Young. Thank you very much. Maybe one of the tens 
of individuals who is still tuned into this subcommittee 
hearing will have some suggestions as well that I would invite 
them to submit.
    I will just close with a final line of questioning. I have 
concern, you might call it an international predatory economic 
policy sort of domino theory. It is not my theory, but I have 
concerns about this dynamic, that other countries are going to 
observe the Chinese state capitalist model and begin adopting 
and try to replicate it. It may be ill-advised for their 
countries or for their citizens, but nonetheless, I am under 
the impression that the Indians increasingly are moving in this 
direction, the Brazilians, perhaps some others.
    Would any of you care to comment?
    Dr. Atkinson. So we have coined a term. Obviously, there 
was this famous term, the Washington Consensus on trade, which 
is a set of principles that I think, frankly, was a little too 
rigid for a lot of places. But now, I would argue, there is a 
Beijing consensus on trade, and the Chinese Government is 
exporting that.
    It is basically saying, look at what the U.S. did. They had 
the financial collapse. They are not really going to be a great 
power anymore. Look at us. We have had this great growth. You 
really need to follow our model.
    One of the things that I believe is very troubling is we 
basically under resource the State Department. I was just down 
in Brazil. The State Department asked me to come down and meet 
with government officials down there to explain to them how we 
have been successful on innovation and why our model is better 
for them than either the Chinese model or, frankly, the 
European model, in this case, because some of it dealt with 
data and technology issues.
    This is very happenstance. We simply do not do that very 
well. I think we really have to step up our efforts to go 
around the world and explain to these countries why a more 
bottom-up, market-based, but still with the right government 
policies around investment in research and skill training and 
infrastructure and all that, intellectual property protection, 
why that is the right path to innovation success. I just do not 
think we do that anywhere near enough that we should.
    Mr. Wessel. Just as a quick comment, I think this 
administration's focus on these issues, on China's predatory 
practices as well as your hearing, is the right start, because 
India and other countries have been able to get away with it 
because there has been no real response from the U.S. To the 
extent that they see a response, to the extent that we can 
educate them and reach out, we can alter the path. But if we do 
nothing, they are going to go down the path they are on.
    Mr. Goodman. I will just put an accent on all that by 
saying I agree with your concern. I agree with the point that, 
if we are not in the game, we are not going to win this 
argument, so we have to do the kinds of things that were just 
described and the ones I talked about earlier about enabling 
our companies to come in with their products and services and 
rule of law and the rest of it.
    The good news is that there is still, as I said, a demand 
pull for our model. I think people are not stupid. They know in 
a lot of these countries--Myanmar, I think, knows that what 
China is selling does not feel right. But if they do not have 
an alternative, they are going to take the Chinese model, 
because they do not know any better or we are not offering 
anything. So we have to be involved.
    Senator Young. Thank you.
    Senator Merkley, I will allow you to bat cleanup.
    Senator Merkley. So I want to bring in a topic we have not 
really addressed, and that is automation. I have seen some 
extraordinary examples of automation. The one that always 
sticks in my head is that of a robotic dairy where the cows 
live in the barn, and when they want to get milked, they go get 
milked. The machines milk them, and they will return. And they 
will get milked maybe four or five times a day instead of 
twice, and they are very happy.
    When I took a tour of this barn, the owners said, I really 
do not like to do this. I said, in what aspect? He said, I 
really do not like to walk through the barn because cows are 
not used to being around people.
    It is just an extraordinary thing to see the machinery 
reach out, clean the udders, sterilize it, put cups on, take 
the cups off. There is nobody involved.
    In theory, having machines do all these productive roles 
should be a strategy to be able to increase the standard of 
living massively, to produce goods at low cost for everyone in 
the world. But it creates a big dilemma, which is a company 
spending its money on buying equipment rather than paying 
wages.
    So what happens to the jobs? Without a job, you do not have 
structure to your life. You do not have income. So if even, in 
theory, the machines are contributing something, maybe it is 
basically not contributing in a way that creates a foundation 
for living-wage jobs.
    So this is a fundamental dilemma, and as we think about 
this, we could note that Germany has really done a lot to be a 
machine-builder. The making of machines, the servicing of 
machines, and maintaining machines does not come close to 
replacing the man hours of actually doing the work directly.
    But should the United States position itself, work 
massively to try to have the machine-making role be something 
that is done here in the United States of America and exported 
to the world? What other insights are there for us about the 
benefits and the challenges posed by automation?
    Mr. Atkinson. Senator, we have done an enormous amount of 
work on that question. In fact, we were recently asked by the 
Canadian Government to produce a report for the G7 ministerial 
6 weeks ago in Montreal on this question.
    I am less concerned about the number of jobs. The evidence 
from virtually every economic study is, as long as you have the 
right monetary policy and the right labor market policies, you 
are not going to have structurally high unemployment.
    The real question is, are the workers who are affected by 
that able to move to something else? Frankly, we do not have 
very good policies in this country to enable that to happen. I 
think that is our big challenge.
    You alluded to the fact, should we become a machine-
building country? Absolutely, we should. It is easy to forget 
companies like Cincinnati Milacron, which was the dominant 
machine-builder in the world, and now we do not have that 
anymore.
    Every time I visit a U.S. company, a manufacturer or a 
biotech company, and I walk around the shop floor or the labs, 
I always look at the machines and where they are built. Very 
few of them are built in the U.S. You have Japan, Korea, 
Taiwan, Germany, et cetera.
    One thing we could do, if we were serious about that, it is 
we could establish a Manufacturing USA institute for machine-
building. We still have machine-builders. We could establish a 
National Science Foundation engineering research center on 
machine-building and machine tools.
    So I could not agree with you more that having a strong 
machine-building and capital goods industry is very important 
for us. It creates good exports. It creates good jobs. But I do 
think we need some help from the government to make that a 
reality.
    Mr. Wessel. Senator, it is a great question. Last year at 
the AFL-CIO's annual convention, or several-year convention, 
they created a committee on the future of work. So the issue 
that you are raising and many others is, how do workers gain a 
proper share of the economic benefits they are creating? It is 
a key one, and it is one that will be constantly evolving.
    In my testimony, I talked specifically about robotics, and 
the Chinese hope to be 70 percent self-sufficient in robotics 
by 2025. It is part of their plan. They bought the major German 
firm Kuka 2 years ago, I believe it is.
    There is certainly going to be a lot of work servicing 
robots.
    I worry about whether we are going to have the work 
actually producing them, whether we are going to be doing the 
technology to develop those robots, whether we are going to be 
making the materials to fuel them--steel, aluminum, whatever 
else. If we do not do something about China's predatory 
practices, we are going to lose that sector as well.
    Mr. Goodman. Can I just add one other thing? This is a huge 
issue, and the future of work is another one that we are trying 
to do more investigating ourselves on at CSIS. We had an event 
a couple weeks ago with two interesting speakers. One was your 
colleague, Senator Warner, who has done a lot of thinking, I 
think, on these issues. He has some ideas about benefit 
portability; about tax credits for training, because companies 
do not have the incentive to train somebody who is going to get 
up and leave; supporting the new economy in several creative 
ways. I am not sure all of those ideas make sense or are going 
to happen, but I think it is an interesting discussion. There 
is some interesting food for thought there.
    The other thing is we had the Danish Finance Minister on 
this panel, and he was talking about, in Denmark, they have a 
disruption council, I think it is called, where they look at 
these issues of technology disruption and what its implications 
are. It brings in governments, the private sector, labor, 
academics, and they discuss what the implications of these are. 
I thought that sort of thing was creative and interesting. So 
this is a topic we would love to continue talking to you about.
    Senator Merkley. Thank you all very much.
    Senator Young. Thank you, Senator Merkley.
    I cannot resist the temptation to add, based on your 
comment, Mr. Goodman, that Senator Cantwell and I have 
introduced legislation called the Future of AI Act, pertaining 
specifically to artificial intelligence and some of the impacts 
that will have on our work force. We would like to better 
understand the labor implications and the potential policy 
responses that will be needed. We do not want to jump too 
quickly, with respect to artificial intelligence, as that 
technology evolves.
    I want to thank each of our witnesses so much for being 
here and sharing your expertise, your perspective, your 
research, your advice. I know both Senator Merkley and I look 
forward to continuing our work with each of you in different 
ways moving forward.
    For the information of members, the record will remain open 
until the close of business on Friday, including for members to 
submit questions for the record.
    Senator Young. This hearing is now adjourned.
    [Whereupon, at 4:30 p.m., the hearing was adjourned.]



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