[Senate Hearing 116-413]
[From the U.S. Government Publishing Office]





                                                        S. Hrg. 116-413

 
         U.S.	CHINA: WINNING THE ECONOMIC COMPETITION, PART II

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

                                HEARING

                               before the

                            SUBCOMMITTEE ON
                            ECONOMIC POLICY

                                 of the

                              COMMITTEE ON
                   BANKING,HOUSING,AND URBAN AFFAIRS
                          UNITED STATES SENATE

                     ONE HUNDRED SIXTEENTH CONGRESS

                             FIRST SESSION

                                   ON

EXAMINING THE HIGH STAKES OF THE STRATEGIC ECONOMIC COMPETITION BETWEEN 
                      THE UNITED STATES AND CHINA

                               __________

                           DECEMBER 16, 2020

                               __________

  Printed for the use of the Committee on Banking, Housing, and Urban Affairs
                                


                Available at: https: //www.govinfo.gov /
                
                
                          ______                       


             U.S. GOVERNMENT PUBLISHING OFFICE 
43-476 PDF           WASHINGTON : 2021 
                
                


            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                      MIKE CRAPO, Idaho, Chairman

RICHARD C. SHELBY, Alabama           SHERROD BROWN, Ohio
BOB CORKER, Tennessee                JACK REED, Rhode Island
PATRICK J. TOOMEY, Pennsylvania      ROBERT MENENDEZ, New Jersey
TIM SCOTT, South Carolina            JON TESTER, Montana
BEN SASSE, Nebraska                  MARK R. WARNER, Virginia
TOM COTTON, Arkansas                 ELIZABETH WARREN, Massachusetts
MIKE ROUNDS, South Dakota            BRIAN SCHATZ, Hawaii
DAVID PERDUE, Georgia                CHRIS VAN HOLLEN, Maryland
THOM TILLIS, North Carolina          CATHERINE CORTEZ MASTO, Nevada
JOHN KENNEDY, Louisiana              DOUG JONES, Alabama
MARTHA MCSALLY, Arizona              TINA SMITH, Minnesota
JERRY MORAN, Kansas                  KYRSTEN SINEMA, Arizona
KEVIN CRAMER, North Dakota

                     Gregg Richard, Staff Director

                Laura Swanson, Democratic Staff Director

                      Cameron Ricker, Chief Clerk

                      Shelvin Simmons, IT Director

                    Charles J. Moffat, Hearing Clerk

                          Jim Crowell, Editor

                                 ______

                    Subcommittee on Economic Policy

                     TOM COTTON, Arkansas, Chairman

       CATHERINE CORTEZ MASTO, Nevada, Ranking Democratic Member

KEVIN CRAMER, North Dakota           ROBERT MENENDEZ, New Jersey
BEN SASSE, Nebraska                  DOUG JONES, Alabama
DAVID PERDUE, Georgia                TINA SMITH, Minnesota
THOM TILLIS, North Carolina          KYRSTEN SINEMA, Arizona
JOHN KENNEDY, Louisiana

               Kyle Hauptman, Subcommittee Staff Director

          Carol Wayman, Democratic Subcommittee Staff Director

                                  (ii)


                            C O N T E N T S

                              ----------                              

                      WEDNESDAY, DECEMBER 16, 2020

                                                                   Page

Opening statement of Chairman Cotton.............................     1
    Prepared statement...........................................    27

Opening statements, comments, or prepared statements of:
    Senator Cortez Masto.........................................     2
        Prepared statement.......................................    28

                               WITNESSES

Representative Will Hurd of Texas................................     4
    Prepared statement...........................................    29
Derek Scissors, Resident Scholar, American Enterprise Institute..     6
    Prepared statement...........................................    35
Melanie Hart, Senior Fellow and Director for China Policy, Center 
  for American Progress..........................................     8
    Prepared statement...........................................    40
Roy Houseman, Legislative Director, United Steelworkers..........    10
    Prepared statement...........................................    45

                                 (iii)


         U.S.-CHINA: WINNING THE ECONOMIC COMPETITION, PART II

                              ----------                              


                      WEDNESDAY, DECEMBER 16, 2020

      U.S. Senate, Subcommittee on Economic Policy,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.
    The Subcommittee met at 9:31 a.m., via Webex, Hon. Tom 
Cotton, Chairman of the Subcommittee, presiding.

            OPENING STATEMENT OF CHAIRMAN TOM COTTON

    Chairman Cotton. I will call this hearing to order. Welcome 
to today's meeting of the Economic Policy Subcommittee, which 
is open to questions from all 25 Members of the Banking 
Committee in addition to Subcommittee Members.
    I would like to thank Senator Cortez Masto and her staff 
and all the Committee staff for helping pull this together 
under unusual circumstances.
    We have an exceptional roster of witnesses today. I want to 
introduce them briefly.
    The Honorable Will Hurd has served as a member of the House 
of Representatives for 6 years, where he has been a leader on 
national defense and security issues. Most notably, he has 
served on the House Intelligence Committee as the Ranking 
Member of its Subcommittee on Intelligence Modernization and 
Readiness.
    Derek Scissors is a resident scholar at the American 
Enterprise Institute, where he focuses on the Chinese and 
Indian economies and on U.S. economic relations with Asia. He 
produces a wealth of useful resources related to China, notably 
the China Global Investment Tracker and the China Beige Book.
    Melanie Hart is a senior fellow and director of China 
policy at the Center for American Progress. Her most recent 
work focuses on developing a comprehensive U.S. strategy toward 
China, analyzing the domestic political factors driving Chinese 
foreign policy, tracking Chinese industrial policy, and 
assessing China's intentions toward the world.
    Finally, Roy Houseman is legislative director for the 
United Steelworkers, North America's largest industrial union. 
In that capacity, Mr. Houseman oversees congressional affairs 
and works to improve wages, hours, and conditions for the 
Steelworkers' 1.2 million members and retirees.
    I want to thank all of our witnesses for participating 
today and thank our audience for tuning into our second hearing 
on this topic, United States-China: Winning the Economic 
Competition.
    By now, it has dawned on many that the United States and 
China are at the beginning of a long economic competition. The 
big question now is whether we plan to fight or surrender.
    Thankfully, many people want to stand and fight, and we 
have made great strides in the past few years by, for example, 
strengthening oversight of foreign investment in the United 
States, tightening export controls of sensitive technology, and 
imposing sanctions on malicious Chinese enterprises like 
Huawei.
    Despite these welcome actions, however, great challenges 
still remain. The coronavirus pandemic has exposed the great 
extent to which we depend on the goodwill of the Chinese 
Communist Party to access essential goods, such as personal 
protective equipment and medicine.
    And each day, it seems, brings fresh revelations of 
American companies seeming to kowtow to China, such as Apple TV 
recently acknowledging that it will not stream content critical 
of China.
    So, clearly, not everyone has woken up to the threat that 
China poses to our country, or perhaps they are awake to the 
threat but they are hedging their bets. There are even some 
warning signs that the next Administration might roll back some 
of the progress we have made in the past few years in an 
attempt to return to a failed policy of engaging and 
accommodating China that both parties pursued over the last 30 
years.
    But, of course, winning our competition with China is not a 
partisan issue. I have been fortunate to work with my 
Democratic colleagues on a number of important initiatives, 
from these hearings with Senator Cortez Masto, to my bill to 
restore semiconductor manufacturing in America with Senator 
Schumer. I hope that in next Congress this body will continue 
to build on the good work we have already done on a bipartisan 
basis.
    Hearings such as this are opportunities for us to explore 
new ideas at greater length with top experts. So I am looking 
forward to hearing what all our witnesses have to say.
    And on a final note, for the record I want to say that over 
the past year, my staff has been hard at work on a report that 
addresses this very issue of competition with China and how to 
win it. That report is nearing completion, so I hope you all 
will have a chance to pick up a copy once it is released early 
in the new year.
    Thank you again for joining us, and now I will turn it over 
to Senator Cortez Masto, our Ranking Member, for her remarks.

      OPENING STATEMENT OF SENATOR CATHERINE CORTEZ MASTO

    Senator Cortez Masto. Senator Cotton, thank you so much. 
And thank you to your staff. They have great to work with, and 
I so appreciate all of the hard work that they have put into 
the past two Committee hearings that we have had.
    Thank you to the witnesses. I am excited for the discussion 
today and so appreciate you taking the time.
    Listen, I am so glad to be here to talk about what I 
believe is a point of bipartisan agreement: that China is a 
strategic competitor on the global stage. And as we talk about 
what that means, I think it is important for us to talk not 
only about what that means for our current moment, but for the 
decades to follow.
    Competition with China affects every sector--how we 
innovate, how we do business, how we tackle climate change, how 
we trade with other Nations, how we protect our national 
security, and how we are able to impact the world around us. We 
have an opportunity now--in the midst of this horrible 
pandemic--to use this point of bipartisan agreement to invest 
in our ability to compete, not just today, but tomorrow as 
well.
    At key moments in history, when faced with overwhelming 
challenges--from the Great Depression to putting the first man 
on the Moon--this country has risen to the challenge. And I am 
looking forward today to talking about how we can make sure 
that we have the right tools and right plan to do that again.
    China's economic activity makes up a growing share of our 
global economy. Some of that has been good for this country. We 
have added jobs, reduced the price of goods by expanding trade 
with China.
    But in other cases, it has not worked out well. In too many 
cases, Beijing has taken our technology, undercut our domestic 
manufacturing base, and created an unfair playing field for our 
companies and our workers.
    We have seen this competition play out in Nevada in 
multiple ways. At our military bases, leaders have repeatedly 
expressed concern about Chinese Government attempts to spy on 
the sensitive training that occurs there. I have heard similar 
concerns from leaders in other sectors--forced technology 
transfer and industrial espionage.
    In the critical mineral sector, we have seen a different 
but equally important aspect of the competition playing out. 
While China has invested in developing the ability to extract 
and process critical minerals that are essential to many of our 
emerging technologies, we in the United States have 
underinvested in those capabilities. In Nevada, that has left 
important opportunities for economic growth untapped. Of 
course, we must pursue these opportunities in environmentally 
and socially responsible ways, but by failing to invest in 
these key sectors, we are giving Beijing the advantage and 
hurting ourselves.
    Yet in Nevada we also see another aspect of our 
relationship with China. We have strong cultural and economic 
ties to China. We have a diverse Asian-American community in 
Las Vegas, with a vibrant Chinese-American population. Our 
world-class casinos and resorts attract more than 200,000 
tourists from China annually. Now, that is good for Nevada, and 
it is good for China.
    So I believe we must approach our relationship with China 
with a clear-eyed commitment to doing what is best for the 
American people, but also with balance and attention to the 
nuanced nature of our relationship.
    We need to be able to compete and look for opportunities to 
cooperate. We need to be able to call out the Chinese 
Government where we disagree, while still respecting the rights 
and freedoms of people in China and of Chinese Americans here 
at home.
    So I see three parts to our response to economic 
competition with China.
    First, we must invest at home. I have led bipartisan bills 
like the ACCESS BROADBAND, SPEED, and Moving FIRST Acts to 
strengthen our 5G and broadband infrastructure and our emerging 
tech sector. We must ensure we are investing in innovation to 
bolster our manufacturing industry, especially in the sectors 
that will create the jobs of the future, like clean energy.
    I joined my colleagues on the Senate Democrats' Special 
Committee on the Climate Crisis over the past 2 years, where we 
heard from stakeholders about the opportunities that a clean 
economy can unlock for domestic manufacturing. So I look 
forward to talking more about some of these opportunities 
today.
    But we also must protect and support our most important 
asset: our people. I am a longtime advocate for collective 
bargaining rights, for supporting safe and fair workplaces and 
the growth of good-paying jobs in Nevada and throughout the 
country. I am also proud to say that today I am joining my 
colleagues Senators Schumer, Menendez, and others in 
cosponsoring America LEADS, which is the most comprehensive 
China legislation to date and makes significant investments in 
the resources our workers, entrepreneurs, researchers, and 
manufacturers need to get ahead and stay ahead.
    And, second, we must rebuild our relationships with our 
allies and partners so we can face the China challenge 
together. We will not win in this competition on our own. 
President Trump has rightfully identified some of China's 
unfair trade practices, but he has gone about addressing them 
in a way that has hurt Americans.
    That is why I have advocated for stronger enforcement 
mechanisms in trade agreements, including in U.S.-China trade 
negotiations and questioned the Trump administration on their 
strategy of alienating our closest allies in an increasingly 
globalized economy.
    Third, we must ensure we have the Government structures to 
adequately address this challenge. Competition with China does 
not fit neatly into committee jurisdictions or bureaucratic 
organizational charts.
    That is why I have been working with my colleagues to build 
an informal bipartisan working group to ensure we are talking 
across committees about these challenges. And I am exploring 
legislation for the next Congress to work with the Executive 
branch around similar issues, especially on emerging 
technology.
    And, finally, we are in a unique moment now. So many of us 
are hurting from this horrific pandemic. We are working to pass 
another COVID relief package, which we sorely need. But I also 
see an opportunity in this moment for us to really double down, 
to make investments not just to get us over this short-term 
challenge, but to set us up to lead in the 21st century.
    So I am grateful to all of the witnesses who are here today 
to talk about the current state of our competition and the 
policy tools that we need to address it. Thank you for joining 
us today.
    Chairman Cotton. Thank you, Senator Cortez Masto.
    We will now turn to opening statements from our witnesses. 
We will start with Representative Hurd.

         STATEMENT OF REPRESENTATIVE WILL HURD OF TEXAS

    Mr. Hurd. Chairman Cotton, Ranking Member Cortez Masto, 
thanks for the opportunity to testify, and my comments are 
based on my decade career as an undercover officer in the CIA 
where I did operations against the Chinese. It is my time in 
the private sector helping businesses grow in the markets where 
the Chinese were already existing. My comments are informed by 
my time helping to build the cybersecurity company where you 
see the threat from Chinese hackers to not only the Government 
but to the private sector, and then obviously my time on the 
House Permanent Select Committee on Intelligence. In your 
opening remarks, you alluded to this.
    We are engaged in a new cold war with the Chinese Communist 
Party. Now, some people do not like that term ``cold war.'' I 
use it because we are not fighting with weapons, with, you 
know, guns and tanks. But this is a struggle. This is not my 
assessment. This is not from collecting intelligence. This is 
based on what the Chinese have said about themselves. We all 
know about Made In China 2025 where the Chinese themselves have 
said they are going to try to surpass the United States of 
America as the sole hegemon by being involved and leading in a 
number of advanced technologies. This is a generation-defining 
struggle on who is going to be the global leader on advanced 
technologies like 5G, AI, quantum, things like syntactic foam. 
These are all issues that if we do not win--why should we 
matter--why should we care about this? If we do not win, it is 
because the U.S. economy will no longer be the most important 
economy. The dollar and English will not be the things on which 
global economic activity happens. It will be Mandarin and the 
yuan. And we have to realize that the Chinese intelligence 
services are the best in the world at seeding operations. And 
they are doing this against academia; they are doing this 
against the startup community; and they are doing it against 
Government officials.
    We have seen, you know, the fact that people know this 
woman Fang Fang and what has happened with a number of elected 
officials to include some of my colleagues in California. The 
fact that Chinese intelligence take the long-term approach to 
looking at what is a potential intelligence operation 20 or 30 
years down the road. Our intelligence services are not prepared 
to deal with that. We do not operate that way.
    I am currently investigating some reports in South Texas of 
how Chinese nationals have come across our southern border 
illegally in order to start working in some of these commercial 
space companies. This is absolutely crazy that they would take 
astrophysicists and try to get them to act like they are going 
to go paint a wall or be a basic day laborer in order for them 
to get access to some of these commercial space facilities.
    We know about the Thousand Talents program. We know about 
the Fox Hunt program that the FBI is aggressively pursuing. The 
Chinese intelligence services operate differently from us. Just 
because we do not consider it ourselves intelligence does not 
mean it is not an intelligence operation, and we are going to 
have to change our thinking.
    When I was an undercover officer in the CIA and if you 
would have said ``made in China,'' I would have thought that 
meant a knock-off. But now ``made in China'' actually means 
made in America first, and there are so many examples: the 
syntactic foam company based in Texas that had connection to 
Dr. Hart and my alma mater, Texas A&M, where a Chinese company, 
you know, started working with an academic institution in order 
to get access to technology that they could then steal and 
develop themselves.
    There is a wind farm in far West Texas that is owned by a 
Chinese company, and the work that you all did and our 
colleague in the Senate John Cornyn did on FIRRMA and 
strengthening CFIUS. You have a Chinese general buying 40,000 
acres in West Texas creating a wind farm and connecting to the 
Texas grid. The long-term potential implications of that is 
interesting, and the way you stop this is simply reciprocity. A 
U.S. general would not be able to buy 40,000 acres in Beijing. 
Why are we allowing a Chinese general to do that here in the 
United States, a retired Chinese general?
    This is the same thing when it comes to cloud and credit 
cards. Why do we treat Alibaba in the United States like an 
American company but Amazon is not treated like a Chinese 
company in China? Why is Mastercard, Visa, and Amex not allowed 
to operate in China but we allow the Chinese applications, 
WePay, to operate here in the United States?
    So these are some of the issues that we have to address, 
and I am glad to answer questions after we get through these 
opening remarks.
    Chairman Cotton. Thank you, Representative Hurd. Those are 
some good questions posed, and I hope we will come to them 
later in our hearing.
    Mr. Scissors.

    STATEMENT OF DEREK SCISSORS, RESIDENT SCHOLAR, AMERICAN 
                      ENTERPRISE INSTITUTE

    Mr. Scissors. Thank you. I would like to spend my time, my 
5 minutes, talking about one aspect of the competition, which 
is whether it is, in fact, short-term or long-term. I think it 
is legitimate to argue that it is long-term, but I am going to 
make the case, at least briefly, that it is short-term. And the 
reason I think this is important is because whether it is more 
short-term or long-term changes the policy steps that we should 
take at the outset.
    So let me start with why it might be short-term, and this 
is mostly on the Chinese side. I think we are all familiar with 
the fact that China has a serious aging problem because many 
families were restricted to one child, and encouraging births 
now, as the Chinese are trying to do, is much harder as 
societies develop. They are on a worse demographic trajectory 
than Japan. The heaviest blow demographically probably starts 
in a few years. In any case, China in 2040 will be 
unrecognizable both demographically and socially. So when we 
talk about a long-term competition with China in 2040, we are 
talking about a different country, and demographics establish 
that.
    On debt, Chinese bank lending starts outrunning its GDP 
growth in 2002. Everyone is very impressed with Chinese GDP 
growth. Chinese bank lending is faster than Chinese GDP growth 
and has been for about 17, 18 years. They caught us--this is 
not a race we want to win. In broad economic leveraging, 
financial leverages measures, the Chinese caught up to us in 
2016. They were less leveraged than us prior to that; now they 
are about as leveraged as we are. But they are much less 
productive than us on a per capita basis. And when you are less 
productive, when you are a more backward economy in that sense, 
you are wasting a ton of money if you are highly leveraged.
    So what has happened in recent years is China has wasted a 
lot of money. They have wasted their opportunity to catch up in 
productivity. They have spent a lot of money for progressively 
less economic gain. That is going to be an anchor around their 
economy for years to come. We have a problem there, too, which 
I will get to in a second, but debt is a larger problem at 
present for China than for us.
    The party and many people observing China think innovation 
will come to the rescue. Discussing innovation is automatically 
less precise than discussing demography and debt, but a large 
economy facing serious demographic and debt problems, it is 
hard to innovate enough to carry that economy forward. The 
Japanese have not been able to do it, for example, and the 
Chinese actually have a worse problem than Japan, because they 
reserve 20 to 25 sectors for the State, and State-owned 
enterprises, which do not face competition, have no reason to 
innovate. Chinese oil companies are not innovative. The 
Mainland Chinese telecom services providers--China Telecom, 
China Unicom, et cetera--are not innovative because they do not 
have to be. And there are 20 sectors like that in China, so 
that is a drag on their economy as well. So that is my argument 
for why China is less of a long-term threat than it is a short-
term threat.
    There is an important qualifier here, which is if we do not 
take care of our own problems, then in 2040 we will be looking 
at two overrated long-term competitors, the Chinese and us, 
instead of just one--China. So we have to deal with our own 
problems. But if the challenge is short-term, we have to deal 
with China first because that is what we can handle in 2021. 
Addressing long-term issues in the United States is worthwhile 
absolutely, but it is going to take a good amount of time, and 
we have an opportunity in 2021 to respond to China immediately.
    The first thing that is necessary in that response is 
boring, and no one ever wants to do it when they take over the 
Executive branch, Democratic or Republican. We have to document 
the problems. We have to document Chinese subsidies to their 
full extent, which we have never done. We have talked about it. 
We have to document coercive IP transfer, both theft and 
coercion within China. We had a private organization do that at 
a general level. The U.S. Government has never published 
anything.
    We have to document outbound capital flow, which is a 
relatively new issue where we are not following where our money 
is going and what it is supporting in China. We have had a lot 
of concern about China. We have not had people wanting to do 
detailed, boring work. Outbound capital flow, for example, U.S. 
capital flow to China might now be near $1 trillion, mostly 
through the Caymans. We do not know what the end user is. We do 
not know where the sectors are being concentrated. We do not 
know enough to make good policy.
    My second recommendation is a twofold recommendation on 
technology. Export controls were passed overwhelmingly on a 
bipartisan basis in both the Senate and the House in the summer 
of 2018, and they remain unimplemented, which I find 
unconscionable. We need to implement those export controls as 
the Congress has directed by the Department of Commerce in 
2021.
    We also need to start punishing beneficiaries of IP theft 
and coercion. We really have not done that. We have talked 
about it. We have talked about punishing the thieves. As an 
economist, I do not care who stole it. I care where it ends up 
and how that firm can use American technology to compete 
against American companies and workers.
    If we do not start punishing the beneficiaries of IP theft, 
when we put export controls in place, the IP theft will get 
worse. When we say, ``Hey, you cannot share technology with 
China,'' the Chinese are going to say, ``Great, we will take 
it.'' So those two things have to go together.
    Third, once we document the subsidies, we need to employ 
more broadly--and maybe this gets to the reciprocity 
Representative Hurd was talking about--we need to employ more 
broadly countervailing duties and other actions against 
subsidized Chinese production. And that is not just Chinese 
imports. It is also the fact that Chinese subsidies prevent 
American exports to China, effectively closing off those 
sectors, which means we need to consider what our response is 
to that, that we will never be able to in the current Chinese 
system compete openly in the Chinese market.
    And, last, as I have mentioned about capital, once we 
document those capital flows, if we find out that a large 
amount of American money is going to areas that we consider 
important, the Chinese are certainly trying to draw to areas 
they consider important. But if we get the numbers and we say, 
wow, we are giving $150 billion to advance Chinese technology, 
we have to restrict it. I do not want to advocate for 
restrictions right away because we do not know enough. But I do 
want to advocate, to close on a point Senator Cotton brought 
up, if we are going to help American semiconductor 
manufacturing, we cannot at the same time have American 
financial institutions pour money into China-based 
semiconductor manufacturing. That is not sensible policy. So if 
we find out that is the case, we are going to need to impose 
outbound investment restrictions along with trade technology.
    Thank you.
    Chairman Cotton. Thank you, Mr. Scissors.
    We will turn now to Ms. Hart.

STATEMENT OF MELANIE HART, SENIOR FELLOW AND DIRECTOR FOR CHINA 
              POLICY, CENTER FOR AMERICAN PROGRESS

    Ms. Hart. Thank you. Chairman Cotton, Ranking Member Cortez 
Masto, and distinguished Members of the Subcommittee, thank you 
for the opportunity to testify before you today.
    The United States stands at a critical juncture. China is 
nipping at our heels. A new industrial revolution is underway. 
But instead of marshaling our resources to leverage this 
revolution for our maximum economic benefit, the United States 
is drifting, and Beijing is watching.
    China's leaders know that drifting Nations do not prevail 
in industrial revolutions. In Beijing's view, current U.S. 
inaction is creating a once-in-a-century opening for China to 
finally catch up to and surpass the United States as the 
world's leading economic and technical power. To turn this 
dynamic around, the U.S. must address its economic challenges 
head-on and reinvest in the fundamental drivers of our own 
economic prosperity. The decisions that this Committee and 
other members of the U.S. Congress make over the next year will 
play a critical role in determining whether the U.S. succeeds 
or fails.
    I would like to make four key points in my opening 
statement.
    First, over the past two decades, China prioritized 
investment decisions of its own economic power. The U.S. did 
not, and that is one reason why China is now our peer 
competitor. For decades, the U.S. was the world's leading 
investor in research and development, and that gave us a 
critical edge. But over the past two decades, as globalization 
and the digital revolution unfolded, our spending did not 
change. We did not upgrade our strategy, and the U.S. lost its 
edge.
    A similar pattern is playing out in public infrastructure. 
While China and other Nations invest in world-class systems, 
the U.S. forces its workers and companies to make do with aging 
infrastructure built in and designed for the 1960s. The United 
States would never send its military into today's battles with 
cold war-era weaponry, but it forces its workers to fight the 
21st century economic battles with 20th century infrastructure. 
That is a gift to Beijing.
    Second, Beijing also deploys predatory industrial policies 
to siphon off U.S. technology advantage and boost Chinese firms 
over their American competitors. I know the Committee is 
familiar with some of those policies and the damage they cause.
    Third, Beijing is responding to the Trump administration's 
policies by doubling down. If the Trump administration's 
ultimate aim was to force Beijing to abandon its predatory 
economic policies, that effort has officially failed. Last 
month, Chinese leaders issued a communique signaling the 
direction they plan to take their Nation over the next 5 years. 
It does not signal a change in China's economic strategy. 
Instead, the new plan suggests that Beijing is doubling down.
    Fourth, if the U.S. competes at full strength, China cannot 
beat us. But that requires the U.S. to do two things 
effectively that we are not yet doing: first, invest in our own 
comparative advantages, the advantages that China cannot match; 
and, second, form broad, global coalitions to neutralize 
China's predatory behavior.
    On the domestic front, the U.S. needs to treat the China 
challenge as a ``Sputnik moment'' and rally around a national 
competitiveness initiative that makes key long-term investments 
in our comparative advantages. That should include things like 
making high-quality postsecondary education affordable for all 
Americans, rebuilding workforce development infrastructure, 
making moonshot investments in national R&D, and investing in 
productive public infrastructure.
    The U.S. should also make rapid, targeted investments to 
reduce supply chain dependence on China and speed time to 
market for disruptive innovation. 5G network equipment is the 
perfect example. We have made-in-the-USA 5G equipment 
solutions. We have that. Some of them, like Virtual RAN, are 
still relatively new, and mobile operators in the U.S. and 
around the world are nervous about being the first company to 
roll those new innovative technologies out. Congress can help 
by funding test networks around the country. That is already 
happened on U.S. military bases.
    In my view, underserved rural communities around our Nation 
are a logical next step. Once American companies are 
demonstrating that they can successfully run made-in-the-USA 5G 
networks in our Nation to address some of our broadband 
devices, we can begin exporting them as well.
    And, finally, high-tech sectors provide a near-term 
opportunity to join forces with other Nations to build a broad 
global coalition around China. We have opportunities to do that 
on digital technology governance and also on assessing how some 
of Beijing's subsidies and underpriced capital boost Chinese 
firms at our expense, as Derek suggested previously.
    Thank you, and I look forward to your questions.
    Chairman Cotton. Thank you, Ms. Hart.
    Finally, we will turn to Mr. Houseman.

    STATEMENT OF ROY HOUSEMAN, LEGISLATIVE DIRECTOR, UNITED 
                          STEELWORKERS

    Mr. Houseman. Chairman Cotton, Ranking Member Cortez Masto, 
Members of the Subcommittee, thank you for the opportunity to 
testify today. I commend the Committee for uplifting the voice 
of organized workers in this discussion, and our International 
President, Tom Conway, gives his regards.
    The United Steelworkers is the largest industrial union in 
North America, representing workers throughout the 
manufacturing sector. We also represent a growing segment of 
health care, public sector, and even tech workers. This 
diversity in profession creates a strength in understanding the 
impacts that China's economic competition will play on the 
worker in America.
    Our first effort in competing with China must be to invest 
in the basic infrastructure necessary to make Americans feel 
safe from the COVID-19 pandemic, starting with an immediate 
COVID-19 relief bill for the millions of Americans currently 
laid off. We also need to immediately advance a regulatory 
framework that ensures workers feel safe returning to work. 
OSHA and MSHA standards dealing with a pandemic are sensible to 
anyone who has stood shoulder to shoulder in a processing plant 
or who has had to go through a lock-out, tag-out procedure.
    As the country starts receiving the vaccine and containing 
the pandemic, the existing challenges we faced prior to the 
pandemic related to the Nation's infrastructure, labor force, 
and international competitiveness will only become clearer.
    Since such a large percentage of our members manufacture 
today's high-tech materials and metals, I wanted to provide 
focus on how China's near monopoly or market dominance has 
impacted workers here and undermined U.S. competitiveness.
    For example, in steel, China now accounts for over 51 
percent of global production. In aluminum, China's share of 
global output touched 57 percent in May. In rare earths, China 
not only holds 35 percent of the world's entire rare earth 
supply, but accounts for 70 percent of global production. Rail 
CRRC, the Chinese State-owned enterprise, calculates they 
control roughly 83 percent of the global rail market. And in 
fiber optic cable, China's production reached 61.6 percent 
share of the global total in 2019. These levels of production 
or capacity can swing prices and prevent domestic entry and 
have led to 205 antidumping and countervailing duty remedies 
slapped against firms in China by the U.S. alone. Each of these 
orders represent not just a recognition that China has 
committed illegal trade practices, but also during a 3-year 
period of time, domestic industry lost jobs, cut benefits and/
or lost market share.
    The U.S. Government should respond to China's State 
capitalism through a mix of policies and investments that 
recognizes State economic power must be met with reciprocal 
State economic responses.
    We are a $22-trillion economy, and simple investments would 
allow us to get goods out the door, whether it is the steel or 
the next generation of medicines. Yet these products have to 
travel on our crumbling infrastructure, as Ms. Hart indicated. 
In 2019, the U.S. spent just 2.5 percent of our GDP on 
infrastructure, down from 4.2 percent in the 1930s, while China 
spends around 8 percent of its GDP on infrastructure.
    We need to upgrade our ports, our roads, expand broadband, 
build out our critical minerals, and improve our education 
system. Our union members want that work, and American workers 
are guaranteed that their tax dollars will go to expand the 
manufacturing infrastructure to compete with China. This leads 
to a simple fix. Expanding our Buy America provisions to ensure 
the money Congress approves does not inadvertently go to jobs 
in China.
    Another investment we should make is expanding our 
Manufacturing USA program. The 14 Manufacturing USA Institutes 
conducted nearly 500 applied R&D projects to broad industry. 
Legislation like the LEADS Act by Senators Schumer and Menendez 
expands this successful program.
    We should also expand the Manufacturing Extension 
Partnership program. A network made up of the 51 MEP Centers 
has led to American firms creating or retaining over 114,000 
manufacturing jobs in fiscal year 2019. We should build on this 
success and expand the program.
    Last, we need to press back against China by building a 
robust, unionized working class. Reducing wealth inequality in 
America will unleash a spending potential that will propel us 
into the future. The economic competition between the U.S. and 
China will be a generational rivalry. United Steelworkers 
believes our country, with the proper investments, planning, 
and commitment to our most powerful asset--the American 
worker--will be how we succeed in that rivalry.
    Thank you, and I look forward to answering any questions 
you may have.
    Chairman Cotton. Thank you, Mr. Houseman. Thank you all for 
your statements. We will turn now to questions. I will begin.
    I want to address this to Representative Hurd and Mr. 
Scissors. You both advocates for taking a harder line on China 
on the economic domain, but I want to note that you have 
slightly different approaches.
    Representative Hurd, you have written about the need to 
adopt a policy of reciprocity aimed at changing China's 
behavior. So, for example, if Beijing restricts investment or 
market access for U.S. firms, we could respond in kind until 
they open their markets. The premise of the strategy, as I 
understand it, is to encourage structural changes in China's 
economy and changes to Chinese Communist behavior.
    In contrast, Mr. Scissors, you have written that a partial 
decoupling from China is overdue. You go on to state that a 
strategy of decoupling is a recognition that America should 
drop the pretense of changing the People's Republic.
    So a question for both of you. To what extent can we expect 
U.S. policy to change CCP economic behavior? I believe the 
answer to this question is vital in formulating that policy. 
Representative Hurd, I will turn to you first, and then I will 
turn to Mr. Scissors.
    Mr. Hurd. Thank you for the question, Chairman. The U.S. 
and China were frenemies, and if we want to get them to change 
their behavior, it has got to hurt. And so the U.S. Trade 
Representative just produced a report last year about the 
things the Chinese Government has not done at the WTO. It was 
like 122 pages. So we need to be making sure that we are 
working with our allies to put pressure on them in agencies 
like the WTO.
    The U.S. market is a market that buys a lot of Chinese 
products, so we have a tool in our toolkit in order to use that 
to try to get them to start operating fair. And so that is one 
way--we are going to be able to out-innovate them. The fact 
that an authoritarian Government can get somewhere first 
because they can move all factors of production into one area--
they may get somewhere first, but they are not going to be able 
to get beyond that point. And so that is why here in the U.S. 
we have also got to make sure that we are prepared to compete 
with them.
    AI is one of those issues. Robin Kelly, my colleague from 
Illinois, and I just passed an AI national strategy. It went 
through six committees. It was saying that we needed to double 
down on research like Ms. Hart was talking about, that we need 
to focus on the national security implications of AI, that we 
need to promote the ethical use of it, and that we need to 
start developing workforce pipelines to ensure that Americans 
are ready for this, so in other ways we can out-innovate them 
and we should, but let us build relationships with our 
colleagues. It is good to have friends or other Nations. The 
Chinese are just like the Russians. They do not necessarily 
have allies. They have dependents. And so we need to leverage 
that tool in our toolkit to try to enforce some of those 
behaviors.
    Chairman Cotton. Thank you.
    Mr. Scissors.
    Mr. Scissors. I have no objections at all to the use of 
reciprocity, as Representative Hurd has suggested. I think it 
is a good idea, and if this were 10 years ago, I would have led 
with reciprocity as a guiding principle for U.S. policy as 
well.
    The change has been the ascent to power and consolidation 
of power of Xi Jinping, and a different Chinese leader might be 
gone in 2 years, and I might say, ``Hmm, I do not know what our 
policy should be in 2023 and beyond.'' But under Xi, 
reciprocity is not enough. Even if it is enough in trade, it is 
not enough in technology. Let me give you an example.
    How are we going to reciprocally respond to Chinese theft? 
Are we going to try to steal their technology? That does not 
work as--first of all, we do not really want their technology 
that much in most cases. But, second, we do not want to be 
advocating for coercion of foreign enterprise in the United 
States, for illegal actions against Chinese firms. That is not 
the way we want to go.
    So reciprocity has a role. The reason I moved to advocating 
decoupling is because China has changed. It is not the same 
country in 2020 as it was in 2010. It is not the same country 
under Xi Jinping as head of the Communist Party--I could spend 
all of my time documenting just the political side of that--as 
it was under Hu Jintao in 2010 much less Jiang Zemin in 2000. 
And a different China, a less aggressive, repressive China, 
that is a different story. But this China, with Xi Jinping, who 
wants to stay in power indefinitely, who is absolutely, as 
Melanie mentioned as well, committed to the State sector. 
Reciprocity is not enough. We do not want to be just like 
China, and I do not mean to say that Representative Hurd says 
we do. But we cannot match their actions, thankfully, in a 
number of areas. So the response to criminal activity, and a 
lot of Chinese activity in technology is essentially criminal, 
is to separate from them. We cannot fully punish Chinese 
companies because we do not have access to them because they 
are protected by the party, so that is where decoupling comes 
in. Reciprocity is a fine principle for a lot of reasons. It is 
a good start. But with Xi Jinping's China, we need to do more, 
especially in the technology area.
    Chairman Cotton. Thank you, Mr. Scissors.
    My time is up. I will turn the questioning to Senator 
Cortez Masto.
    Senator Cortez Masto. Thank you. This has been a really 
enlightening conversation, and thank you so much for your 
initial comments.
    Let me jump back to manufacturing. There is a lot of talk 
about how we need to manufacture American made again here in 
the United States, how we bring the supply chains back. Let me 
put a focus on something that is very specific to Nevada as an 
example, and then I want to expand from that.
    In Nevada, particularly in Henderson, we have the TIMET 
plant, and the TIMET plant there manufactures, creates the 
titanium sponge, with is the purest form of titanium. It is an 
essential ingredient for so many things we build, from 
commercial airplanes to our military's combat vehicles.
    Now, the only domestic supplier that we have on this 
important resource was in Nevada at that TIMET plant in 
Henderson, but it went idle this year and had to lay off 
workers. Before that happened, TIMET warned Federal regulators 
that if the Henderson plant were to close, they said the U.S. 
military ``will be 100 percent reliant upon titanium sponge 
from risky countries, including China and Russia.''
    Let me just say this, Mr. Houseman. We so appreciate the 
steelworkers' efforts for this plant, and thank you very much. 
But this just gives you another example of how do we--as we 
have this conversation today, how do we turn this into a focus 
on what constructively we can do to address concerns? We hear 
this going on across the country. We hear that this is 
happening. And we know that there is a range of manufacturing 
industries that are going to be either put at risk or we need 
to bring the supply chains back and start this manufacturing. 
But how do you compete say, for instance, with China, who 
already has reduced the costs for doing this and it is going to 
be hard for our companies to startup even if they wanted to, to 
go down this path? What are your recommendations?
    Let me just start with Ms. Hart, if you would, because we 
talk about, we hear about this all the time, but how do you 
actually--how do you get it started? Because the costs are 
going to be so high for any company that wants to start down 
this path.
    Ms. Hart. Sure. Thank you, Senator Cortez Masto, for the 
question. You know, the missing piece in the current 
Administration's trade strategy toward China is doing a supply 
chain-by-supply chain assessment to identify in which supply 
chains do we have too much dependence on China or other 
Nations. Where do we need to diversify? And depending on the 
substance, does that diversification need to involve targeted 
investments here at home? Can it also involve exchange with 
American allies and partners? So in rare earth sectors, we can 
work together with Australia to improve diversification and 
reduce our reliance on China. In others, targeted investments 
at home make sense. And so that will require us to make some 
smart investments, and that supply chain-by-supply chain 
analysis is critical to target and determine where do those 
investments make sense and how do we make sure we are getting 
the biggest economic and national security bang for the buck 
when we make them.
    Senator Cortez Masto. Thank you. And, Mr. Scissors, let me 
go back to you because this is your idea of how we document, 
that we need to take the time to document, that it so boring 
nobody really wants to take the time to do that. But if we are 
able to document and really put this information down on paper 
and identify it, it is a starting point for all of us to work 
from. Is that what you are getting at?
    Mr. Scissors. Absolutely. I wrote that down while Melanie 
was speaking, and you obviously heard the same thing I did. 
Supply chain-by-supply chain is an excellent approach because 
it involves both investment and trade. You combine the two, and 
technology, where we are in technology supply chains.
    You and Senator Cotton are doing wonderful work on this 
through this hearing and elsewhere, but you cannot make 
decisions on where to invest and where to cooperate with our 
allies and what to startup with if you do not know where the 
Chinese element in the supply chain is. Maybe it is not 
important at all. Maybe it is incredibly important. Maybe it is 
hidden.
    So we have to have that information to make good policy. It 
is dull, but it would start off the Biden administration with 
the base to make the necessary actions for all of you to judge 
this is crucial for us to act now, this is secondary, judgments 
which we really cannot make now, because even if we decide that 
we know the importance of a supply chain, it is not obvious 
what the Chinese role is.
    I will wrap up here, but we all know an example of this, 
which is active pharmaceutical ingredients, where the Chinese 
are not the primary exporter. Our imports come from other 
countries other than China, but they make the chemicals to go 
into those ingredients. And so there is a hidden dependence on 
China in that sector, and that requires a different policy than 
a policy where--than policies required where the imports come 
directly from China. So I 100 percent agree with both Melanie 
and you. The first step has to be information.
    Senator Cortez Masto. Thank you. I notice my time is up. 
Thank you very much.
    Chairman Cotton. Senator Menendez.
    Senator Menendez. Thank you, Mr. Chairman. I am glad that 
we are having this second hearing on the U.S.-China economic 
competition. Since the last hearing, I introduced with a number 
of my colleagues the America LEADS Act. This bill seeks to do 
four things: one, invest in American competitiveness; two, 
invest in American alliances and partners; three, invest in our 
values; and, four, invest in our economic statecraft to ensure 
China pays a price for its predatory actions.
    America LEADS provides a comprehensive strategic approach 
for addressing the new competitive U.S.-China relationship and 
to define policies and allocate critical resources that combine 
and mobilize all aspects of U.S. national power, starting with 
the recognition that American competitiveness starts with 
investments here at home in our workers, our education, in 
science and technology and innovation. Further, this bill is 
driven by a need to retool the U.S. economy and workforce to 
compete in the 21st century.
    So with that as a preface as to how I look at this, I would 
like to ask Dr. Hart and Mr. Houseman, would you agree that any 
serious approach to the China challenge has to start with 
reinvesting in our domestic sources of competitiveness?
    Mr. Houseman. Yes, Senator. It is this concept of, you 
know, as you indicated in your legislation, where putting in 
$350 billion into workers, entrepreneurs, and the manufacturing 
community will kind of create this virtuous cycle, basically, 
of, you know, reinvesting in plants that many of these domestic 
manufacturers have--as has been kind of pointed out, these 
plants were built oftentimes in the 1960s. I look back at the 
hard hat of the paper mill I used to work out that was built in 
the late 1940s, and, you know, upgraded its infrastructure over 
time. But that lack of domestic investment ultimately led to a 
plant closure about a decade ago yesterday.
    And so we think about this as like these sorts of 
innovative competitiveness environments where, if we provide 
those direct investments to our manufacturers, both in today's 
technology and for future technologies, we will have an 
opportunity to really engage.
    Ms. Hart. Thank you, Senator Menendez, for the question. 
Absolutely, good defense is great. Good defense is important. 
But you do not win a game by only playing defense. You have to 
play offense as well, and that is what those smart investments 
are all about.
    Senator Menendez. Let me ask you both--I think you may have 
had a chance to look at the legislation--what do you think is 
missing from our bill? What did we get right? What did we get 
wrong? How can we improve it? Any suggestions in that regard?
    Mr. Houseman. I would say that the key piece is there, as I 
indicated in the testimony, the MEP program, the Manufacturing 
Institutes, those sorts of expansions of those programs create 
these hubs of innovation, just the same as, you know, Silicon 
Valley started with one or two companies and then expanded out. 
That wealth of knowledge gathers other wealth of knowledges. 
And investing into these communities, I would say the one thing 
that really would be impactful is ensuring that we invest in 
communities such as that have been hollowed out in the 
deindustrialization in part because of China's advance in 
manufacturing.
    Ms. Hart. Thank you. Senator Menendez, the piece that I 
think we are all waiting to see is how well these initiatives 
are resourced. I really commend you for pushing forward the 
bill in 2020 to invest, and I believe initially proposed $1 
billion in providing 5G alternatives to Huawei. And my 
understanding is that was whittled down to less than $100 
million, perhaps over a 5-year timeframe. And it is great to 
pick a step forward, but we need to be serious about what we 
are investing in and how well do we want to equip American 
workers, American companies, to fight a good offense against 
our biggest peer competitor. That requires real resourcing, not 
small ball resourcing.
    Senator Menendez. And I appreciate that comment because in 
view of what China is doing resourcing their initiatives, it is 
significant competition.
    I have only got a few seconds left, but let me just ask 
you, it seems to me that if we really want to be able to 
challenge China, not only confront it but to challenge it, we 
are going to need partners--the EU, Australia, Japan, and 
others. And when you put all the economies of these countries 
together, now we have a real fighting chance against China.
    You know, how would you recommend that we broaden the set 
of partners willing to work with us to address the real 
national security and economic threats that China poses?
    Ms. Hart. Thank you. So, briefly, the first thing we can 
and should do is work together to document what China is doing, 
and then once we have shared broad agreement on exactly what 
China is doing, then we can identify shared agreement on how we 
will respond as a unified group.
    Senator Menendez. Well, thank you, Mr. Chairman, for your 
courtesy. I see Congressman Hurd there. Always appreciate his 
insights and advice, and I look forward to continuing to work 
with you, Mr. Chair, on this issue.
    Chairman Cotton. Thank you.
    Senator Smith.
    Senator Smith. Thank you, Mr. Chair and Ranking Member 
Cortez Masto. It is great to be with you. This is a really 
interesting panel, and I want to start with an issue that I 
think is primarily a trade issue, though not exclusively..
    I am really proud to represent Minnesota's Iron Range where 
three-fourths of the new iron in this country is mined, thanks 
to the great American companies and great American workers led 
by the United States Steelworkers.
    You know, it is interesting to think, because we have so 
much--we struggle sometimes--we say ``competing with China,'' 
yet our United States steelmakers are more efficient, they are 
cleaner, and they are more innovative than Chinese producers. 
Yet we still have--China has no great natural advantages when 
it comes to manufacturing steel, yet because of their massive 
subsidies and unfair trade practices, we end up getting 
screwed, frankly.
    And so I just am looking at you, Mr. Houseman. Could you 
talk a little bit about what lessons we have learned over the 
last few years about how we can stop these unfair trade 
practices, what we need to do differently, and how we can 
really leverage our competitive advantage when it comes to 
steel particularly?
    Mr. Houseman. Great, thanks. I would say there are two 
things. One is we have to kind of engage in a multilateral 
effort to capture it, basically contain China's overcapacity 
related to steelmaking. Just this year, the OECD mentioned in 
reports that there are over 63 million tons of expansion of 
Chinese firms into Southeast Asia. These are new plants being 
put into the Southeast Asia region, and they are going to then 
start to expand and displace domestic market share in those 
home countries, but then very likely target the U.S. market as 
well.
    We are seeing actually this year, with China's capability 
to reinvest and get restarted as quickly as they have, they are 
not hitting production levels that have not been seen before in 
steelmaking.
    And so for our workers in Iron Range in part it has 
increased some pricing for iron ore, and they have been working 
to restart there. But the inverse is that our members here, our 
domestic industry makes about 100 million tons in a given year, 
but a lot of those facilities, you know, they need that 
commitment to buy American in large infrastructure projects to 
get goods out on the ground, rebuild the steel, and that would 
create that whole virtuous cycle, both from our traditional 
blast furnaces to our electric arc furnaces.
    Senator Smith. Right, right. Well, and I know you all often 
speak a lot about it is mined, melded, and made in America. It 
is the whole package, and that, I think, gets a little bit to 
some of the interesting supply chain issues that you all are 
talking about.
    I just have a couple more minutes, a minute or so, but let 
me turn to Ms. Hart. I was quite interested in the point that 
you made about how in the last several years in the Trump 
administration actually China has really sort of doubled down 
on their practices. Could you just go into a little bit more 
detail about what lessons we have learned, as we think about 
how we go forward, what lessons we have learned.
    Ms. Hart. Sure. You know, the biggest takeaway that I have 
from the past 4 years is that taking China on unilaterally does 
not work, and it also forces American consumers, workers, and 
companies to carry water and pay costs for the entire global 
community. Every problem that we have about Chinese economic 
policy is not just a U.S. problem; it is a global problem. And 
it is not fair to ask the American people to carry costs for 
fixing that problem for the entire global community instead of 
spreading that out and sharing it.
    You know, we see that where the U.S. joins common cause 
with other Nations, we can have a much bigger impact in a way 
that works well for the United States. So to follow up on the 
steel conversation, you know, one of comparative advantages our 
industries have is that we are much cleaner than China. There 
are much lower carbon emissions. That is a great comparative 
advantage. The European Union is starting to talk about carbon 
border adjustment measures. If we had an agreement in place 
whereby the European Union only purchased steel that met 
certain climate targets and ours naturally did and China did 
not, then that would, you know, make progress toward addressing 
some of our problems with China in a way that works together 
with our allies, benefits American workers, and also addresses 
our climate goals as well. There are great opportunities out 
there as long as we think smartly about who we want to work 
with and how we can take care of American citizens at the same 
time.
    Senator Smith. Right, right. That is great. Thank you very 
much.
    Chairman Cotton. All right. We will move into a second 
round of questions. I want to address export controls. As our 
economic competition with China intensifies, Government 
agencies that have traditionally prioritized commerce and 
facilitating commerce, like the Commerce Department's Bureau of 
Industry and Security, have often been thrust onto the front 
lines of national security. The BIS has done good work over the 
past 4 years to update our export controls to deal with China, 
but I believe there is more still to be done.
    Mr. Scissors, what do you view as the most urgent 
priorities for BIS over the coming weeks and months in dealing 
with Chinese technology transfer efforts?
    Mr. Scissors. Thank you, Senator. I am not as complimentary 
toward BIS as you just were, in particular because this is an 
area--we are having a pretty bipartisan panel here, to the 
credit of the Senators on the Committee. Export control 
legislation was absolutely bipartisan, and we identified at 
that time more than a dozen foundational and emerging 
technologies that we wanted to update our export controls for. 
The foundational ones as we needed updated controls, the 
emerging technologies we needed new export controls, and we 
have got implementing regulations for 2 of those 14 in 2\1/2\ 
years. Most people do not think of the Department of the 
Treasury as being really rabidly anti-China. They got their 
implementing regulations for the FIRRMA bill as attached to the 
NDAA done by the end of 2019. We are at the end of 2020, and we 
still do not have the export control regulations.
    So the top thing I want from nominees at Commerce, at BIS, 
the Under Secretaries, the Assistant Secretaries, is a 
commitment that says we are going to get this done in 2021. 
There is just no reason at this point that we do not have 
export control implementing regulations put in, and then they 
can be evaluated. They are not going to be perfect, but at 
least we can see them.
    And the reason I think that is overwhelmingly important is 
if you restrict Huawei or ZTE or another Chinese telecom 
company, the Chinese will just create a new one to substitute 
for it. If we actually succeed in putting Huawei out of 
business, Huawei's assets would end up in another company with 
a slightly different name, and we would have exactly the same 
problem. That is the idea of State control over key sectors of 
the economy.
    We need to focus on technology and sectors, not particular 
end users. The Congress knows that. It passed export controls, 
and we have not gotten a benefit out of that because the 
Department of Commerce has not done it. So that is my 
overwhelming priority for 2021.
    Chairman Cotton. You make a good point that right now our 
export control system mostly bars specific Chinese individuals 
or entities from acquiring technology rather than the transfer 
of technology in general. I take it that you believe that 
entity-based approach to export controls does not work given 
the realities of how the Chinese Communist Party operates, Mr. 
Scissors?
    Mr. Scissors. Yes. I mean, of course, if a company 
commits--Huawei is up in Federal court on multiple criminal 
charges, but we are still giving them export licenses. So, of 
course, punishing a company like Huawei, if we believe they are 
guilty of criminal activity, is important. But that is not an 
export control activity. That is a rule of law activity. We are 
not controlling exports to China by preventing them from going 
to Huawei and allowing them to go to Fujian Micro or another 
company, you know, who imports semiconductors.
    So I do not want to, you know, ban every Chinese sector 
from trading with the United States, but in technologies we 
want to control, as the Congress tried to designate in 2018, 
you cannot just restrict one Chinese company. You know very 
well, Senator, that civil-military fusion means if a technology 
is seen as important for the military, it goes throughout the 
military production complex. It is not limited to one firm. If 
those firms are engaged in criminal activity, punish them, but 
technology has to be controlled on a sector basis.
    Chairman Cotton. So given those points, Mr. Scissors, do 
you think we should shift our export control process away from 
the Commerce Department and toward an agency or department 
whose statutory and cultural and historic mission is more 
geared toward national security rather than fostering commerce?
    Mr. Scissors. I think we should be actively thinking about 
it. I think if the Secretary nominee, if the Deputy Secretary, 
the Under Secretary for BIS, the Assistant Secretaries, they 
all come in and they say, oh, yeah, exports, we really need to 
promote exports, we really need to promote exports, there is 
nothing wrong with that, of course, but not advanced technology 
exports to the People's Republic of China. That is a carve-out. 
Exports to Germany, lower technology exports to India, all of 
those things are fine.
    If Commerce nominees are not willing to explicitly commit 
to changing the culture at Commerce, to changing the primary 
goal, it needs to go someplace else that is not so devoted to 
the business community. I love the business community, but for 
advanced technology in China, they cannot be making American 
policy.
    Chairman Cotton. All right. Thank you, Mr. Scissors.
    Senator Cortez Masto.
    Senator Cortez Masto. Thank you. Let me jump back to 
technology and the use of technology for clean energy jobs. I 
know, Mr. Houseman, United Steelworkers is a founding member of 
the BlueGreen Alliance, which brings together the labor and 
environmental organizations to solve environmental challenges 
in ways that create and maintain quality jobs and build a 
stronger, fairer economy.
    One of the falsehoods that I find--and you take it to task 
in the manufacturing agenda portion of the report--is the 
notion that you cannot have good jobs and a clean environment. 
So I would love for you to engage in this conversation, because 
I think there are opportunities here to not only create jobs, 
add to our economy by the use of the technology that also 
creates this clean environment in this green economy. Would you 
elaborate on that a little for the workforce here and what we 
need to do to transition the workforce to these jobs of the 
future?
    Mr. Houseman. Sure. I think one of the key things that 
America led on something, the Clean Air Act, way before many 
other countries. And as China has industrialized, they have not 
held those same standards as us. And so this idea that we have 
already set some standards and, you know, we have put our 
industry in a place where going forward into a clean energy 
economy, we are already well positioned. And so this idea of 
taking our plants, who have already done a significant amount 
of investment to reduce emissions and reduce greenhouse gases, 
is it put us into the right place to leap forward. And it is 
just a matter of making sure that we have those investments, 
that the Federal investments help guide and encourage that sort 
of--those pillars, and also recognizing that we have certain 
humanitarian concepts here in the U.S. like labor rights and 
decent wages and a right to health care, these sorts of basic 
things that we need to emphasize and establish. And that is 
why, you know, increasing R&D funding, these sorts of programs, 
and establishing the permanent labor jobs workforce programs in 
the Office of the Secretary, all of these areas to transform 
our industry and responsibly mine, recycle, all of these 
pillars that are a part of the BlueGreen Alliance's 
manufacturing agenda, give us kind of like a North Star 
direction for these sorts of investments.
    Senator Cortez Masto. Thank you. So, Representative Hurd, 
there was an opinion piece you put in USA Today, and it is 
titled, ``It Is Not Realistic To Cut U.S.-China Economic Ties. 
We Should Compete and Win Instead''. And one of the areas that 
you focused on was our workers need new skills, and you said in 
there, ``Washington should also be working to streamline legal 
immigration so that America continues to be the beneficiary of 
the decades-long `brain drain' of the rest of the world.''
    Can you elaborate on that? Because I think there is this 
part about having the best and the brightest to really 
innovate, to be there on the forefront, for the very reason 
that we have all just talked about. But there is also room 
here--right?--for our workforce to grow, and everybody grows 
with it.
    So, Representative Hurd, can you expand on that a little 
and your thoughts on that comment?
    Mr. Hurd. Sure. If the Chinese Government wants to steal 
our technologies and incorporate them into their own products, 
why don't we steal their engineers? You know, if you are going 
to be an AI researcher, I want you to come to the United States 
of America and participate and help American companies. If you 
are a quantum researcher, let us get you here as quickly as 
possible.
    We have benefited from that global brain drain for so long. 
Let us continue that. And there is a way to do that in a smart, 
safe way. We know that the Chinese Government is putting 
pressure on Chinese nationals that are coming to U.S. schools 
in order to learn and then come back and use technologies in 
the United States. We can address that at the same time while 
being open.
    I guarantee you if we give a Chinese quantum researcher the 
opportunity to flourish in the United States of America or go 
back and work for a repressive regime like the Chinese 
Communist Party, we are going to win out. And so we can do both 
things at the same time, protect our Nation and make sure that 
we are vetting students properly, but also being open to make 
sure that we are attracting the talent that we need.
    Senator Cortez Masto. Well, I have only got a few seconds 
left, but I am curious on how we ensure that we are putting 
that balance in place and still addressing what you also talked 
about, the intelligence piece of that. How do we protect our 
intelligence? How do we lead in this space and then also 
recognize that, as we have seen over the years, China is really 
infiltrating and trying to steal a lot of our information? So 
how do find that dynamic and how do you bring in academia and 
everyone else around to understand and educate them to be able 
to find that balance?
    Mr. Hurd. Chairman, if I could have 15 seconds to answer 
that? So I will take it. So I think our universities----
    Chairman Cotton. Yes, you may.
    Mr. Hurd. The FBI is doing a good job of trying to educate 
universities on how the Chinese Government is trying to 
leverage the universities. So the FBI needs to continue that 
and grow that program.
    Two, if you are able to--if a Border Patrol agent is able 
to detect that someone who is coming across the border 
illegally is actually an astrophysicist, then I think we have 
some pretty good tools in order to catch that.
    So vetting applicants is not difficult. We know how to do 
that. And we have just got to make sure that when people are 
applying for F-1 visas, the student visas, that if they are 
coming from certain States, there may be additional scrutiny. 
This is not something new, but it is just a policy that needs 
to be put in place so that we are protecting national security, 
but we are staying open at the same time.
    Senator Cortez Masto. Thank you.
    Chairman Cotton. Thank you. I want to address data and 
companies like TikTok and WeChat. For nearly 2 years, we have 
known about PRC efforts to collect information and manipulate 
public discourse through applications like TikTok and WeChat. 
Their corporate parents, like any company is China, is not 
truly private. It is obligated to provide user data to PRC 
intelligence agencies at any time as a result of their 2017 
national security law. And among other things, these 
applications can promote, they can minimize, or they can block 
content posted by Americans based on their assessment of its 
effect on China's image and interests.
    They also capture large amounts of personal and proprietary 
information, not just of Americans but also of Chinese subjects 
when they leave their country and seek to participate in the 
discourse of the free country that they are visiting.
    Representative Hurd, what is the risk these applications 
could present to privacy and free speech of Americans, 
especially considering China's 2017 law and the opaque 
governance and ownership structures of these and similar 
companies?
    Mr. Hurd. Thank you, Chairman. I think the real concern 
about TikTok--so why does data matter? Data matters because it 
trains algorithms, and if you have a better algorithm, you're 
going to be able to produce something at the end. So the 
Chinese Government does not care about civil liberties. They do 
not care about privacy. And so they are always going to have 
more data in order to train these algorithms.
    So now the national security threat of TikTok is not that 
you are doing some silly dance and sharing that with your 
friend. It is that now the Chinese Government has appended data 
on locations, faces, in order to better train those algorithms. 
And those tools that they are using, we know they are using it 
to put the Uyghurs, their ethnic minority, into concentration 
camps. We know that they are trying to keep track of 
dissidents, and they are improving those algorithms for 
different faces, for different attributes, and they are 
exporting that to other regimes.
    That is why the TikTok threat is nefarious, and then they 
can improve these tools, and if more people are using the 
tools, more control.
    Chairman Cotton. Does an application like TikTok 
potentially give access to all the data on one's device in 
addition to just the videos one uploads or the other data 
inside that app?
    Mr. Hurd. So it can, and that is why looking at the--any 
American company that is using an application in China has to 
give its source code to the Chinese Government in order for it 
to be reviewed. Guess what? That is not a similar thing that we 
do here in the United States of America, in order to test that 
reality.
    So, yeah, there is no such thing as an impenetrable device, 
and so if you are able to put tools on that device, you are 
going to be able to get information off of that device. And so, 
yes, it could be a threat.
    Chairman Cotton. Thank you.
    Mr. Scissors, did you want to respond to this?
    Mr. Scissors. I agree with Representative Hurd, and I agree 
with the thrust of your question. Just to put a little point on 
it, the Administration, I think for good reasons, brought up 
TikTok and WeChat and in the Administration and in the 
Congress, more broadly the idea of Chinese apps as something we 
need to evaluate, we should not just take for granted, as we 
had for years. But we have not actually seen any action. Many 
deadlines have passed about this solution or that solution.
    So I think it would be really useful for Congress, because 
this Administration is leaving and without taking action on 
TikTok, WeChat and so on, for Congress to say what is our 
primary concern? Is our primary concern--and you have 
identified several. Is our primary concern a national security 
concern that these are on devices of people who have national 
security information? Or is a civil liberties concern? Or is it 
an economic concern with loss of data?
    And so I do think these applications should be restricted, 
but I do not have a sense from the Trump administration of what 
the real fear is? Is it national security? Is it economic and 
so on? And I think Congress has a role here to direct U.S. 
policy in one of those directions.
    Chairman Cotton. Ms. Hart.
    Ms. Hart. Sure. Thank you. You know, the big piece that is 
missing is comprehensive privacy legislation. We need to have 
standards to clarify what is acceptable and what is not 
regarding American citizens and their private data. Once we 
have that in place, then it will be much easier to do what 
Derek is talking about and identify what is the problem with 
all apps, be they U.S. apps, Chinese apps, or from other 
Nations. And, critically, that process will also make it 
possible to have common approaches between the United States, 
Europe, Japan, and other allies, because we do not want to 
just--if banning TikTok is the answer, it is not enough to do 
that in the United States. That should happen in Europe and 
Canada and Japan and in other Nations as well. We want to see 
the United States working together with allies and partners 
instead of alone.
    Chairman Cotton. All right. Thank you. I have run over 
time, so I will turn it back to Senator Cortez Masto.
    Senator Cortez Masto. Thank you, Senator Cotton.
    I could not agree more with you, Dr. Hart, and that is why 
I have introduced comprehensive privacy legislation. We need to 
finally do something about it for the very reasons that you 
just talked about.
    But let me jump into foreign interference because this is 
another area where I am concerned--and many of my colleagues 
are--about the growing foreign interference that we have seen 
in our elections and our public discourse. We have written 
legislation, I have written legislation around this space and 
oversight letters to address the Chinese Government's attempt 
to influence our media, our FinTech, and our schools. We have 
talked about it. We have seen that with Russia.
    So let me ask you, because I know you have done some 
research in this area, what has your research shown about the 
Chinese Government and its attempts to influence our public 
discourse? And what specifically can Congress do about that?
    Ms. Hart. Thank you so much for the question. You know, as 
someone else has mentioned before me, the interference attempt 
reaches through multiple platforms, multiple audiences. There 
are Confucius Institutes and other initiatives that work 
through universities. There are attempts to sway think tank 
reports, to sway U.S. media reporting. This is a many-headed 
Hydra, and the most important thing that we can do to push back 
is transparency and exposure to help American citizens, 
universities, companies understand exactly what is happening, 
where information is coming from, and who they are dealing 
with.
    For example, American universities likely would not admit a 
PLA officer who is hiding that affiliation in order to register 
in their university and serve as a guest scholar, but they 
often do not have that information. They do not know who it is 
that they are letting in. So we need much bigger capacity to 
assess who we are granting, considering granting visas to, to 
allow them to come into our country.
    American companies often struggle to do the due diligence 
to figure out who is the final beneficiary beyond the layers of 
shell companies to the company that is trying to source their 
technology or do deals with them. And American citizens need to 
understand when they see information from think tanks, from 
NGO's, from the U.S. media, is that an independent American 
voice, or was there some kind of Chinese funding involved?
    My think tank, the Center for American Progress, has called 
for the U.S. Congress to require all nonprofits to declare any 
Chinese Government or other foreign funding on their 990 Forms. 
We have also called for the United States to require any 
foreign State propaganda actor to have to put a massive 
disclaimer on propaganda material in the United States.
    If I wanted to run for elected office and I wanted to put 
campaign ads out, I would have to put a big label stating, 
``Paid for the Campaign of.'' But that kind of label does not 
apply on foreign Government propaganda from China or elsewhere. 
Those are all steps that we can take. You know, I believe 
strongly that transparency is the sunlight and sunlight is the 
best disinfectant, and we can do a lot by revealing what China 
is doing and helping American citizens make better decisions.
    Senator Cortez Masto. I saw, Mr. Scissors, you were shaking 
your head. Would you agree with Dr. Hart's comments?
    Mr. Scissors. Melanie and I know each other well, so I 
should clarify that I was shaking my head in agreement. I 
usually shake my head at Melanie in disagreement, but in this 
case it is agreement. Yes, absolutely, the first step--we want 
to arm our people with information, and I do not want to repeat 
what Melanie said, but the U.S. Government itself does not 
recognize Chinese actors. I will give an example in my own 
field. We classify investment going in and out of the country 
wrongly. If a Chinese subsidiary is set up in Ireland, we act 
as if it is Irish. If we invest in the Caymans and it is ending 
up in China, we act as if we have invested in the Caymans. So 
you can imagine--and these are U.S. Government agencies with 
lots of money and lots of time and lots of people working for 
them. You can imagine that ordinary people have no way to do 
this.
    So, again, it is another boring step, providing 
information, but it will identify the further action that we 
need to take. I do not mean to say that this is the only thing 
we should do, but the first step is to identify actors as 
Chinese. And I will say that I am not an expert at all on 
Russia, but the Chinese have a lot more money. And so the first 
foreign actor I want to identify is our Chinese actors. There 
are other foreign actors who are going to try to cause trouble, 
but I do not think it is at the scale of China. I would be very 
surprised if it was. So step one, make the Chinese label 
themselves properly, and then we will figure out what to do 
from there.
    Senator Cortez Masto. Thank you. I notice my time is up. 
Thank you very much.
    Chairman Cotton. Thank you.
    I have one final set of questions I want to ask. It is not 
often that we have a member of Congress testify in front of us, 
and especially a member of Congress who is a former clandestine 
officer at the Central Intelligence Agency. So I want to take 
the opportunity to ask him a question about the way China 
conducts espionage against the United States. It has been 
recently reported that Christine Fang, who operated at the 
direction of the Chinese Ministry of State Security, spent 2011 
to 2015 befriending various American politicians, including 
mayors and members of Congress, through campaign fundraising, 
networking, and social relationships. She apparently managed to 
gain proximity to significant power. I think the case 
demonstrates China's strategy not only for targeting people who 
are in the Federal Government who have access to classified 
information, but also those who might at some point in the 
future later in their political careers rise into those 
positions, even if it takes years or decades to bear fruit.
    Representative Hurd, from your experience working as a CIA 
officer, what can you tell us about China's influence 
operations targeted toward elected officials?
    Mr. Hurd. So the Chinese intelligence services are--so the 
way you recruit a spy and steal secrets, it is the same no 
matter where you go. You spot, assess, develop, recruit, turn 
over. And the way the Chinese do it, each phase of that process 
is done by a different officer. And they look at what they 
consider to be intelligence as something that we might consider 
to be public source information.
    There is no way that the U.S. intelligence services would 
be looking at a city councilperson somewhere overseas. That 
just would not happen. If we go back to the 2016 election--and 
this is not a criticism of Federal law enforcement. When a 
political party was hacked, it did not immediately rise to the 
top of the agency and say, hey, something is happening, 
something is happening, because we would never care about 
another political party overseas.
    And so in this case, the fact that Fang Fang was focusing 
on folks at a lower level and then got close to a member of 
Congress that had access and was ultimately serving on the 
House Intelligence Committee should concern us all. And my 
frustration is--your earlier question, Ranking Member, what can 
Congress be doing? I have sat in CI, counterintelligence, 
briefings about these threats, and all members of Congress need 
to recognize the concern of the Chinese Party. And what I love 
about this hearing today is you have a diversity of ideas, and 
we all recognize the threat. That has not always been the case 
even in the House Permanent Select Committee on Intelligence.
    And so we need to make sure other members have been briefed 
on these tactics that the Chinese Government is using. I know 
that the Chinese Party uses honeypot operations because of my 
time in the CIA. However, in no briefing since I have been in 
Congress has there been anyone talk about these activities that 
we have seen happening out in California. That should scare us 
all because the only way that we can protect ourselves and 
recognize the threat is if we know what has already been done.
    And so this is textbook Chinese Government, and if they 
start using--you know, if the Chinese are great at seeding 
operations, the Russians are best in the world in 
disinformation. And the Chinese are learning about 
disinformation operations from the Russian. And as Mr. Scissors 
said, they have the money. You put those two things together, 
and they are going to be incredibly powerful.
    Chairman Cotton. Representative Hurd, if the CIA or, for 
that matter, most Western intelligence services would not 
target a city councilman or a county commissioner or a State 
legislator, hoping they ascend the political ladder in their 
future, what is it about the Chinese Communist Party that they 
do target such local and State officials?
    Mr. Hurd. They have a long-term approach. Why did they 
agree to the Brits to let them have Hong Kong for 95 years? 
Because they were fine taking it back after 95 years, right? 
And so they have this perspective, a long-term approach, and 
they are willing to play the long game. They are willing to 
invest years in an operation that may or may not bear fruit, 
and it is just they are willing to take that risk and put that 
time because they have a long-term plan. I think it is part of 
just their culture and how they have operated.
    Chairman Cotton. Thank you, Representative Hurd. That 
concludes my questions.
    Senator Cortez Masto, any further questions from you?
    Senator Cortez Masto. No, other than to say thank you. This 
has been so enlightening. I so appreciate everyone today this 
morning. And, Senator Cotton, thank you for having this 
hearing.
    Chairman Cotton. Thank you, Senator.
    I want to thank all of our witnesses once again for joining 
us. The hearing will now come to a close, and I also want to 
note that if any other Members of the Committee would like to 
submit questions for the record, those will be due by December 
23rd.
    So thank you all again for joining us. This hearing is 
adjourned.
    [Whereupon, at 10:53 a.m., the hearing was adjourned.]
    [Prepared statements supplied for the record follow:]
               PREPARED STATEMENT OF CHAIRMAN TOM COTTON
    This hearing will come to order. Welcome to today's meeting of the 
Economic Policy Subcommittee, which is open to questions from all 25 
Members of the Banking Committee.
    As a reminder, Members will be addressed in order of seniority on 
this Subcommittee followed by seniority on the larger Committee.
    I'd like to thank Senator Cortez Masto, her staff, and all the 
Committee staff for helping pull this together.
    We have an exceptional roster of witnesses today. I'd like to 
introduce them briefly.
    The Honorable Will Hurd has served as a member of the House of 
Representatives for 6 years, where he has been a leader on national 
defense and security issues. Most notably, he has served on the House 
Intelligence Committee as the ranking member of its Subcommittee on 
Intelligence Modernization and Readiness.
    Derek Scissors is a resident scholar at the American Enterprise 
Institute, where he focuses on the Chinese and Indian economies and on 
U.S. economic relations with Asia. He produces a wealth of handy 
resources related to China, notably the China Global Investment Tracker 
and the China Beige Book.
    Dr. Melanie M. Hart is a senior fellow and director of China policy 
at the Center for American Progress. Her most recent work focuses on 
developing a comprehensive U.S. strategy toward China, analyzing the 
domestic political factors driving Chinese foreign policy, tracking 
Chinese industrial policy, and assessing China's intentions toward the 
world.
    Finally, Roy Houseman is legislative director for the United 
Steelworkers, North America's largest industrial union. In that 
capacity, Mr. Houseman oversees congressional affairs and works to 
improve wages, hours, and conditions for the Steelworkers' 1.2 million 
members and retirees.
    Thank you all for testifying. And thanks to our audience for tuning 
in to our second hearing on this topic, ``U.S.-China: Winning the 
Economic Competition''.
    By now, it has dawned on many that the United States and China are 
at the beginning of a long economic competition. The big question now 
is whether we plan to fight or surrender.
    Thankfully, many people want to stand and fight, and we've made 
great strides in the past few years by, for example, strengthening 
oversight of foreign investment in the United States, tightening export 
controls of sensitive technology, and imposing sanctions on malign 
actors like Huawei.
    Despite these welcome actions, great challenges remain. The Wuhan 
virus pandemic has exposed the great extent to which we depend on the 
goodwill of the CCP to access essential goods, such as personal 
protective equipment and medicine.
    And each day, it seems, brings fresh revelations of ostensibly 
American companies kowtowing to China, whether it's Apple TV admitting 
it won't stream content critical of China. or massive hedge funds like 
Bridgewater Associates encouraging Americans to invest in Chinese 
companies so they can [QUOTE] ``have a stake in both sides'' of the 
next Cold War.
    Clearly, not everyone has woken up to the threat that China poses 
to our country--or perhaps they're awake to the threat, and are hedging 
their bets. There are even warning signs that the next Administration 
could roll back much of the progress we've made the past few years, in 
an attempt to return to the failed dream of engaging and accommodating 
China.
    But of course, winning our competition with China isn't a partisan 
issue. I've been fortunate to work with my Democratic colleagues on a 
number of important initiatives, from these hearings with Senator 
Cortez Masto, to my bill to restore semiconductor manufacturing in 
America with Minority Leader Schumer. I hope next Congress this body 
will continue to build on the good work we've done already, on a 
bipartisan basis.
    Hearings such as this are opportunities for us to explore new ideas 
at greater length, with top experts. So I'm looking forward to hearing 
what our witnesses have to say.
    One final note, for the record: over the past year, my staff have 
been hard at work on a report that addresses this very issue of 
competition with China--and how to win. That report is nearing 
completion, so I hope you'll all pick up a copy once it is released in 
the new year.
    Thanks again. Now, I'll turn it over to the Ranking Member for her 
remarks.
          PREPARED STATEMENT OF SENATOR CATHERINE CORTEZ MASTO
    Thank you, Senator Cotton, thank you to our witnesses.
    I'm glad to be here today to talk about a point of bipartisan 
agreement: that China is a strategic competitor on the global stage. 
And as we talk about what that means, I think it's important for us to 
think not only about what that means for our current moment, but for 
the decades to follow.
    Competition with China affects every sector--how we innovate, how 
we do business, how we tackle climate change, how we trade with other 
Nations, how we protect our national security, and how we're able to 
impact the world around us. We have an opportunity now--in the midst of 
this horrible pandemic--to use this point of bipartisan agreement to 
invest in our ability to compete, not just today, but tomorrow too.
    At key moments in history, when faced with overwhelming 
challenges--the Great Depression, putting the first man on the moon--
this country has risen to the challenge. I am looking forward today to 
talking about how we can make sure we have the right tools and right 
plan to do that again.
    China's economic activity makes up a growing share of our global 
economy. Some of that has been good for this country--we've added jobs 
and reduced the price of goods by expanding trade with China.
    But in other cases, it has not worked out well. In too many cases, 
Beijing has taken our technology, undercut our domestic manufacturing 
base, and created an unfair playing field for our companies and our 
workers.
    We have seen this competition play out in Nevada in multiple ways. 
At our military bases, leaders have repeatedly expressed concern about 
Chinese Government attempts to spy on the sensitive training that 
occurs there. I've heard similar concerns from leaders in other 
sectors--forced technology transfer and industrial espionage.
    In the critical mineral sector, we've seen a different but equally 
important aspect of the competition play out. While China has invested 
in developing the ability to extract and process critical minerals that 
are essential to many of our emerging technologies, we in the United 
States have underinvested in those capabilities. In Nevada, that has 
left important opportunities for economic growth untapped. Of course, 
we must pursue these opportunities in environmentally and socially 
responsible ways, but by failing to invest in these key sectors, we are 
giving Beijing the advantage and hurting ourselves.
    But in Nevada we also see another aspect of our relationship with 
China. We have strong cultural and economic ties to China. We have a 
diverse Asian American community in Las Vegas, with a vibrant Chinese 
American population. Our world class casinos and resorts attract more 
than 200,000 tourists from China annually. That is good for Nevada and 
it is good for China.
    So I believe we must approach our relationship with China with a 
clear-eyed commitment to doing what's best for the American people, but 
also with balance and attention to the nuanced nature of our 
relationship.
    We need to be able to compete, and look for opportunities to 
cooperate. We need to be able to call out the Chinese Government where 
we disagree, while still respecting the rights and freedoms of people 
in China and of Chinese Americans here at home.
    I see three parts to our response to economic competition with 
China.
    First, we must invest at home. I've led bipartisan bills like the 
ACCESS BROADBAND, SPEED, and Moving FIRST Acts to strengthen our 5G and 
broadband infrastructure and our emerging tech sector. We must ensure 
we are investing in innovation to bolster our manufacturing industry, 
especially in the sectors that will create the jobs of the future, like 
clean energy.
    I joined my colleagues on the Senate Democrats' Special Committee 
on the Climate Crisis over the past 2 years, where we heard from 
stakeholders about the opportunities a clean economy can unlock for 
domestic manufacturing. I look forward to talking more about some of 
these opportunities today.
    We also must protect and support our most important asset--our 
people. I am a longtime advocate for collective bargaining rights, 
supporting safe and fair workplaces and the growth of good paying jobs 
in Nevada, and throughout the country. I am also proud to say today 
that I am joining my colleagues Senators Schumer, Menendez, and others 
in cosponsoring America LEADS, which is the most comprehensive China 
legislation to date, and makes significant investments in the resources 
our workers, entrepreneurs, researchers, and manufacturers need to get 
ahead and stay ahead.
    Second, we must rebuild our relationships with our allies and 
partners, so we can face the China challenge together. We will not win 
in this competition on our own. President Trump has rightfully 
identified some of China's unfair trade practices, but he has gone 
about addressing them in a way that has hurt Americans.
    That is why I've advocated for stronger enforcement mechanisms in 
trade agreements, including in U.S.-China trade negotiations and 
questioned the Trump administration on their strategy of alienating our 
closest allies in an increasingly globalized economy.
    Third, we must ensure we have the Government structures to 
adequately address this challenge. Competition with China does not fit 
neatly into committee jurisdictions or bureaucratic organizational 
charts.
    That is why I've been working with my colleagues to build an 
informal bipartisan working group to ensure we are talking across 
committees about these challenges. And I am exploring legislation for 
the next Congress to work with the Executive branch around similar 
issues, especially on emerging technology.
    Finally, we are in a unique moment right now. So many of us are 
hurting from this horrific pandemic. We are working to pass another 
COVID relief package, which we sorely need. But I also see an 
opportunity in this moment for us to really double down, to make 
investments not just to get us over this short-term challenge, but to 
set us up to lead in the 21st century.
    I am grateful to our witnesses who are here today to talk about the 
current state of this competition and the policy tools we need to 
address it.
    Melanie Hart from the Center for American Progress, whose expertise 
on China's industrial policies and thoughtful work on crafting 
responses will offer us valuable insights into what a balanced but 
strong response looks like.
    Roy Houseman from United Steelworkers, whose work to elevate and 
advance policies that help American workers will offer us valuable 
insights today on how we can continue to invest our economic future.
                                 ______
                                 
        PREPARED STATEMENT OF REPRESENTATIVE WILL HURD OF TEXAS
    Senator Cotton, Ranking Member Cortez Masto, thank you for holding 
this timely hearing and for inviting me to testify today. As a former 
CIA officer and a member of Congress on the House Permanent Select 
Committee on Intelligence, I've seen how the Chinese Government 
threatens global supply chains, steals American intellectual property 
and economically bullies smaller countries. 2020 brought this reality 
to every American household.
    We in Congress were the first to recognize the potential for China 
to replace the United States as the most important economy in the 
world. Investigations into China's Thousand Talent program and its Belt 
and Road program initiated in Congress. Congress has long led the fight 
for human rights in China, first by focusing attention on what China is 
doing in Tibet, and then by raising concerns about China's horrific 
treatment of its Muslim Turkic population.
    I am trained to look beyond the obvious and it has been clear to me 
for a long time that China is playing a long game to become the sole 
world hegemon. It is past time for the United States to put in place a 
comprehensive strategy of dealing with China.
    I am not suggesting a containment strategy like how we contained 
the Soviet Union because our interdependence with China is so much 
greater.
    We know what does not work. As we look at the history of the U.S. 
and China relationship, we have a clear picture of actions which failed 
to produce the desired results. Economic interdependence with China and 
encouraging China to become part of the global economic structure did 
not create a genuine market economy nor reform China's political 
system. This Administration's aggressive use of the sanction policy 
also failed to change the behavior of Chinese communists and made them 
more entrenched and threatening towards their neighbors.
    Instead, the first step is for all branches of Government, the 
private sector and academia to accept that China, despite its trappings 
of a capitalist system, like the Shanghai Stock Exchange, is an 
authoritarian society which is ruled by an unreformed Communist Party. 
The CCP does not tolerate dissent, imprisons dissidents, and builds 
concentration camps for those it wants to ``reform.'' These actions 
need to be met with a foreign policy and national security strategy 
where one of its planks is based on a simple principle: Be nice with 
nice guys and tough with tough guys.
    The second step is to define clear goals--what do we want our 
competition to achieve? During the Cold War, the objective was to 
contain and possibly reduce Soviet influence, not a regime change.
    Right now, the U.S. is an underdog in this global competition 
because we dismantled our Cold War apparatus that fought the Soviets on 
the airwaves, in the media, and in institutions of higher learning. In 
this case, we also have a sophisticated technological adversary which 
has already made significant inroads in our free, open, and democratic 
society in a way the Soviets never did. We do have leverage because our 
economy is the largest market for Chinese made goods. Congress and the 
new Administration must focus on trade policies that incentivize 
structural changes in China's economy and its treatment of foreign 
companies and investors. Simply, we need reciprocity. If American 
companies and investors are unable to do something in China, then 
Chinese companies and investors should be unable to do those same 
things here.
    Our second weapon is the American people--they don't want to buy 
products made by slave labor or watch movies produced in Chinese 
provinces which engage in horrific behavior towards its citizens. And 
while I oppose cutting off academic and other ties with Chinese people 
because I believe that Chinese students and academics studying and 
teaching here can see for themselves the benefits of living in a free 
society, we need to institutionalize screening of such visa applicants 
to weed out those with connections to the CCP and PLA.
    Every American voter should care about this struggle because we 
face a potential future where Mandarin and the yuan, not English and 
the dollar, dominate the global economy. Whoever wins this generation-
defining struggle will not just affect our economy but will shape the 
rest of the century for the entire world.
    Thank you again for having me at today's hearing, and I look 
forward to your questions.
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                  PREPARED STATEMENT OF DEREK SCISSORS
            Resident Scholar, American Enterprise Institute
                           December 16, 2020
    American economic competition with China may be more silver lining 
than dark cloud. Chinese competitiveness is likely to decline, due to 
aging, debt, and poor long-term choices affecting rural areas and 
innovation. As a more broadly innovative and soon to be younger 
country, the U.S. has better economic fundamentals and can have them 
indefinitely.
    This happy baseline however, makes for poor incentives. Beijing's 
are clear: try to offset declining competitiveness through more 
predatory policy. In particular, use subsidies and (coercive) transfer 
of intellectual property to undermine national and corporate rivals. 
Meanwhile, American incentives are muted. With better fundamentals and 
much more wealth, the U.S. has room to make further mistakes, such as 
continued leveraging and unwillingness to take costly measures to 
respond directly to China.
    This is seen in needed policies, which will be controversial. Some 
observers celebrate large budget deficits not causing higher interest 
rates, but $1 trillion spent with no sustained return is still a bad 
idea. Ideally, borrowing would fund research and human capital 
improvements--education and health--with future payoffs. Better China 
policy may be more politically feasible. Neither bilateral trade 
deficits nor long-term climate cooperation, for example, matter much to 
competitiveness. Instead, subsidies and intellectual property (IP) are 
vital. The U.S. should:

  1.  Steadily increase Federal research and development spending, 
        which has been underemphasized for decades, through the 2020s.

  2.  Experiment with education programs aimed at boosting labor 
        productivity, since education is a major advantage over China.

  3.  Document Beijing's harmful behavior with regard to 
        competitiveness, featuring subsidies, IP transfer, and capital 
        flows.

  4.  Using this, apply countervailing duties much more broadly to 
        subsidized Chinese production.

  5.  Implement the export control reform passed in 2018.

  6.  Ban business with Chinese firms benefiting from stolen or coerced 
        IP.

  7.  Evaluate the competitiveness impact of growing American capital 
        flows to China, possibly restricting flows in a select set of 
        industries.
China Starts Sinking
    The People's Republic of China (PRC) is presently taking over the 
world, the same way the Soviet Union did in the 1960s and Japan did in 
the 1980s. Its economy is large, it grew rapidly in the past, and there 
is controversy over its trajectory. There should be less. Since Xi 
Jinping became General Secretary of the Party, the PRC has shown little 
interest in procompetition, proproperty rights reform. Without that, 
Chinese competitiveness will unavoidably decline.
    The debt situation is familiar. At the end of 1997, outstanding 
credit was 109 percent of GDP. Eleven years later, it was 139 percent. 
Eleven years after that, in 2019, it was 259 percent. \1\ The 
equivalent American figures are 186 percent, 240 percent, and 254 
percent of GDP. Here, China has indeed caught up. Beijing acknowledges 
that the era of fast growth is over, and aging will require more 
Government spending. The only way to maintain or improve the 
contribution of capital to economic growth is to cut State bank lending 
to State-owned enterprises, whose debt easily exceeds $20 trillion. A 
cut is certainly not Xi's intention. \2\
---------------------------------------------------------------------------
     \1\ Bank for International Settlements, ``End-of-Year Credit to 
Nonfinancial Sector From All Sectors at Market Value--Percentage of 
GDP--Adjusted for Breaks'', updated December 7, 2020, https://
www.bis.org/statistics/totcredit.htm?m=6%7C380%7C669.
     \2\ Jia Chen and Nan Zhong, ``Debt Burden of State-Owned 
Enterprises Decreases in 2018'', China Daily, October 24, 2019, https:/
/www.chinadaily.com.cn/a/201910/24/WS5db10417a310cf3e355723dd.html; and 
Frank Tang, ``Xi Jinping Calls for China's State-Owned Enterprises To 
Be `Stronger and Bigger', Despite U.S., EU Opposition'', South China 
Morning Post, November 3, 2020, https://www.scmp.com/economy/china-
economy/article/3108288/xi-jinping-calls-chinas-state-owned-
enterprises-be-stronger.
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    Demography will eclipse debt as a drag. According to the U.N., 
Japan's media age was 22.3 years in 1950 and 37.3 in 1990, when its 
stagnation set in. In 1980, with reform under way, China's median age 
was 21.9. In 2020, it is estimated at 38.4, a slightly worse path than 
Japan's. By 2015, Japan's median age was 46.4; in a generation, China's 
is forecast to be 47.2. \3\ The 2022-2035 period will see the fastest 
aging, the age 65+ cohort expanding by close to 100 million within a 
roughly stable population. \4\ As retirees exit and unemployment 
shrinks, labor market reform will be easier, but it will not save 
productivity in the face of this kind of contraction.
---------------------------------------------------------------------------
     \3\ World Population Prospects, ``Median Age of the Total 
Population (Years)'', United Nations, Department of Social Affairs, 
2019, https://population.un.org/wpp/DataQuery/.
     \4\ Xizhe Peng, ``Coping With Population Ageing in Mainland 
China'', Asian Population Studies, November 4, 2020, https://
www.tandfonline.com/doi/full/10.1080/17441730.2020.1834197.
---------------------------------------------------------------------------
    Land is an underrated problem. The PRC imports commodities such as 
iron ore to a far greater extent than its economic size requires. One 
reason is a ban on private land ownership, which Xi has had years to 
change and refused. \5\ Agriculture imports are the world's largest at 
$133 billion in 2019, crude oil imports were $100 billion more than 
that. \6\ Rural Chinese do not control their farming choices and cannot 
sell their land. Related to this is education, where rural attainment 
badly lags urban. \7\ As a result, official 2019 disposable income per 
capita was just $2,300. \8\ The number reflects 550 million rural 
citizens still held back in contribution to competitiveness.
---------------------------------------------------------------------------
     \5\ Ian Johnson, ``Barred From Owning Land, Rural Chinese Miss 
Spoils of Country's Success'', New York Times, September 28, 2019, 
https://www.nytimes.com/2019/09/26/world/asia/china-land-rights-
farming.html.
     \6\ United States Department of Agriculture, Foreign Agricultural 
Service, ``China: Evolving Demand in the World's Largest Agricultural 
Import Market'', September 29, 2020, https://www.fas.usda.gov/data/
china-evolving-demand-world-s-largest-agricultural-import-market; and 
Daniel Workman, ``Top 15 Crude Oil Suppliers to China'', World's Top 
Exports, http://www.worldstopexports.com/top-15-crude-oil-suppliers-to-
china/.
     \7\ Qianer Liu and Yuan Yang, ``Online Classes Exacerbate China's 
Rural-Urban Education Gap'', Financial Times, April 29, 2020, https://
www.ft.com/content/18455abf-d683-48f1-a6ed-b97bf3fc162e.
     \8\ National Bureau of Statistics of China, ``Statistical 
Communique of the People's Republic of China on the 2019 National 
Economic and Social Development'', February 28, 2020, http://
www.stats.gov.cn/english/PressRelease/202002/t20200228_1728917.html.
---------------------------------------------------------------------------
    Innovation to the rescue? The Party hopes so. \9\ In contrast to 
other factors, innovation trends are positive. Annual research and 
development (R&D) spending is rising as a share of GDP. So are Chinese 
patents granted in the U.S. (grants in China are not useful 
information). \10\ But it is difficult under ideal conditions for 
innovation to carry such a large economy in the face of aging and high 
debt. Innovation conditions are not ideal, due to the insistence on 
huge State quasimonopolies in more than a dozen major industries. To 
illustrate, the PRC has 10 companies in Fortune's top 50. Seven are 
guaranteed a degree of monopoly power and have little reason to 
innovate. \11\
---------------------------------------------------------------------------
     \9\ Reuters, ``China Will Step up Technology Innovation To Drive 
Growth: President Xi'', August 24, 2020, https://www.reuters.com/
article/china-economy-xi/china-will-step-up-technology-innovation-to-
drive-growth-president-xi-idINKBN25K1BP.
     \10\ OECD Data, ``Gross Domestic Spending on R&D'', 2020, accessed 
December 8, 2020, https://data.oecd.org/rd/gross-domestic-spending-on-
r-d.htm; and United States Patent and Trademark Office, ``Calendar Year 
Patent Statistics (January 1 to December 31)'', https://www.uspto.gov/
web/offices/ac/ido/oeip/taf/reports-stco.htm.
     \11\ Fortune, ``Global 500'', 2020, https://fortune.com/global500/
2020/search/.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Other witnesses may examine U.S. competitiveness in more detail. 
The World Economic Forum identifies key American strengths in internal 
labor mobility, availability of venture capital, and scientific 
publications, among others. \22\ The near-elimination of very large net 
petroleum imports in 15 years is both a signal of and a minor input to 
long-term competitiveness. \23\ In a comparison to China, the U.S. 
leads almost across the board, with the most sizable advantage in the 
crucial measure of labor productivity. Related, mean years of schooling 
in the U.S. is 5.5 years higher than in the PRC and it would take 
decades to close the gap. \24\
---------------------------------------------------------------------------
     \12\ Bank for International Settlements, op. cit.
     \13\ Board of Governors of the Federal Reserve System (U.S.), ``M2 
Money Stock'', retrieved from Federal Reserve Bank of St. Louis, 
December 7, 2020, https://fred.stlouisfed.org/series/M2.
     \14\ Table 19-4 in National Bureau of Statistics of China, 
``Annual Data'', http://www.stats.gov.cn/english/Statisticaldata/
AnnualData/; and ``Financial Intermediation--Money Supply at National 
Bureau of Statistics of China'', https://data.stats.gov.cn/english/
?cn=A01.
     \15\ World Bank, ``GDP per Person Employed (Constant 2017 PPP 
$)'', March 1, 2020, Accessed August 13, 2020, https://
data.worldbank.org/indicator/SL.GDP.PCAP.EM.KD?locations=US-
CN&view=chart.
     \16\ World Population Prospects, op. cit. Interpolated.
     \17\ Paul Heney, ``Global R&D Investments Unabated in Spending 
Growth'', R&D World, March 19, 2020, https://www.rdworldonline.com/
global-rd-investments-unabated-in-spending-growth/.
     \18\ CGTN, ``China's Spending on R&D Rises to 2.23 percent of its 
GDP in 2019'', August 28, 2020, https://news.cgtn.com/news/2020-08-28/
China-s-spending-on-R-D-rises-to-2-23-of-its-GDP-in-2019-TjJCRYE6t2/
index.html.
     \19\ Total citations net of self-citations, U.S./China and China/
U.S. from Scimago Institutions Rankings, ``Scimago Journal & Country 
Rank'', 2000, 2018, and 2019, https://www.scimagojr.com/
countryrank.php.
     \20\ UNCTAD Stat, ``Trade in Services, Values, Shares, and Growth, 
Annual'', UNCTAD Stat, ``Merchandise: Total Trade and Share, Annual'', 
UNCTAD Stat, ``Exports and Imports of Total Services, Value, Shares and 
Growth, Annual'', https://unctadstat.unctad.org/wds/ReportFolders/
reportFolders.aspx; and UNCTAD Stat, ``Exports and Imports of Goods and 
Services, Annual, 1980-2013 (Discontinued)'', https://
unctadstat.unctad.org/wds/TableViewer/tableView.aspx?ReportId=25116.
     \21\ UNCTAD Stat, ``Foreign Direct Investment: Inward and Outward 
Flows and Stock, Annual'', https://unctadstat.unctad.org/wds/
TableViewer/tableView.aspx?ReportId=96740.
     \22\ Klaus Schwab, ``The Global Competitiveness Report 2019'', 
World Economic Forum, 2019, http://www3.weforum.org/docs/WEF-
TheGlobalCompetitivenessReport2019.pdf.
     \23\ Independent Statistics & Analysis, ``Petroleum & Other 
Liquids'', United States Energy Information Administration, November 
30, 2020, https://www.eia.gov/dnav/pet/hist/
LeafHandler.ashx?n=pet&s=mttntus2&f=a.
     \24\ United Nations Development Programme, Human Development 
Reports, ``Human Development Index (HDI)'', http://hdr.undp.org/en/
data.
---------------------------------------------------------------------------
    But the better team still loses when it call the wrong plays. For 
two decades, policies important for economic competitiveness have been 
made more for political convenience. At the end of 1999, public debt 
was 13.4 percent of household net worth. At the end of 2019, it was 
19.6 percent. \25\ The economy did not become more dynamic during this 
time--it was not the borrowing for long-term return always touted by 
advocates of deficit spending. In a further sign of ill health, the 
discount rate the Federal Reserve offers banks has not passed 3 percent 
since 2008. \26\ If growth can only be achieved through leveraging, it 
will stop. The only question is how soon.
---------------------------------------------------------------------------
     \25\ Board of Governors of the Federal Reserve System (U.S.), 
``Households and Nonprofit Organizations; Net Worth, Level'', retrieved 
from Federal Reserve Bank of St. Louis, December 7, 2020, https://
fred.stlouisfed.org/series/TNWBSHNO and United States Department of the 
Treasury, Fiscal Service, ``Federal Debt: Total Public Debt'', 
retrieved from Federal Reserve Bank of St. Louis, December 7, 2020, 
https://fred.stlouisfed.org/series/GFDEBTN.
     \26\ International Monetary Fund, ``Interest Rates, Discount Rate 
for United States'', retrieved from Federal Reserve Bank of St. Louis, 
December 7, 2020, https://fred.stlouisfed.org/series/INTDSRUSM193N.
---------------------------------------------------------------------------
What China Will Do
    Xi's been General Secretary for 7 years, he's not suddenly going to 
become a market reformer. Barring internal failure or external 
confrontation, the policy path is set. The fiscal deficit will remain 
large--as a share of GDP, it was larger than ours in 2019. Bank lending 
will continue to outpace nominal GDP, as it has since 2002. \27\ 
Leveraging will thus worsen. Land rights will be limited, keeping rural 
Chinese poor. On the labor side, the two-child policy has had little 
impact to now and cannot boost competitiveness for two decades. \28\ 
Labor mobility will increase, improving educational attainment for 
rural migrants, but that will also be slow.
---------------------------------------------------------------------------
     \27\ Xinhua, ``China's Fiscal Revenue Growth Slows Amid Tax 
Cuts'', February 20, 2020, http://www.xinhuanet.com/english/2020-02/10/
c_138771503.htm; and National Bureau of Statistics of China, ``Annual 
Data'', http://www.stats.gov.cn/english/Statisticaldata/AnnualData/.
     \28\ Jing Yu and Yiwei Hu, ``Is China Seeing a Baby Boom Five 
Years Into Two-Child Policy?'' CGTN, October 29, 2020, https://
news.cgtn.com/news/2020-10-29/-Five-years-into-two-child-policy-China-
s-birth-rate-is-declining-UYIc05CtLa/index.html.
---------------------------------------------------------------------------
    The PRC will continue to spend heavily on innovation, with some 
success. But the aversion to competition will blunt innovation in 
industries where State firms are mandated to play the leading role. 
This undercuts expectations from 10-15 years ago that China would come 
to respect foreign IP. With innovation nonetheless becoming more 
important economically, theft from and coercion of foreign IP holders 
will be intense. It's possible to identify some targets. Beijing will 
focus on IP transfer in sectors and products where the State leads and 
results are obviously lagging, as seen with chipmakers Tsinghua 
Unigroup and Wuhan Hongxin recently. \29\
---------------------------------------------------------------------------
     \29\ Yusho Cho, ``Tsinghua Unigroup Default Tests China's 
Chipmaking Ambitions'', Nikkei Asia, November 18, 2020, https://
asia.nikkei.com/Business/China-tech/Tsinghua-Unigroup-default-tests-
China-s-chipmaking-ambitions; and Guoping Luo and Yelin Mo, ``Wuhan's 
Troubled $18.5 Billion Chipmaking Project Isn't as Special as Local 
Officials Claimed'', Caixin Global, September 4, 2020, https://
www.caixinglobal.com/2020-09-04/wuhans-troubled-185-billion-chipmaking-
project-isnt-as-special-as-local-officials-claimed-101601504.html.
---------------------------------------------------------------------------
    The incentive for more predatory behavior in IP extends to more 
predatory behavior generally. Intense subsidies have cost the PRC a 
great deal financially but have generated technology, industrial, and 
employment benefits, due in part to the complete lack of foreign 
response. They result in China's preferred outcome: the costs of 
limited competition being imposed globally while its benefits go 
disproportionately to Chinese entities. Limiting State intervention in 
favor of the market, in comparison, would save money but extend 
dependence on foreign companies. Barring durable and serious foreign 
retaliation, there is no reason for Beijing to curb subsidies.
    Complementing its attempts to be more independent are louder 
attempts to use others' dependence as a weapon. These are not new, but 
the PRC's greater willingness to be open about them is an important 
signal of future behavior for dependent countries and companies. 
Australia is currently facing a series of Chinese trade sanctions, in 
part for enforcing its own laws. A number of Governments have boasted 
of billions in Chinese loans and investment, which will only 
materialize under difficult conditions, either in terms of costs or 
ownership of prized assets. \30\ The past year or two has seen some 
American financials possibly becoming dependent on the China market, 
with total U.S.-to-PRC capital flow exceeding $900 billion. \31\
---------------------------------------------------------------------------
     \30\ Jonathan Kearsley et al., `` `If You Make China the Enemy, 
China Will Be the Enemy': Beijing's Fresh Threat to Australia'', Sydney 
Morning Herald, November 18, 2020, https://www.smh.com.au/world/asia/
if-you-make-china-the-enemy-china-will-be-the-enemy-beijing-s-fresh-
threat-to-australia-20201118-p56fqs.html; and Jason Koutsoukis and 
Cecilia Yap, ``China Hasn't Delivered on Its $24 Billion Philippines 
Promise'', Bloomberg Quint, July 26, 2018, https://
www.bloombergquint.com/global-economics/china-s-24-billion-promise-to-
duterte-still-hasn-t-materialized.
     \31\ Antonio Coppola et al., ``Redrawing the Map of Global Capital 
Flows: The Role of Cross-Border Financing and Tax Havens'', July 2020, 
https://globalcapitalallocation.s3.us-east-2.amazonaws.com/CMNS-
Paper.pdf; and Derek Scissors, ``American Funding of China Is Becoming 
Dangerous'', American Enterprise Institute, December 2020, https://
www.aei.org/wp-content/uploads/2020/12/American-Funding-of-China-Is-
Becoming-Dangerous.pdf.
---------------------------------------------------------------------------
What America Should Do
    Changing American policy to compete with China will be 
controversial. Since the end of the cold war, fiscal and monetary 
policy has often looked like an exercise in buying short-term 
popularity. A large budget deficit was justified from 2008-2010 and in 
2020-21. Excluding those years, Federal debt since 1990 has still risen 
over $9 trillion. Little of it was invested in the future in any 
meaningful sense; there was no economic or strategic justification for 
borrowing. The discount rate has never returned to 1990 levels. Low 
interest rates value the present over the future, making it difficult 
to raise productivity and thus competitiveness. \32\
---------------------------------------------------------------------------
     \32\ Ernest Liu et al., ``Low Interest Rates, Market Power, and 
Productivity Growth'', NBER Working Paper 25505, National Bureau of 
Economic Research, August 2020, https://scholar.princeton.edu/sites/
default/files/ernestliu/files/lms-2020-revised-final.pdf.
---------------------------------------------------------------------------
    That's a 30,000 foot view; closer to the ground is no better. 
Defense R&D was lower in absolute terms--forget inflation and economic 
growth--in 2019 than 1990. Interest on the debt is often said to be 
low. It was $190 billion higher in 2019 than 1990, while nondefense R&D 
was only $33 billion higher, the opposite of procompetitiveness 
spending. \33\ The Government must not boost individual companies or 
bring particular products to market. But development spending is only 
0.3 percent of GDP and should return to near 0.7 percent, as seen in 
the 1980s.
---------------------------------------------------------------------------
     \33\ Office of Management and Budget, ``Historical Tables'', 
https://www.whitehouse.gov/omb/historical-tables/; and American 
Association for the Advancement of Science, ``Historical Trends in 
Federal R&D'', https://www.aaas.org/programs/r-d-budget-and-policy/
historical-trends-federal-rd.
---------------------------------------------------------------------------
    Human capital, featuring education and health, is vital to 
competitiveness. A healthy population is not measured by spending; they 
may even be negatively related. In 2019, Federal health care spending 
was $1.2 trillion, with research, training, and occupational safety 
only $42 billion of that. More spending to improve health would be 
superior to paying to treat ill health. Federal education outlays have 
been rising, but totaled only $115 billion in 2019. It will certainly 
be a challenge to make greater education spending valuable in raising 
productivity, but competing with China makes it at least worth an 
attempt.
Direct Responses to China
    Enhancing economic competitiveness is unavoidably slow. If the 
U.S.-PRC rivalry is at its most intense in 2035, there's time. If the 
threat from China peaks in the 2022-2028 period, though, more urgent 
action is required. The 2030s may see lower tension than the 2020s 
because Chinese demographic deterioration will become stark and Xi will 
be increasingly weak or have departed (he would be 74 at the 2027 Party 
Congress). If the greater danger is over the next 8 years or so, 
reacting directly to Beijing on competitiveness is correspondingly more 
important.
    There are generally three China camps: (i) the status quo is fine; 
(ii) sanctions will best improve America's position; or (iii) 
separation will best improve America's position. Endless talk aside, 
the first view remains dominant, as seen in the widespread 
unwillingness to bear sizable costs to change the status quo. If that 
continues, so will loss of jobs and companies, while some sectors 
continue to benefit. On sanctions, President Trump's tariffs, if 
sustained, can narrowly boost American competitiveness over Chinese. 
But they have not been accompanied by any other meaningful sanctions, 
probably due to the President's overemphasis on bilateral goods trade. 
\34\
---------------------------------------------------------------------------
     \34\ Continued sales to Huawei are telling. Office of Public 
Affairs, ``Chinese Telecommunications Conglomerate Huawei and 
Subsidiaries Charged in Racketeering Conspiracy and Conspiracy To Steal 
Trade Secrets'', United States Department of Justice, February 13, 
2020, https://www.justice.gov/opa/pr/chinese-telecommunications-
conglomerate-huawei-and-subsidiaries-charged-racketeering; and Linda 
Hardesty, ``Intel Receives Commerce Dept. License To Sell to Huawei'', 
Fierce Wireless, September 22, 2020, https://www.fiercewireless.com/
regulatory/intel-receives-commerce-dept-license-to-sell-to-huawei.
---------------------------------------------------------------------------
    While Xi remains in power, it will be more productive to partly 
separate the two economies. \35\ Outside of competitiveness, this will 
reduce both benefits being provided to the People's Liberation Army and 
indirect U.S. support for worsening Chinese repression. Decoupling can 
also improve our relative competitiveness in advanced technology, in 
Covid-related and other critical products, and in many ordinary goods, 
in light of pervasive Chinese economic distortions
---------------------------------------------------------------------------
     \35\ Derek Scissors, ``Partial Decoupling From China: A Brief 
Guide'', American Enterprise Institute, July 2020, https://www.aei.org/
wp-content/uploads/2020/07/Partial-decoupling-from-China.pdf.
---------------------------------------------------------------------------
    The first step is the same for all serious China policies: better 
document the subsides Beijing employs (regulatory protection as well as 
financial support), the sectors and firms involved in IP theft and 
transfer, the end users of the huge amount of American investment in 
the PRC, and so on. Countervailing duties (CVDs) against subsidies can 
easily exceed 100 percent. With better documentation, the scope of CVDs 
can be greatly expanded, improving relative American competitiveness 
here and blunting some of the advantages granted by China's subsidies. 
This may encourage the PRC's other partners to follow suit, when 
shipments originally intended for the U.S. hit their markets.
    Technology transfer that boosts Chinese competitiveness should be 
sharply curbed by finally implementing the export control reform passed 
by Congress in 2018. Most important to competitiveness are ``emerging 
technologies'' as designated by that legislation. \36\ Further, Chinese 
entities that have benefited from illegal IP transfer should not be 
permitted to do any business with American partners for a period 
suiting the value of the IP. Finally, U.S. funds flowing into China 
should be evaluated for competitiveness effects--is the return for 
American investors worth the capital being provided to the PRC? This 
will almost certainly vary by sector and end user. A large 
competitiveness loss would warrant limitations.
---------------------------------------------------------------------------
     \36\ Lindsay B. Meyer et al., ``Commerce Releases Long-Awaited 
Proposed Rulemaking for `Foundational Technologies' but Significant 
Questions Remain'', Venable LLP, August 28, 2020, https://
www.venable.com/insights/publications/2020/08/commerce-releases-long-
awaited-proposed.
---------------------------------------------------------------------------
    These actions would involve the Congress, United States Trade 
Representative, International Trade Commission, and departments of 
Commerce, Justice, and Treasury, at least. To actively improve American 
competitiveness versus China requires a comprehensive strategy and 
costly implementation. Or we can just hope for the best. That will 
probably work by 2035 or 2040, but passive policy will leave the next 
15 years painful for many more companies and workers.
                                 ______
                                 
                   PREPARED STATEMENT OF MELANIE HART
   Senior Fellow and Director for China Policy, Center for American 
                                Progress
                           December 16, 2020
    Chairman Cotton, Ranking Member Cortez Masto, and distinguished 
Members of the Subcommittee, thank you for the opportunity to testify 
before you today.
    The global economy is entering a period of great change. The fourth 
industrial revolution is beginning to unfold. Digital networks are now 
fast enough to enable a previously unimaginable array of devices to 
work in concert, ushering in new applications such as self-driving cars 
and AI-powered manufacturing. We do not yet know exactly what this 
revolution will bring, but we know it will involve fundamental change.
    Chinese leaders view this transition as their Nation's strategic 
opportunity. Chinese President Xi Jinping frequently states that ``the 
world is undergoing profound changes unseen in a century.'' Beijing 
sees the United States drifting, squandering its resources, and 
allowing its comparative advantages--the advantages that China cannot 
match--to atrophy. In the 20th century, the United States invested 
unswervingly in the foundations of its own power, building the world's 
leading innovation economy. But since the early 2000s the United States 
has faltered. Instead of investing in its own competitiveness, it 
coasted on investments made decades ago. Now, as a new industrial 
revolution dawns, the United States is losing its edge.
    Meanwhile, Beijing has sought to beat the United States at its own 
game: investing in the foundations of its own domestic economic power 
the way the United States did in previous decades. Beijing knows 
drifting Nations do not prevail in industrial revolutions. Chinese 
leaders see a once-in-a-century opportunity to catch up to and 
potentially surpass the United States, and they are dedicating massive 
resources to achieve that goal. In addition to making smart investments 
modeled on previous U.S. success, Beijing is also deploying market-
distorting industrial policies to siphon technical know-how from the 
United States, tilt global markets in China's favor, and speed the 
catching-up process. When measured in domestic purchasing power, 
China's GDP already surpasses that of the United States. Beijing's 
ultimate aim is to reshape the global economic order, bringing about a 
system in which China is the dominant economic and technical power and 
the Chinese Communist Party determines which firms, technologies, and 
ideas succeed in global markets.
    If China prevails, there is a risk the United States and the world 
will be less free, less prosperous, and less safe. The United States 
does not need to engage China in a Cold War to avoid this outcome. 
However, it does need to put its own ideas on the table 
internationally, advocate for that vision, reassert global leadership, 
and rectify a pattern of serious missteps at home. \1\ On the economic 
front, the U.S. has a near-term opportunity to respond to this 
challenge in ways that will put our Nation on a path to prosperity for 
decades to come. To prevail, the U.S. must do two things effectively: 
(1) double down on its own comparative advantages--the advantages that 
China cannot match; (2) build a broad global coalition to effectively 
counter and neutralize China's predatory behavior.
---------------------------------------------------------------------------
     \1\ Melanie Hart and Kelly Magsamen, ``Limit, Leverage and 
Compete: A New Strategy on China'', Center for American Progress, April 
2019.
---------------------------------------------------------------------------
    This testimony will cover four main points:

  1.  Over the past two decades, China prioritized investing in the 
        foundations of economic power; the United States did not. That 
        is why China is now our peer competitor.

  2.  In addition to investing at home, Beijing deploys predatory 
        industrial policies that siphon off U.S. technology advantages 
        and boost Chinese firms over their American competitors.

  3.  Beijing is responding to the Trump administration's policies by 
        doubling down on both the domestic investment and predatory 
        aspects of its economic strategy.

  4.  The United States must do two things to compete at full strength: 
        invest in its own comparative advantages; form broad coalitions 
        to neutralize China's predatory behavior.
Investment Disparities Erode U.S. Innovation Edge
    For decades, Beijing has funneled State resources into building the 
foundations of economic power: education, infrastructure, R&D, and 
higher-end manufacturing capabilities. During the same time period, 
U.S. investments in its own foundations have remained relatively flat. 
That disparity plays a critical role in the declining U.S. edge vis-a-
vis China.
    Research and Development: For decades, the United States has been 
the world's largest R&D spender, and those investments gave it an edge 
in global innovation. However, the United States has not adjusted its 
R&D strategy to keep up with rapid technology developments, and China 
is now on track to surpass the United States and may have already done 
so. Total global R&D spending tripled from 2000 ($722 billion) to 2017 
($2.2 trillion), growing an average 11 percent per year. \2\ Over that 
same time period, China's R&D spending grew an average 17 percent per 
year while U.S. spending grew just 4.3 percent per year. In 2000, the 
U.S. spent $268 billion on R&D, dwarfing China's $33 billion. By 2010, 
China had narrowed the gap (spending $213 billion) but was still 
substantially behind the U.S. ($408 billion). In 2015 China surpassed 
Europe as the world's largest R&D spender. Between 2015 and 2017 the 
remaining U.S.-China spending gap shrunk by 40 percent. As of year end 
2020, China may now have surpassed the United States.
---------------------------------------------------------------------------
     \2\ R&D spending data from National Science Board, ``The State of 
U.S. Science and Engineering 2020'', January 2020, available at https:/
/ncses.nsf.gov/pubs/nsb20201/global-r-d.
---------------------------------------------------------------------------
    China rapidly caught up to the United States because U.S. spending 
as a percentage of GDP has remained relatively flat: it was 2.6 percent 
in 2000 and 2.8 percent in 2017. The world entered the digital era, but 
the United States did not change its R&D investment strategy. China did 
not make the same mistake.
    Infrastructure: A similar pattern is playing out in public 
infrastructure. While China invests in a world-class system, the United 
States forces its workers and companies to make do with aging 
infrastructure built in and designed for the 1960s. Since the early 
1990s, the United States has spent an average 2.4 percent of its GDP on 
public infrastructure (roads, rail, telecommunication, utility, 
airport, and seaport projects). In contrast, most European Nations 
spend 5 percent of their GDP per year. In recent years, in the face of 
rising global economic competition and the digital revolution, U.S. 
infrastructure spending actually decreased. The American Society of 
Civil Engineers gives the overall U.S. public infrastructure system a 
D+ rating.
    In contrast, China spends an average 8.5 percent of its GDP on 
public infrastructure per year. In response to the COVID crisis, 
Beijing rolled out a stimulus program that pledges to invest $1.4 
trillion in high-tech ``new infrastructure'' projects through 2025. The 
goal is to speed the Nation's deployment of next-generation digital 
infrastructure systems, particularly 5G mobile communication networks, 
AI-empowered manufacturing, high-speed rail, EV charging systems, and 
internet-of-things application. If these programs are even partially 
successful, they will give Chinese firms an edge over their American 
counterparts and boost productivity across the Chinese economy.
    The United States would not send its military into today's battles 
with Cold War weaponry, but it sends its workers into 21st century 
economic competition with 20th century infrastructure. That is a gift 
to Beijing.
    Last year Senator Cortez Masto supported two critical bills that 
aim to address U.S. infrastructure deficits: the ACCESS BROADBAND Act 
and the Moving and Fostering Innovation to Revolutionize Smarter 
Transportation (Moving FIRST) Act. Those bills represent good steps 
forward, but more work is needed to equip our Nation for success.
Predatory Policies Boost China at U.S. Expense
    The other half of Beijing's strategy is a collection of market-
distorting industrial policies. In the early stages of China's reform 
and opening, it provided low-cost manufacturing for foreign firms. That 
approach forced China to rely on other Nations for high-end technology. 
In Beijing's view, that position brought insufficient profit margins 
and unacceptable security risks. China aimed to catch up to the United 
States and other leading innovation Nations and supplant them at the 
top of global value chains. If it relied solely on capacity-building 
strategies such as smart investments in education, R&D, and 
infrastructure to do so, it would still be many decades away from 
success. Beijing decided to speed the process by deploying three 
powerful Chinese assets to boost China at U.S. expense: (1) China's 
massive domestic market; (2) Beijing's ability to control access to 
that market, either shutting foreign firms out or forcing them to pay 
concessions to gain access; (3) massive State funds, which Beijing 
deploys through subsidies and State bank loans to boost favored Chinese 
firms over their American competitors. Beijing leverages those assets 
to achieve the following goals:
    Technology and production transfers: Beijing controls access to the 
Nation's massive domestic market, and it leverages that control to 
coerce foreign firms into transferring critical technology to Chinese 
partners and moving their production operations to China. When foreign 
firms do not agree to those transfers, Beijing does not allow them to 
sell their products in China. When they do, Beijing leverages those 
transfers to move Chinese firms up the value chain. For example, in 
2005 Beijing issued local content regulations requiring wind farms to 
source at least 70 percent of their components from domestic suppliers. 
At that time, no such suppliers existed in China, so foreign wind 
companies trained Chinese manufacturers to serve as their suppliers in 
order to meet the quota. Beijing funneled subsidies to the Chinese 
manufacturers, enabling them to rapidly build capacity and edge the 
foreign firms--their original technology donors and customers--out of 
China and then the global market.
    In recent years, market access requirements are more frequently 
conveyed via closed-door deal-making that is harder to track. For 
example, in the aviation sector, aircraft manufacturers that do not 
form a joint venture or move assembly operations to China are less 
likely to win contracts from China's State-owned carriers. \3\ In the 
electric vehicle sector, Beijing is dropping explicit joint venture 
requirements but foreign firms seeking to operate without a Chinese 
partner are reportedly running into problems acquiring licenses.
---------------------------------------------------------------------------
     \3\ Keith Crane et al., ``The Effectiveness of China's Industrial 
Policies in Commercial Aviation Manufacturing'', Rand Corporation, 
2014.
---------------------------------------------------------------------------
    State-directed market displacement: Beijing directs Chinese firms 
to displace foreign competitors in critical technology markets and 
provides targeted State support to help them achieve their goals. Some 
aspects of that process are shockingly transparent. The Made in China 
2025 Key Technology Roadmap lists market-takeover targets for 10 
sectors that Beijing views as critical to the Nation's economic 
competitiveness: information and communication technology (ICT); 
advanced machine tools and robotics; aerospace technology; ocean 
engineering; advanced rail; new energy vehicles; electricity equipment; 
agriculture equipment; new materials; biopharmaceutical and medical 
equipment. \4\ For each sector Beijing identifies high-priority sub-
sectors, assigns a take-over target, and funnels State resources to 
Chinese firms to help them achieve it. For example, in mobile 
telecommunications equipment, the roadmap calls for Chinese firms to 
capture 75 percent of China's domestic market by 2020 and 80 percent by 
2025. Globally, it calls for Chinese firms to capture 35 percent of the 
global market by 2020 and 40 percent by 2025. To meet the domestic 
target, Beijing ordered China's State-owned mobile operators to source 
70 percent of their 4G network equipment and 90 percent of their 5G 
equipment from Huawei and ZTE. \5\ China has the largest domestic 
mobile market in the world, and Beijing gives Huawei and ZTE protected 
access. That protection gives Huawei and ZTE massive sales revenues, 
economy of scale, and deployment experience that foreign firms cannot 
match, all benefits that Huawei and ZTE can then leverage to expand 
their global market presence. In the first half of 2020, Huawei and ZTE 
captured just over 40 percent of all global telecom equipment market 
revenues. Beijing's champions are meeting their take-over targets ahead 
of schedule.
---------------------------------------------------------------------------
     \4\ U.S.-China Business Council, ``Unofficial USCBC Chart of 
Localization Targets by Sector Set in the MIIT Made in China 2025 Key 
Technology Roadmap'', available at https://www.uschina.org/sites/
default/files/2-2-
16%20Sector%20and%20Localization%20Targets%20for%20Made%20in%20China%202
025.pdf.
     \5\ Melanie Hart and Jordan Link, ``There Is a Solution to the 
Huawei Challenge'', Center for American Progress, October 2020, 
available at https://www.americanprogress.org/issues/security/reports/
2020/10/14/491476/solution-huawei-challenge/.
---------------------------------------------------------------------------
    Deterring enforcement: The above-mentioned policies artificially 
increase global economic dependence on China, which Beijing then 
leverages to deter other Nations from pushing back. For example, 
earlier this year, as European Nations considered whether to ban Huawei 
from their 5G networks, Beijing threatened to retaliate by blocking 
Nokia and Ericsson from shipping components from their manufacturing 
centers in mainland China to their overseas buyers. \6\ In May 2019, 
shortly after the Trump administration announced its intention to add 
Huawei to a Commerce Department entity list, Chinese President Xi 
Jinping signaled that Beijing could retaliate by blocking U.S. access 
to rare earth shipments from China. \7\
---------------------------------------------------------------------------
     \6\ Liza Lin, Stu Woo, and Lingling Wei, ``China May Retaliate 
Against Nokia and Ericsson If EU Countries Move To Ban Huawei'', Wall 
Street Journal, July 20, 2020.
     \7\ James T. Areddy, ``Xi Jinping Flexes China's Trade Muscle With 
Visit to Rare-Earths Hub'', Wall Street Journal, May 21, 2019.
---------------------------------------------------------------------------
U.S. Investment Deficits Continue as Beijing Doubles Down
    Unfortunately, the Trump administration did not make meaningful 
progress on the China challenge. On the investment front, it did not 
prioritize critical U.S. R&D and infrastructure investments to enable 
the United States to compete at full strength; on the trade front, the 
Administration's phase one trade deal did not take meaningful action to 
address China's predatory industrial policies. The Administration did 
target certain beneficiaries of those policies, such as Huawei and ZTE. 
However, the Trump administration too often acted alone instead of 
building a broad coalition of Nations to take joint action alongside 
the United States, and it did not adequately plan for or hedge against 
the downside effects of its policies. One result: in the semiconductor 
sector, some third-country firms are reacting to the Huawei entity 
listing by designing U.S. semiconductors out of their products, and 
U.S. semiconductor revenues are declining. \8\
---------------------------------------------------------------------------
     \8\ Antonio Varas and Raj Varadarajan, ``How Restricting Trade 
With China Could End U.S. Semiconductor Leadership'', Boston Consulting 
Group, March 9, 2020, available at https://www.bcg.com/en-us/
publications/2020/restricting-trade-with-china-could-end-united-states-
semiconductor-leadership.
---------------------------------------------------------------------------
    Meanwhile, Beijing is doubling down. If the Trump administration's 
goal was to force Beijing to abandon its economic and trade policies, 
that effort has officially failed. Last month Chinese leaders issued a 
communique signaling the direction they plan to take their Nation 
during the 14th Five-Year Plan period, which will run from 2021 to 
2025. \9\ The communique states that Chinese development is occurring 
within a ``profound adjustment in the international balance of power,'' 
code for U.S. decline. Chinese leaders pledge to ``successfully fight 
the tough battles for key and core technologies'' and to exploit 
China's massive domestic market to turn ``China into a trade 
powerhouse.'' The communique does not signal a change in China's 
economic strategy. Instead, three themes suggest that Beijing is 
ramping up its ambitions, particularly on the technology front:
---------------------------------------------------------------------------
     \9\ For a superb English translation, see: Center for Security and 
Emerging Technology (CSET), full translation of the ``Proposal of the 
Central Committee of the Chinese Communist Party on Drawing up the 14th 
Five-Year Plan for National Economic and Social Development and Long-
Range Objectives for 2030'', available at file:///C:/Users/Melanie/
AppData/Local/Temp/t0237-5th-Plenum-Proposal-EN-1.pdf.

    Dual circulation: The communique echoed Chinese President 
        Xi Jinping's call to prepare the Chinese economy for further 
        decoupling from the United States and other major economies, 
        and to do so in a way that works best for China. What this 
        actually means in practice is still unclear, but the United 
        States should expect more efforts to replace U.S. high-tech 
---------------------------------------------------------------------------
        products with home-grown Chinese versions.

    Independent controllability: The communique states that 
        China aims for secure supply chains with ``independent 
        controllability,'' which is another code word for boosting 
        domestic suppliers and either shutting foreign companies out of 
        China's market or forcing them to hand over proprietary data 
        and source codes.

    Strategic emerging industries: The communique rehabilitates 
        this term, which Beijing used to designate high-priority 
        sectors prior to the launch of the Made in China 2025 plan. The 
        communique lists most of the sectors covered under the 2025 
        plan, with one notable addition: green energy. The original 
        Made in China 2025 plan focused more narrowly on energy-
        efficient vehicles and electricity equipment; the new 
        communique broadens that out to include new energy, new energy 
        vehicles, and green and environmentally friendly products.

    Going forward, Beijing's industrial policies may become 
increasingly difficult to track. In June 2019, during the heights of 
the Trump administration's trade war, Chinese Vice Premier Liu He 
visited the Chinese Academy of Sciences and told the Nation's top 
researchers to maintain a ``low profile'' in their work. \10\
---------------------------------------------------------------------------
     \10\ Zhou Xin and Wendy Wu, ``China's Leading Scientists Advised 
To Keep a Low Profile in Their Work as U.S. Steps up Pressure on Tech 
Firms'', South China Morning Post, June 24, 2019.
---------------------------------------------------------------------------
    Beijing appears to have taken two big lessons from the Trump era: 
do more, faster; do it quieter, so the United States and other Nations 
struggle to identify exactly what China is doing and how they should 
react.
It Is Time To Compete at Full Strength
    The United States has woken up to the fact that China is now a 
major peer competitor. It has woken up to the fact that victory is not 
assured. But the United States has not yet rallied around a single, 
coherent strategy for success. Beating the drums of a new Cold War is 
not the answer. Beijing can beat those drums just as loudly and 
effectively as Washington can. Instead, the United States should focus 
the majority of its resources on strengthening its own comparative 
advantages, the advantages that Beijing cannot match: our democratic 
values, our open innovation system, our allies and partners, and the 
boundless potential of the American people. The United States has 
allowed all of these advantages to atrophy, but we still have time to 
turn the trend lines around. Specific steps include:
    Launch a National Competitiveness Initiative: The United States 
needs to treat this challenge as a ``Sputnik moment'' and rally around 
a National Competitiveness Initiative that makes key long-term 
investments in its comparative advantages. That should include making 
high-quality postsecondary education affordable for all Americans, 
rebuilding workforce development infrastructure, making moonshot 
investments in national R&D, and investing in productive public 
infrastructure. The America Labor, Economic competitiveness, Alliances, 
Democracy and Security (America LEADS) Act gets these fundamentals 
right, but urgent action is needed to resource these initiatives.
    Make targeted investments to reduce U.S. supply chain dependence on 
China and speed time to market for disruptive innovations: Targeted 
public investments are needed to maintain the existing U.S. innovation 
edge and help U.S. firms overcome the market barriers Beijing has 
created through decades of distortionary industrial policy. For 
example, U.S. semiconductor firms are highly reliant on exports to 
China to generate revenue for R&D, and Beijing is hoping to replace 
U.S. chips with home-grown alternatives. Beijing has not yet succeeded, 
but the United States should not bet on Chinese failure. Instead, the 
U.S. should make targeted investments in domestic semiconductor R&D and 
fab capacity to maintain and grow the U.S. innovation edge and reduce 
U.S. reliance on overseas manufacturing facilities and export revenues. 
The American Foundries Act of 2020, which Senator Cotton supported 
earlier this year, is a great step forward, but more funding is needed, 
not only in semiconductors but also in other critical sectors such as 
5G.
    Form a coalition of Nations to push back against Beijing's 
predatory economic policies: When the United States frames the China 
challenge as a Cold War, the U.S. stands and fights alone. That 
strategy benefits China at U.S. expense, because it undercuts one of 
the biggest advantages we have: other Nations share our concerns. When 
China distorts global markets that is not just a U.S. problem. That is 
a global problem. When the United States takes unilateral action to 
address a global problem, we carry water for other Nations and pay 
unacceptable costs. That is exactly what happened with the Trump 
administration's trade war. It is time to pivot to a new approach, one 
that builds a broad global coalition, minimizes the costs to the 
American people, and puts China on its back foot. The United States 
should start with critical high-tech sectors: that is where China is 
focusing its efforts, and that is where we share clear common interests 
with allies in Europe, Asia, and the Americas. The U.S. should 
immediately:

    Form a coalition of democracies to develop common 
        principles and standards for digital technology governance. The 
        European Union is already reaching out to propose forming a 
        transatlantic technology alliance that could ``form the 
        backbone of a wider coalition of like-minded democracies'' on 
        high-tech issues. \11\ This outreach presents an ideal 
        opportunity for the United States to change course and work in 
        concert with other Nations instead of standing alone.
---------------------------------------------------------------------------
     \11\ Sam Fleming, Jim Brunsden, and Michael Peel, ``EU Proposes 
Fresh Alliance With U.S. in Face of China Challenge'', Financial Times, 
November 29, 2020.

    Form a coalition of Nations to assess how Beijing's direct 
        and indirect subsidies harm global markets--starting with 
        mobile telecommunications--and devise appropriate trade 
        remedies. \12\
---------------------------------------------------------------------------
     \12\ For more detail on all 5G recommendations, see: Melanie Hart 
and Jordan Link, ``There Is a Solution to the Huawei Challenge'', 
Center for American Progress, October 2020.

    Conduct a comprehensive review to assess how Beijing uses 
        credit to advantage Chinese firms over their competitors, and 
        engage the G7 industrialized democracies to develop new rules 
---------------------------------------------------------------------------
        limiting those actions.

    Form a coalition of export credit agencies to support 
        vendors seeking to compete against Huawei and the loans Chinese 
        State banks offer its customers.

    Engage the key 5G standardization partners--the European 
        Union, Japan, India, and South Korea--to improve leadership 
        transparency and diversity at the ITU.

    Push the ITU to adopt the O-RAN fronthaul interface as a 
        common global standard.

    Thank you and I look forward to your questions.
                                 ______
                                 
                   PREPARED STATEMENT OF ROY HOUSEMAN
               Legislative Director, United Steelworkers
                           December 16, 2020
    Chairman Cotton, Ranking Member Cortez Masto, Members of the 
Subcommittee, thank you for the opportunity to testify on the topic of 
economic competition between the U.S. and China. I commend the 
Committee for uplifting the voice of organized workers in this 
discussion and our International President Tom Conway gives his 
regards.
    The United Steelworkers is the largest industrial union in North 
America, representing workers throughout the manufacturing sector. We 
also represent a growing segment of health care, public sector, and 
even tech workers. This diversity in profession creates a strength in 
understanding the impacts that China's economic competition will play 
on workers in America.
    With 2\1/2\ weeks left in one of the most consequential years in 
modern history, it is hard to see past the 7 day average of 2,400 plus 
Americans dying daily from the COVID-19 pandemic. Our first effort must 
be to invest in the basic infrastructure necessary to make Americans 
feel safe. That starts with passing an immediate COVID-19 relief bill 
for the 10.7 million American's currently laid off, aid for the long 
term unemployed (3.9 million) and those that are not in the labor force 
and need a job (7.1 million). \1\ We also need to immediately invest in 
a regulatory framework that ensures workers feel safe returning to 
work. OSHA and MSHA standards for workers dealing with a pandemic are 
sensible to anyone who has stood shoulder to shoulder in a processing 
plant or who have had to go through a lock out, tag out procedure.
---------------------------------------------------------------------------
     \1\ https://www.bls.gov/news.release/pdf/empsit.pdf
---------------------------------------------------------------------------
    The Senators on this Subcommittee have the power to help guide a 
22-trillion dollar economy to either success or ruin. The union urges 
you to use your individual power to influence the lives of every 
American and act to stop the economic bleeding from this pandemic. The 
country needs direct aid to where it is needed most, and from the 
union's perspective that starts with the real mothers and fathers of 
this country--the American worker.
    With an all hands-on-deck approach to a vaccinated country ongoing, 
the existing challenges we faced prepandemic related to the Nation's 
infrastructure, labor force, and international competitiveness, will 
only become clearer.
    In preparing the testimony it stuck me as interesting a simple 
comparison of market share and how as a society we have reacted to it. 
Last week 48 States and the U.S. Government filed an antitrust suit 
against Facebook for anticompetitive behavior. Using the legal tools 
available to them, Federal and State resources will coordinate to 
address monopoly against a firm with 60.52 percent of all social media 
site visits in the United States. \2\ What if the press, Government, 
and society had the same concern about the monopoly over the metals, 
materials, and manufacturing concentration controlled by the Chinese 
Communist Party? What examples would they find? Below are a few 
examples.
---------------------------------------------------------------------------
     \2\ https://www.statista.com/statistics/265773/market-share-of-
the-most-popular-social-media-websites-in-the-us/

    Steel--China now accounts for 51.3 percent of global steel 
        production--a figure that also doesn't capture production by 
        Chinese-owned or affiliated companies in other countries. \3\
---------------------------------------------------------------------------
     \3\ https://foreignpolicy.com/2020/05/19/dont-let-china-steal-
your-steel-industry/

    Aluminum--China's share of global output of the most widely 
        used metal touched 57 percent in May. \4\
---------------------------------------------------------------------------
     \4\ https://www.reuters.com/article/us-metals-aluminium-ahome/
column-covid-19-will-tilt-aluminium-axis-further-towards-china-andy-
home-idUSKBN23V2SN

    Rare Earths--China not only holds 35 percent of the world's 
        entire rare earth supply, but accounts for 70 percent of global 
        production. \5\
---------------------------------------------------------------------------
     \5\ https://thehill.com/opinion/energy-environment/529229-us-
dependence-on-china-for-rare-earth-minerals-is-a-disaster

    Rail--China Railway Rolling Stock Corporation (CRRC), which 
        by their calculation, controls roughly 83 percent of the global 
---------------------------------------------------------------------------
        rail market.

    Fiber Optic Cable--China's production reached 61.6 percent 
        share of the global total in 2019. \6\

     \6\ https://www.globenewswire.com/news-release/2020/09/25/2099120/
0/en/Global-and-China-Optical-Fiber-Preform-Industry-Report-2020-
2026.html

    This is the threat of monopoly power by a country and the U.S. 
Government should respond in kind through a mix of policies and 
investments that recognizes State-controlled economic power must be met 
with reciprocal State responses.
Infrastructure
    We need to respect the vision of previous Congresses and Presidents 
and renew that sense of American ambition for the ideal. That requires 
addressing our crumbling infrastructure in a way the ensures maximum 
domestic job creation. In 2019, the U.S. spent just 2.5 percent of our 
GDP on infrastructure, down from 4.2 percent in the 1930s. \7\ That 
decline in spending takes on an outsized role as we try to interconnect 
with the global economy. China has recognized the value of 
infrastructure interconnectedness in its domestic renewal. China has 
spent roughly 8 percent of its GDP on infrastructure since 2010, which 
is significantly higher than the 4 percent average of the next ten 
biggest spenders and clearly that of the U.S. \8\
---------------------------------------------------------------------------
     \7\ https://www.infrastructurereportcard.org/covid-status-report/
     \8\ https://www.cfr.org/blog/boost-flagging-growth-china-doubles-
down-its-least-productive-sector
---------------------------------------------------------------------------
    While some may debate about China ``catching-up'' to other 
industrial countries, it's hard for union workers that make the 
manufactured goods and basic materials for infrastructure to feel like 
more could be done to maintain a U.S. ``lead.''
    Take for example rail infrastructure: China has laid over 15,000 
miles of high-speed rail. \9\ Enough rail to travel from Washington, 
D.C., to Las Vegas, Nevada, nearly 6\1/2\ times. All the while China 
has successfully made high speed rail competitive with road and air 
transport for distances up to around 745 miles, which is just shy of a 
one-way trip from Washington, D.C., to West Memphis, Arkansas. \10\
---------------------------------------------------------------------------
     \9\ https://openknowledge.worldbank.org/handle/10986/31801
     \10\ https://www.railway-technology.com/features/high-speed-rail-
in-china/
---------------------------------------------------------------------------
    As mentioned earlier on rail manufacturing CRRC is a State-owned 
enterprise (SOE) in rail with roughly 83 percent of the global rail 
market. The SOE has made a concerted effort to penetrate the U.S. 
market. Congress recognized the threat that State-owned enterprises in 
rail can cause for domestic national security and domestic 
manufacturing by putting up barriers to transit procurement with the 
passage of the Transit Infrastructure Vehicle Security Act. However, 
barriers can only be one aspect to a strategy to compete against China. 
We will need to make strategic investments in our rail infrastructure 
and manufacturing facilities and commit long term resources to push 
back against this sort of monopoly power.
    Another example is our water infrastructure. Getting our goods 
across the globe will require investment in our ports and our ship 
building capability.
    After the Reagan administration ended construction subsidies for 
U.S. shipyards, Asian shipyards, which did not see their Governments 
end shipyard subsidies, overwhelmed the global market. In 12 years, the 
U.S. went from the biggest commercial shipbuilder in the world to no 
longer producing vessels for international trade. \11\ In turn the 
number of U.S. flagged vessels sailing in the international trade has 
crashed from 183 ships in 1992 to 82 as of December 2017. \12\ This 
impacts U.S. manufacturers up and down the supply chain who would have 
produced the steel, parts, and materials for merchant marine ships.
---------------------------------------------------------------------------
     \11\ https://www.forbes.com/sites/lorenthompson/2019/06/05/philly-
shipyards-struggle-signals-jones-act-isnt-enough-to-secure-u-s-sealift/
#33060ea64b30
     \12\ https://www.transportation.gov/testimony/state-us-flag-
maritime-industry
---------------------------------------------------------------------------
    This lack of Federal manufacturing focus has put us behind the game 
for future shipping needs. Congress must engage on tomorrows heavy 
manufacturing needs to capitalize on the growth of new industries like 
offshore wind. Recognizing previous leader's sensible policy decisions 
to maintain domestic ship building capacity for security purposes the 
Jones Act is a guide stone for Congressional intervention in 
shipbuilding to combat the economic power of China's shipbuilding. \13\ 
In 2018, 43.2 percent of the new ships in the world were built in 
China. For example, a shortage of ships that can install wind turbines 
the size of the Chrysler Building (1,046 feet) could come as early as 
2022. \14\ The signals are there, all it takes is the will of the most 
powerful democratically elected leaders in the world to act.
---------------------------------------------------------------------------
     \13\ http://global.chinadaily.com.cn/a/201904/28/
WS5cc507a2a3104842260b8d78.html
     \14\ https://www.bloomberg.com/news/features/2019-05-13/offshore-
wind-will-need-bigger-boats-much-bigger-boats?sref=HEwoTbCT
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Manufacturing for the Future
    What actions can we take to uplift our manufacturers and put us on 
a path of renewal in our country? It is our union's belief that when we 
work collectively we can build a better society. This takes 
transformational investments not just in the physical infrastructure to 
move people and goods but the domestic manufacturers who want to not 
just maintain but capture domestic and international market share.
    Our union takes an all of the above approach to building the next 
generation of manufacturers. For example, USW is a founding member of 
the BlueGreen Alliance, a partnership between the country's leading 
environmental and labor organizations. This year the Alliance put 
forward a manufacturing agenda that creates a north star of policy, 
that if broadly enacted would set the country down a path of renewal 
and improved competition with our economic competitors like China. 
Focusing on five pillars that is an aggressive strategy to address the 
climate emergency head on, while reinvesting in our manufacturers all 
the while achieving net zero emissions economywide by 2050. \15\
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     \15\ https://www.bluegreenalliance.org/resources/manufacturing-
agenda-a-national-blueprint-for-clean-technology-manufacturing-
leadership-and-industrial-transformation/
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    The USW is also a founding partner in the labor-management 
partnership the Alliance for American Manufacturing, which has been a 
vital partner in setting the agenda for American manufacturing and 
ensuring the policies that Congress debates maximize domestic job 
creation.
    These partnerships have created a broad front and plethora of 
policies that can create a virtuous comparative advantage, that 
recognizes the dignity of the American manufacturing worker and will 
allow the country to succeed in the future.
    The union and our partners strongly support the advancement and 
improvement of domestic procurement provisions like Buy America. But 
our members alone don't just support these policies. American voters 
overwhelmingly support Buy America policies. In fact, 80 percent 
support ``requiring that all taxpayer-funded infrastructure projects 
use American-made goods and materials.'' \16\
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     \16\ ``National Survey of 1,200 Likely 2020 Voters General 
Election'', The Mellman Group & Public Opinion Strategies. Conducted 
Mar. 20-28, 2019 for AAM.
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    Using taxpayer dollars to buy American made goods is a vital 
commitment to our manufacturers. We need to tighten our procurement 
rules to ensure American content is put into the goods our Government 
buys. We've seen dramatic successes in our foundries for example with 
the expansion of Buy America into our Drinking and Clean Water State 
Revolving loan fund programs. It's time to expand on these successes 
into other major Federal infrastructure programs and close loopholes in 
the application of existing Buy America laws.
    But more can be done. Expanding our Manufacturing USA network is 
another one of those investments. The 14 Manufacturing USA Institutes, 
for example, conducted nearly 500 major applied research and 
development projects of high priority to broad industry. These efforts, 
two thirds of which aided manufacturing firms should be expanded. 
Legislation like the LEADS act by Senator Schumer and Menendez contains 
these sorts of expanded investments.
    We should also expand the Manufacturing Extension Partnership (MEP) 
program. A network made up of the 51 MEP Centers has led to American 
firms creating or retaining 114,650 manufacturing jobs, generating 
$15.7 billion in new and retained sales and realizing $1.5 billion in 
cost savings in fiscal year 2019. \17\ We should build on this success 
with not just continued investment but expansions in Federal spending.
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     \17\ https://www.nist.gov/system/files/documents/2020/08/23/MEP-
Annual%20Report-FY19-v8-19-FINAL-WEBv2.pdf
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    We will also need to invest in the critical minerals and materials 
that our country and allies need to press against market monopoly and 
ensure equal competition. The dramatic rise in China's industrial 
capacity in steel, aluminum, and other metals has had a dramatic impact 
on American workers. American aluminum smelting capacity has decreased 
from 23 smelters in 1998 to 6 today. While China's rise in aluminum 
production is a factor so is the lack of domestic investment in these 
plants. We have to create the right incentives to upgrade these 
facilities. For example, a 2017 Department of Energy Study found that 
there could be 34 percent energy savings opportunity in the U.S. 
Aluminum manufacturing sector using current technologies. \18\
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     \18\ https://www.energy.gov/sites/prod/files/2019/05/f62/Aluminum-
bandwidth-study-2017.pdf
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    Titanium is another prime example; titanium sponge is an unwrought 
form of titanium and the U.S. saw the last plant capable of titanium 
sponge production close this year. The plant based in Henderson, 
Nevada, needs at least a $150 million investment to update processes 
and ensure long term competitiveness. While there are continued efforts 
to study approaches to increase titanium sponge investments right now 
the country faces the prospect that they are completely beholden to 
overseas production for a product that is vital to our military.
    Finally, workers and their employers benefit from a mutual respect 
that collective bargaining can provide. This means updating our labor 
laws to reflect the value that an organized labor force can bring to 
the table. The Economic Policy Institute has highlighted that unions 
increase productivity through a variety of channels. They reduce 
turnover and, hence, firm-specific skills are retained. Moreover, the 
lower turnover makes it economically rational for employers to provide 
more training to union-represented employees, increasing employee 
skills and productivity further. \19\
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     \19\ https://www.epi.org/publication/how-unions-can-help-restore-
the-middle-class/
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    Unlocking this potential requires an update to our labor laws to 
ensure workers do not face unnecessary hurdles to collective bargaining 
with their employer. That is why the USW supports comprehensive labor 
law reform.
    Unions provide a significant role in training in the manufacturing 
workforce. United States Steel and USW have contract language which 
incorporates training coordinators. These training coordinators work 
with management to ensure workers ``receive sufficient training to 
allow for all reasonable opportunities to progress within the workforce 
and maximize their skills to the greatest extent possible.'' \20\ For 
manufacturing employers who often have specialized equipment that 
require hands-on experience, the Federal Government should provide 
resources to foster hands-on training coordinators, which would provide 
new hires with the tools and experience necessary for specialized 
training at manufacturing facilities.
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     \20\ https://uswlocals.org/system/files/2018-uss-usw-pm-bla-
printer.pdf
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    Finally, the U.S. is sorely lacking in allocating adult worker 
training resources. When compared to other countries in the 
Organization for Economic Cooperation and Development (OECD) the U.S. 
is among the worst of all 37 countries in job training programs in 
comparison to the size of our economy. Public spending is less than 
half the spending levels of Australia, Canada, and the U.K., and one-
sixth the level of spending compared to Germany.
Trade
    Winning the economic competition with China requires a thoughtful 
and meaningful approach to trade policy as well. The union has long 
raised the alarm regarding China's rise since our opposition to the 
U.S. permanently normalizing trade relations with the country in 2000. 
Since that time the growth of the U.S. trade deficit with China between 
2001 and 2018 was responsible for the loss of 3.7 million U.S. jobs, 
including 2.8 million manufacturing jobs lost due to the growth in the 
trade deficit with China. \21\
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     \21\ https://www.epi.org/publication/growing-china-trade-deficits-
costs-us-jobs/
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    As a union which has supported a large number of the 205 
antidumping and countervailing duty remedies slapped against firms in 
China for illegal trade practices we have to find additional ways to 
contain these illegal trade practices. \22\ Each of those orders 
represent not just a recognition that China is committing illegal 
trading practices but also a recognition that over a 3 year period of 
time a domestic industry lost jobs, had to cut benefits and lost market 
share in an uncompetitive way. Ensuring our trade laws are responsive 
to domestic industry and catch illegal efforts sooner will ensure 
workers and their employers do not face 3 years of decline before the 
Government will act.
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     \22\ https://usitc.gov/sites/default/files/trade_remedy/documents/
orders.xls (excel sheet).
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    This also means addressing issues like global industrial 
overcapacity and participating in a trading regime that empowers 
workers and does not inadvertently allow China to set the rules.
    The union sees a growing creep by academics and policy experts to 
encourage the incoming Administration to join the Trans-Pacific 
Partnership (TPP). Often ``experts'' try to highlight the agreement as 
containing China but our union has taken a close look at this effort to 
contain China and the TPP was an abject failure. Setting aside the fact 
that six of the countries in the TPP already have trade agreements with 
China, the rules of origin that the TPP contained were a barn door 
sized access for China's manufactured goods. The Ways and Means 
committee minority report on the TPP in 2014 highlighted that depending 
on the rules, 35 percent of a vehicle would had to originate in the TPP 
zone, meaning up to 65 percent of a vehicle's components could come 
from outside the party countries like China. \23\ When compared to the 
USMCA rules which are set for 75 percent, American manufacturing 
workers stand a fighting chance at competing for market share in auto 
parts.
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     \23\ https://waysandmeans.house.gov/sites/
democrats.waysandmeans.house.gov/files/documents/
TPP%20Issue%20Analysis%20-%20Autos.pdf
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    We also need to engage in an honest conversation about labor and 
environmental rules in our trade agreements. The final USMCA agreement 
recognized the need for rapid response to plant level labor violations 
with our trading partners but more must be done. Wages, hours, and 
working conditions are the most important day to day for workers in the 
U.S. and they need to be respected internationally. We need to see our 
trade agreements not be a downward spiral on working people here in the 
U.S. or wherever a multinational corporation starts production.
    The same goes for environmental standards. Future trade agreements 
need to contain China's pollution with the recognition that those 
improved environmental standards isolate leakage of pollution like 
carbon. We also cannot continue down a path that permits foreign 
countries to poison their land, air, and people for economic gain.
Conclusion
    The economic competition between the U.S. and China will be a 
generational rivalry. The United Steelworkers believes our country with 
the proper investments, planning, and commitment to our most powerful 
asset--the American worker--will be how we succeed in that rivalry.
    Thank you and I look forward to answering any questions.