[Congressional Record Volume 164, Number 76 (Thursday, May 10, 2018)]
[Senate]
[Pages S2625-S2628]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. RUBIO:
  S. 2826. A bill to safeguard certain technology and intellectual 
property in the United States from export to or influence by the 
People's Republic of China and to protect United States industry from 
unfair competition by the People's Republic of China, and for other 
purposes; to the Committee on Finance.
  Mr. RUBIO. Mr. President, when the story of the 21st century is 
written, there will be a couple chapters about Vladimir Putin's Russia, 
most certainly chapters about radical jihadists, and perhaps a few 
chapters on some other things we have yet to fully anticipate.
  There still remains over 80 years in this century, but there is no 
doubt that the vast majority of the story about the 21st century will 
be about the relationship between the United States and China. China--
the most populous nation on Earth, the second largest economy, and soon 
to be the largest economy on the planet--is a country that cannot be 
contained. It will be a major factor, both economically and 
geopolitically, as it should be for a nation of that magnitude and a 
culture that deep, with such long history. However, there are 
imbalances developing in that relationship, which I believe are 
threatening, not just to our Nation but ultimately to the peace and 
security and the stability of the world.
  It is on that topic I wanted to come to the floor and speak today and 
perhaps about some of the things we need to do about it. There was a 
consensus--which I would admit I, perhaps, from time to time, was a 
partaker in--that China was a country that would, eventually, as it 
grew more prosperous, become not just more democratic but more willing 
to live by the rules the world has conducted itself by since the end of 
the Second World War.
  Perhaps I wasn't as strong an adherent to that as some others. I have 
always been, of course, deeply suspicious of communism and autocratic 
nations, but there was still the belief that things could work out, 
and, eventually, at some point, both demographics and economics would 
force China to accept the benefits and the wisdom of a global economic 
order that has maintained the peace since the end of the Second World 
War.
  That was a terrible mistake. For, in fact, that is not how it has 
played out. For the better part of 30 years now, China has been allowed 
to systemically violate all of the rules of fair play in trade and 
commerce under the guise of saying, eventually, they are going to come 
around and behave. Not only has it not worked, it has allowed them to 
accelerate their economic growth to the detriment of American workers, 
American industry, and economies all over the world.
  Today, China is 3 years into a plan called Made in China 2025. What 
``Made in China'' means, and what it is all about, is China intends to 
be the dominant power and dominate 10 key sectors of the future 
economy. They outline what all 10 of those are.
  Now, if that dominance was the result of being more innovative or 
spending more money on research or just being better, then we would 
have little to complain about. It would be on us to become more 
innovative ourselves and put more money into research and technology 
and these sorts of things. That is not what it is the product of. It

[[Page S2626]]

is the product of cheating. It is the massive theft of intellectual 
property--the largest single transfer of wealth in the history of 
mankind stolen; stolen because they buy small companies that are 
developing some key component in a broader technology, and they take it 
for themselves; stolen because when an American company or any foreign 
company, for that matter, wants to do business in China and have access 
to their 1.4 billion people, you have to partner with them. They make 
you partner with a Chinese company. Your ``partner'' steals your 
secrets and then they kick you out and now they are your competitor.
  So think about it. They are able to make all of these advances 
without paying for them. Imagine if you had a business that was able to 
grow without having to pay for all the research that went to getting 
you to that point. This is what they do. It has allowed them to expand 
militarily, commercially, and economically to the point where we are at 
the edge of a very dangerous economic and geopolitical imbalance that 
needs to be addressed. It needs to be addressed now. We are almost out 
of time because 5 years from now, 6 years from now, or 3 years from 
now, it may be too late to address this.
  I want to reiterate what I said at the outset. This is not about 
containing China, nor is it about crippling China. It is about ensuring 
that we are going to have stability in the world; a stability in which 
our companies and their companies can partner, but they need to do so 
voluntarily; a stability where they cannot steal our secrets; a 
stability where they cannot violate the rules of trade but benefit from 
the rules of trade.
  That is what I hope to address through a new bill called the Fair 
Trade With China Enforcement Act, which I am introducing today. The 
first problem we want to address is that China is building its 
industrial capacity with U.S. intellectual property and technology.
  I have highlighted how they steal our technology and our intellectual 
property, and they use it. As an example, General Electric and 
Honeywell technology is being used in China by one of GE's and 
Honeywell's competitors. They didn't sell it to them. It was stolen 
from them. Two American companies had their secrets stolen, and now 
their competitor in China is using their technology that they spent 
money and time investing in.
  The solution to that problem is to pass a law that prohibits the sale 
of national security-sensitive technology and intellectual property to 
China. The bill would do this by directing the Department of Commerce 
to use its export control authority to block military capacity exports 
and components of Made in China 2025 exports to China.
  So, basically, the Department of Commerce would look at Made in China 
2025. These are the sectors they are trying to dominate, and we would 
prohibit the sale or the transfer of intellectual property sensitive to 
those industries. That means American companies--even if they have a 
partnership with China--would be prohibited by law in sharing this 
information with them willingly.
  The second problem we have, frankly, is here at home. We have these 
large multinational U.S. companies that have very valuable intellectual 
property and technology that partner with Chinese firms. They know 
their intellectual property is going to be stolen, but they don't care. 
They don't care, No. 1, because they are not going to pay the full cost 
of the loss of this intellectual property. It is going to be borne by 
the entire country.
  A great example of that would be a CEO or business executive who 
knows they are only going to be at the company for x number of years. 
They make the decision: I don't care if they are going to steal our 
intellectual property. I want to have access to the Chinese market 
because it is 1.4 billion people. That is going to allow us to sell a 
bunch of stuff there. Our profits will go up. I am going to look good 
in the quarterly reports and look good before the board of directors. 
Who cares if this harms the United States? My obligation is to the 
corporation and not the country.
  That is their view. In fact, many of these CEOs of large 
multinational companies consider themselves to be citizens of the world 
before they consider themselves to be citizens of the United States. 
They are willing to turn these things over because by the time we are 
hurt by it as a nation, they are long gone; by the time they are hurt 
by it as a company, they are long gone, but they are going to have some 
pretty good quarters as they expand into the largest market in the 
world, and their shareholders and board of directors are going to be 
very happy about it.
  That is a big problem. Just because a company has their address in 
the United States, does not mean they consider themselves to be 
American companies. Of course, this is a big problem among many large 
multinational corporations that are doing business there and know 
exactly what is going on but are more interested in the short-term 
profits than the impact on our national security.
  The solution I propose to that problem in this law is to increase 
taxes on multinational corporations on the income they earn in China. 
The tax would be increased equal to the amount of the lost value of the 
stolen intellectual property or technology. So if we lost $1 billion, 
there would be a $1 billion increase in that business's profit that 
they made in China through that partnership.
  It does this by imposing a tax rate of 2 percent--roughly equal to 
what the Trade Representative's office estimates is the cost of lost 
intellectual property as a percent of total corporate profits in China.
  The third problem we have is that China--and I mean China, both its 
sovereign wealth management and individuals who made a lot of money, 
directed by the government, in many cases--has gone on a buying spree 
of U.S. debt--meaning Treasurys, stocks, and even real estate. My 
hometown of Miami is one of the places being heavily invested in now to 
increase their trade surplus and to weaken the U.S. economy.
  You say how? Let me give you an example. After China rose to the 
World Trade Organization, it had all this excess capital resulting from 
its large surpluses. That drove them to take that excess capital they 
were making now that they were part of the WTO and invest it in the 
United States in real estate, for example. Here you have people coming 
in and paying for real estate above the value of the property, driving 
up prices. It is one of the things that helped fuel the housing 
bubble. You can only imagine that if the property next door, the 
building next door, or the luxury condominium units next door are sold 
at a price higher than what the asking price might be, you are driving 
up the market for everyone. But they do this over and over again. This 
cheap financing of our debt, this buying up so many of our Treasury 
notes because there is such demand for our debt, our yield--the amount 
of interest we pay back to the investor--is lower. The result is it is 
one of the things that has driven our national debt here. It has been 
easy to borrow because it has been cheap.

  What is the solution? The solution is to update the income tax treaty 
that was signed in the 1980s and that taxes China's profits on these 
investments, including their holdings of the national debt at a 
preferential rate for what it would be for anybody else.
  What my law would do is make withholding taxes on China's investment 
income revert to what the law is for everyone else. For example, the 
U.S. payor would withhold the greater amount of tax on distributions to 
Chinese payees, so whatever income they are making from the debt, from 
the stocks, from the assets they bought in the United States and they 
have invested in--whatever they are making on it, they would pay taxes 
on that income the same as anyone else would, as opposed to under a 
preferential rate from the 1980s.
  This is important because among the things that all of this surplus 
investment does in the United States, it increases the value of the 
dollar artificially. They did that when they were manipulating the 
currency. The stronger the dollar, the weaker our exports, the more 
expensive it is to buy something in the United States than somewhere 
else.
  The currency fluctuates as a matter of course through economic 
engagement. This is the deliberate manipulation of our currency. This 
is one of the byproducts of this. Taxing the income

[[Page S2627]]

they make on those investments the same as anybody else would have to 
pay--and not this preferential rate--would help bring some balance to 
that.
  One additional problem we want to address is that the Chinese 
Government's Made in China 2025 plan is a plan to displace advanced 
American manufacturing, and they intend to do that no matter what it 
takes. Let me give you an example. Made in China 2025 targets 
artificial intelligence and next-generation information technology. 
They target robotics. They target new energy vehicles. They target 
biotechnology--meaning biopharma, biologics--in terms of curing 
disease. They target energy and power generation. They target 
aerospace, which is not just airplanes and space travel. They target 
high-tech shipping, advanced railway, new material, agricultural 
machinery. These advanced, high-tech industries are supposed to be the 
competitive advantage of the United States in the 21st century.
  What I am talking about is not protectionism. If this were a fair 
competition of these technologies versus them, that is what free 
markets are supposed to do. That is not how they are doing it. The way 
they compete with us in these industries--in addition to stealing our 
secrets and buying up the companies that are up in the supply chain--is 
to deny our companies access to their markets, but they want full and 
unfettered access to ours.
  What is the solution? The solution is to prepare duties on and impose 
Chinese investor shareholding caps on U.S. companies producing goods 
targeted by Made in China 2025. This bill would do this by defining 
Made in China 2025 as a countervailable subsidy for American industries 
affected by Made in China 2025 exports, thus reducing future demand for 
Chinese exports in these industries.
  We have to raise the prices of the products they are stealing from 
us; otherwise, they will put our industries out of business, and our 
children will live in a world where we depend on China for artificial 
intelligence, for robotics, for new energy vehicles, for aerospace, for 
biopharma.
  Can you imagine living in a world where the cure to Alzheimer's is 
controlled by Chinese pharmaceutical companies--the amount of leverage 
it would give them geopolitically? If they reach that plateau because 
they outhustle us, that is one thing. But to get there by stealing what 
we produce, by denying our companies the ability to sell over there but 
asking us to allow their companies to sell here--that is not 
competition; that is theft. That is an imbalance that needs to be 
addressed.
  We will also have the SEC block any majority stake acquisition of a 
listed company producing the component goods in any of these 
industries--the Made in China 2025 exports--in order to limit their 
ability to buy up our small companies or buy up enough of a controlling 
interest in American companies to take them from us. That is the other 
strategy they have. They go into industries that go under the threshold 
of what the government looks into, and they buy up percentages of the 
company or the entire company itself. Then they control what is 
supposedly an American company, and they own it. Try doing that in 
China if you are an American.
  The argument that we should continue to allow them to do it because 
they are a developing industry is ridiculous. No one can make that 
argument anymore. That is the argument that has been made for all of 
these years.
  There is one last thing we need to do, and it has been on the news a 
lot lately. The Chinese have tried in the United States and around the 
world to use their companies involved in telecommunications, 
particularly Huwawei and ZTE, to infiltrate U.S. networks. Basically 
how that works is they wanted us to buy components, parts, and 
equipment from Huwawei and use it for our cell phone networks, our 
internet networks, our servers and routers--put those in our country. 
If you are a country that, as a matter of geopolitical strategy, 
steals--not just spies as normal countries do, but steals intellectual 
property and corporate secrets to build your economy at the expense of 
someone else's and you control the routers and the telecom system or 
enough of it in another country, we are just making it easier for you 
to steal these things from us.
  Imagine a major U.S. university conducting research, and their entire 
back office and all of their computer networks in which it is stored 
has Huwawei equipment. This would allow the Chinese Government to go 
into this equipment and use it remotely to extract all of this 
information. They don't even have to send any spies over here because 
we have brought them inside. This is a problem across the economy, and 
that needs to be dealt with in broader terms.
  In this bill--a bill I have separately introduced with Senator 
Cotton--we would prohibit the Federal Government or subsidiaries and 
contractors of the Federal Government from buying telecommunications 
equipment or services from Huwawei or ZTE. What we cannot afford is to 
have in our own government--or in companies that are servicing the 
government--telecommunications equipment and services vulnerable to 
espionage, either corporate or national security.
  Let me close with this. There are a lot of big issues going on in the 
world, and for a lot of people, including myself, this issue is pretty 
new. I have long been concerned about China's military expansion. They 
are putting all kinds of missiles now on the islands in the South China 
Sea. I most certainly have long been concerned about human rights 
violations--what they have done with Tibet and the way they are 
bullying people in Taiwan. By the way, just so you know the sort of 
influence level they have, Marriott Corporation fired an American 
worker--an American living in the United States, working for Marriott, 
was fired because they liked a social media post about Tibet. So the 
Chinese got mad. They told Marriott: You need to correct this. And they 
fired the employee--this American--because he liked a social media post 
by mistake about Tibet.
  Do you know that United Airlines and American Airlines just got a 
letter from the Chinese Government saying: Unless you change your 
website so that it says Taiwan-China and not just Taiwan, we are going 
to start fining you and may take away your ability to fly into China. 
These are American companies that I hope do not give in. This is 
happening every single day.
  Do you know that Hollywood movies are made so that they will be 
allowed to be distributed in China? Hollywood entertainment is 
deliberately not making movies or saying certain things in movies--
political things, things that would offend the Chinese Government--
because if they do, they will not let them sell their movies to 1.3, 
1.4 billion people. Do you know there are actors, like Richard Gere, 
for example, who can't make major movies anymore because they can't be 
distributed in China because he is in favor of Tibet and its 
independence?
  These things are happening, and we are arguing about a bunch of other 
silly things. This is historic. This is the single biggest challenge 
facing this Nation for the next 20, 30, or 40 years, and we are almost 
out of time to take it seriously.
  Just a week ago, I traveled to Latin America. I was in Panama, where 
the Chinese have built not one but two port facilities on the Panama 
Canal. Not surprisingly, because of all this investment, last year 
Panama decided to switch. It no longer recognizes Taiwan. It switched 
to China. Last week, while I was in Panama, the Dominican Republic 
announced they have switched. Little by little they are going and using 
their investments in these countries, first just to get them to 
derecognize Taiwan but, ultimately, because they are spending so much 
money in these countries to leverage them, to align their foreign 
policy to China's in our own hemisphere.
  We do not want conflict with China. We want parity, stability, 
reciprocity, and fairness. That is not what we have right now, and we 
have taken far too long to take it seriously. Now is the time to do it.
  This is about more than just trade. This is about geopolitics and 
national security. It will be the defining issue of the century, and 
the time to take it seriously is now.
  My bill, which we hope to continue to build on and improve, is our 
effort to hopefully begin this dialogue and take steps on this very 
important topic.

[[Page S2628]]

  

                                 ______