Despite years of tariffs, anti-dumping measures and export restrictions, China remains the biggest risk to the future of U.S. manufacturing, seven senior executives told a makeshift House Select Committee on the Chinese Communist Party hearing on Wednesday.
Committee Chairman and Wisconsin Republican Mike Gallagher managed to get Committee Ranking Member Raja Krishnamoorthi and Republican Congressman Darin Lahood, representing Illinois districts, to travel to a truck-chassis-making factory in Wisconsin while on vacation to talk to manufacturing executives.
They got an earful, as expected.
“Addressing China’s unfair trade practices is essential to American manufacturing,” said Bob Whalin, CEO of Stoughton Trailers.
Subsidies, free land, below-market-rate loans, transshipment schemes and intellectual property theft were all named as what businesses meant by “unfair.”
Sonya Higginbotham, vice president of Worthington Industries
The hearing was held at Stoughton’s chassis factory. The company has roughly 2,000 workers in three states. They were forced to close a maritime container manufacturing plant because it got bludgeoned to death by China International Marine Containers (CIMC), a state-owned company that the Commerce Department investigated for dumping containers into the U.S. at below production values in 2014. The International Trade Commission vetoed Commerce’s ruling and the containers were allowed in. China runs that market here now.
Wahlin said CIMC tried the same moves with truck chassis, but another anti-dumping case in 2021 worked against them this time. To get around it, CIMC is setting up shop in Thailand and shipping chassis from there instead to avoid those high tariffs imposed by the Commerce Department’s ruling. Customs and Border Protection is investigating that now. For Stoughton versus China, it’s a never-ending game of whack-a-mole.
“Trade cases are time-consuming and expensive,” Wahlin said. Companies have to bring a case themselves. They can cost millions in legal fees. “Domestic manufacturers can suffer economic harm in the meantime as these cases are under investigation,” he said.
Everyone at the hearing said tariffs imposed by Trump and kept by President Biden were useful but complained about China’s ways to get around those tariffs.
Others mentioned tax incentives being complimentary to tariffs because they gave companies a reason to invest. The only new law mentioned that provides incentives was the Inflation Reduction Act (IRA), a tax credit for green technologies. That, too, came with a warning label.
“You cannot out-subsidize China,” warned Mamun Rashid, CEO of Auxin Solar in California. Rashid was one of three executives who gave opening remarks at the hearing. Auxin recently won an anti-dumping/countervailing duties trade case against five Chinese multinational solar companies that the Commerce Department said had shifted production to Southeast Asia to avoid tariffs back home.
“Make no mistake: China is coming up with ways to benefit from the IRA,” Rashid said. “We need rules to ensure American taxpayer money is not going into the pockets of those in China’s politburo.”
Canadian Solar, which manufactures all of its solar products in China and Southeast Asia, announced this summer that it will spend around $250 million to build a new solar factory in Mesquite, Texas. Texas Democrat Colin Allred, said, “The Inflation
Reduction Act was designed to incentivize projects just like this and I am proud that Canadian Solar chose Mesquite to build this facility.”
Commerce says Canadian Solar was circumventing tariffs, but their factory in the United States will qualify them for untold millions in tax benefits.
Last summer, the White House gave Southeast Asia-based LONGi, Canadian Solar, and others a two-year tariff moratorium. It means that despite Commerce’s ruling to raise triple-digit tariffs on those companies, they will be immune for now.
Other Chinese multinationals like Jinko Solar (the first Chinese solar company to have a factory in the U.S.) and JA Solar (now building in Arizona to take advantage of the IRA) face two types of tariffs for goods produced in China — Section 301 tariffs and the Section 201 solar safeguards. But in Southeast Asia, those tariffs are non-existent. This gives them a base to export important components needed to make solar panels in the U.S., keeping Chinese companies in the pole position in the solar supply chain.
The IRA’s domestic manufacturing incentives are the largest effort in U.S. history to domesticate the solar supply chain. The Obama administration tried something similar in 2009, and China took note. The American Recovery and Reinvestment Act (ARRA) came with an Advanced Manufacturing Tax Credit of 30% for solar manufacturers. At the time, China had already taken its cues from the West about climate change and was pouring billions into solar and wind to sell to the Americans and Europeans. China could easily underprice Americans even with the 30% incentive, and so without complimentary trade policies, ARRA failed to build a domestic American solar industry, writes Jeff Ferry, chief economist for the Coalition for a Prosperous America in a report dated July 13.
Some 15 companies went out of business, including the famous Solyndra, which many critics often hold up as an example of why investing in domestic renewables is bad policy. In reality, China’s trade practices had more to do with that blow-up than the policy itself.
“China’s ability to create unfair market conditions significantly undermined the goals of ARRA and domestic solar manufacturers from being able to compete in the U.S.,” Ferry wrote.
The Obama-era risk is real, judging by the number of Chinese companies investing here now, with at least two deemed trade cheats by Commerce. In a worse case, the risk in the IRA for solar companies is that Chinese multinationals control the supply chains, and U.S. taxpayers help them.
“Standing up to China on this issue has not been easy for a company like Auxin Solar, which some said was too small to matter,” Rashid said after winning his case. “But I will say that we are small and not printing reams of cash on all this solar demand because China stunted our growth due to unfair competition,” he said. “The least I can say is that we didn’t go out of business.”
Last week’s hearing was another Select Committee session on the risks of doing business with China. Witnesses said a combination of tools was needed.
Their task is made all the more complicated by Chinese multinationals employing hundreds of American workers in good-paying jobs in predominantly blue-collar districts.
In his opening statement, Chairman Gallagher said China subsidizes critical industries. “They often get free real estate, get no competition in China, and a total pass on environmental standards with no organized labor to give workers a way to complain,” he added. “Plus, they have a huge corporate espionage apparatus that can steal intellectual property and make what you make and sell it back to us at less than the price of the raw materials you needed to make it here. That is not free competition. That is a virus. It’s amazing we still have a manufacturing base in this country,” Gallagher said.
On intellectual property, Joe Dillon, president of InSinkErator, a garbage disposal manufacturer now owned by Whirlpool, said his competition is all in China.
“They are constantly stealing our technology,” he said. “We have to engage with them here in our home market and overseas.”
The China trade imbroglio came to a head in 2017 when then-President Trump began his tariff policy on China. Capital market sanctions against defense contractors there, and export controls that force U.S. tech companies to get permission from the government before it can sell certain items to Chinese tech giants like Huawei have all expanded under Biden.
There is constant talk in Washington about restricting China’s investment in the U.S., and U.S. investment in China. The House Committee on the CCP has taken the lead on this endeavor.
Meanwhile, China is investing and partnering with the U.S. on clean energy projects thanks to the IRA. Biden’s climate advisor, John Kerry, and others in the Executive Branch have said they want to work with China on climate change goals.
It’s not just solar. China EV battery maker CATL now partners with Ford. Senator Marco Rubio (R-FL) has tried unsuccessfully to block that deal.
“China is very sophisticated,” said Rep. Lahood. “It is unbelievable what they do.”