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The trade deficit for 2021 with China grew 14.5% for the full year to $355.3 billion, as imports increased sharply because businesses were restocking shelves to meet robust domestic demand. This ended the decline that followed then-President Donald Trump’s policies aimed at reducing the deficit with tariffs and purchase targets.

Reuters reported that “The sharp widening in the trade gap reported by the Commerce Department on Tuesday mostly reflected a shift in spending toward goods from services during the COVID-19 pandemic. With businesses eager to rebuild depleted inventories against the backdrop of stretched global supply chains, the deficit is unlikely to shrink much this year, cutting into economic growth.”

The New York Times commented, “Americans, sheltering at home from the coronavirus and many with savings swelled by government relief packages, slashed their spending on travel, restaurants and movies and splurged on furniture, electronics, food and other goods instead. The trade deficit numbers are also the latest sign of how dependent the United States remains on other countries, particularly China, for the things that consumers want to buy.”

If consumers had the ability to determine the County of Origin for their online purchases and choose to buy Made in USA, this would help reduce the trade deficit with China.  Unfortunately, S. 3707, the COOL Online Act, introduced in the 116th Congress (2019-2020) by Sen. Tammy Baldwin (D-WI) and co-sponsored by Sen. Rick Scott (R-FL), Sen. Christopher Murphy ([D-CT0, and Sen. Kelly Loeffler ([R-GA) didn’t get out of committee to be voted on by the Senate. It hoped that this bill will be reintroduced into the Senate and a companion bill will be introduced in the house this year. 

We could also reduce the deficit if Federal procurement agencies focused on buying goods from American suppliers in compliance with the Buy American Act of 1933, which states “The Buy American Act applies to all U.S. federal government agency purchases of goods (articles, materials, or supplies) valued over the U.S. micro-purchase threshold (currently set at US$10,000). When purchased by federal entities for public use, the Act requires that these goods be produced in the U.S.”

However, on January 29, 2022, The Epoch Times article, “Chinese-Made COVID-19 Test Kits Are Coming to Millions of US Households via White House Initiative” reported that “As the White House’s free at-home COVID-19 test kits are reaching millions of U.S. households, the “made in China” label on some of those kits is stirring concerns.” This distribution is being done due to the “Biden administration initiative to give away 1 billion self-test kits to Americans for free. A sizable portion of these kits will be sourced from iHealth Labs, a California subsidiary of Chinese medical gear manufacturer Andon Health.”

The article explained that “Since December 2021, the company has won contracts worth more than $2.1 billion with the U.S. federal government and some state governments, according to Andon’s filings and federal contract records.”

The Epoch Times stated that Andon was “Established in 1995 in the Chinese megacity of Tianjin” and “had been known as a producer of blood pressure monitors…Andon owns a 70 percent stake in iHealth Labs, which was founded in 2010, the year that Andon went public in Shenzhen, China. Chinese smartphone maker Xiaomi, which invested $25 million in iHealth in 2014, holds 20 percent ownership in the company.”

It is outrageous that “Roughly $1.8 billion of the amount for the White House rollout came from the Department of Defense (DOD). The department awarded two contracts to the lab on Jan. 13 and Jan. 26, respectively, which would bring more than 354 million Chinese-made kits—or about a third of the total—to U.S. homes.”

Most importantly, the deficit would have been lower if China had complied with the U.S.-China trade agreement signed in 2020. On February 8, 2022, Chad P. Brown  of the Peterson Institute of International Economics (PIIE) wrote:  “Two years ago, President Donald Trump signed what he called a “historical trade deal” with China that committed China to purchase $200 billion of additional US exports before December 31, 2021. Today the only undisputed “historical” aspect of that agreement is its failure…In the end, China bought only 57 percent of the US exports it had committed to purchase under the agreement, not even enough to reach its import levels from before the trade war. Put differently, China bought none of the additional $200 billion of exports Trump’s deal had promised.”

As a result of the violation of this trade agreement, on February 10, 2022, the Coalition for a Prosperous America (CPA) “called on the Biden administration to fully implement all tariffs the U.S. government imposed on China pursuant to Section 301 of the 1974 Trade Act in light of China’s violation of the Phase One deal. As part of this enforceable agreement, China pledged to increase its purchases of U.S. agricultural, manufactured, and energy goods. However, China was more than one-third short of its pledges—purchasing just 63 percent of what was promised under the Phase One deal. In exchange for China’s commitments under the Phase One deal, the United States agreed to lower or suspend implementation of the final tranche of Section 301 tariffs in December 2019, known formally as Lists 4A and 4B. “

The press release stated that “Last October, U.S. Trade Representative (USTR) Katherine Tai announced that China violated the Phase One deal. This week, U.S. Secretary of Commerce Gina Raimondo said that the Biden administration would hold China accountable for failing to meet its commitments under the Phase One deal.

CPA made the following statement: “CPA strongly believes the Biden administration should immediately and fully impose all 301 tariffs to hold China accountable for, once again, violating an international agreement,” said Zach Mottl, Chairman of CPA. “For decades, China has engaged in massive state-subsidization of its industries, stolen Intellectual Property, used forced labor, shown little regard for environmental laws, and consistently violated international agreements. The goals of the Phase One deal required structural reforms and other changes to China’s economic and trade regime, however it is now clear that China has no interest in complying. Now that the Biden administration has confirmed China is violating the agreement, the 301 tariffs for products covered under Lists 4A and 4B should snap back to their original levels.”

According to the Congressional Research Service, Section 301 tariffs of the Trade Act of 1974 began to be imposed in 2018 after an investigation by the U. S. Trade Representative into several allegedly unreasonable or discriminatory trade practices carried out by China.  These tariffs were imposed in four stages and divided into lists of various categories of goods. Lists 1, 2, and 3, were imposed between June 2018 and May 2019. List 4 tariffs were supposed to go into effect on December 15, 2019, but the planned implementation was suspended as part of the Phase One deal with China.

“CPA is calling on USTR to take the necessary actions to impose the List 4B tariffs and raise the List 4A tariffs to the originally planned level of 15 percent.”

In my opinion, across the board tariffs of 15-25% should be imposed on all imports from China as China has never lived up to the principles and terms of being a member of the World Trade Organization.  Every year, the annual U.S.-China Trade Commission has documented egregious violations on the part of China with regard to being a member of the World Trade Organization and enjoying the privileges of Most Favored Nation Aka Permanent Trade Partner granted by President Clinton in September 1999. No action to address China’s violation of WTO terms was taken by any subsequent administration until the imposition of Section 301 tariffs by the Trump Administration in 2018.

American manufacturers are competing on an unfair playing field in the global marketplace and even on their own turf of the domestic market.  China’s mostly state-owned enterprises are engaging in product dumping, selling below cost to take over market share of specific industries, and receiving generous subsidies and credit from the Chinese government.  Now is the time to protect American manufacturers against these predatory practices of China.  We cannot allow China to achieve their plan of becoming the world’s superpower if we want to remain a free, independent country.

On November 29, 2021, the Peterson Institute for International Economics released a 110-page brief, titled “Scoring 50 Years of  US Industrial Policy,  1970–2020,” which reviews “lessons learned from half a century of US industrial policy” with regard to what worked and what didn’t.   

The introduction references Alexander Hamilton’s plan of 1791 to grow domestic manufacturing to “compete with Britain as a producer of manufactured goods for American consumers.”  After the War of 1812, Hamilton’s plan became known as the “American System” of Henry Clay, which “consisted of high tariff walls, a central bank and, above all, government investment in ‘public improvements’ like rails, canals, and roads to help industry get goods to customers—the very essence of an industrial policy that some analysts say was crucial to US economic development after the Civil War.”

These “America first” policies remained in effect until after WWII, when we began to enter into trade agreements with many other countries that reduced tariffs and granted non-tariff trade benefits to our trading partners. The briefing states “the debate over the role of the federal government, and especially over tariffs and government spending, has gone back and forth. But by 2020, the US ideological pendulum appears to have swung back in favor of industrial policy for domestic manufacturing.”

Chapter One defines “industrial policy as government intervention against market forces to promote a favored firm or industry,” and the” Tools of industrial policy include easy credit, direct and indirect subsidies, preferential taxes, and tariff and nontariff barriers.” Additionally, “the common objective of US industrial policy is to promote ‘good jobs at good wages’ in the United States.”

The authors believe that “an examination of yesteryear cases may, at a minimum, inject a note of caution, and perhaps yield lessons to improve the design of future episodes.”

In describing their methodology, they said, “we assess individual cases from the perspective of proponents who typically count jobs created or saved, ignoring general equilibrium analysis or the value of human capital gained or lost.” They “selected high-profile federal cases plus a very few (out of hundreds) state cases. We divide the episodes into three broad categories reflecting the principal intervention tools…”

• “cases where trade measures closed the US market or opened foreign markets (chapter 2);
• cases where federal or state subsidies were targeted to specific firms to promote their success (chapter 3); and
• cases where public R&D funds were spent to advance a promising technology (chapter 4).”

For their analysis, they said, “we examine three features of each episode of industrial policy and for each feature assign a letter grade: A, B, C, or D. Numerical equivalents of these grades, used for the summaries in chapter 5, are A+ = 4.5; A = 4; B = 3; C = 2; D = 1. Our assessments were based on answers to the following questions, which reflect contemporary objectives”:

• “Did the industry become competitive in international (or in some cases national) markets? – “an analogous test is whether the industry became competitive in the national market without further public support.
• Were jobs saved in the industry at a reasonable cost to taxpayers or purchasers? – “We do not distinguish between the creation of new jobs or the saving of existing jobs in calculating ‘reasonable cost,’”
• Was the technological frontier advanced through government assistance? – “our assessments are qualitative judgments, not quantitative measures,,,We do not attempt to put a dollar value on technology generated by government programs.”

However, they do note that “our job counts refer only to jobs saved or created in the targeted firm or industry, not jobs lost or gained elsewhere in the economy, and we do not distinguish between skill levels.”

The authors comment that “In the United States, government-driven industrial policy claims a relatively small share of federal and state budgets…All told, the total annual cost of federal industrial policies might reach $100 billion, accounting for 2.4 percent of the annual federal budget. With Biden’s initiatives, this prospective total easily exceeds annual federal industrial policy expenditures during the period covered by this report, 1970 to 2020.”

Chapter 2 considers “Industrial Policy Through Trade Measures” stating that “The use of trade measures—usually protection against imports, but occasionally assistance for exports—is a classic form of industrial policy.” This chapter examines “five high-profile episodes to illustrate the use of trade measures to carry out industrial policy. The episodes concern steel, textiles and apparel, automobiles, semiconductors, and solar panels.”  They graded each of these industries according to the above criteria.

I do not have space to provide the data and analyses behind the grades for each of the five selected industries, but am summarizing the grades for each industry:

U.S. Steel industry – rated a “D” for all three of the above criteria.

Textiles and Apparel – rated a “D” for the first two criteria and a “C” for the third.

Automobiles – the ratings were mixed:

• Did trade measures advance the international competitiveness of the US semiconductor industry?
• Rated a “B”
• Did trade measures save jobs at a reasonable cost?
• Rated a “C”
• Did trade measures advance the technological frontier of semiconductor production?
• Rated an “A”

Semiconductors – split ratings for each of the criteria as follows:

• Did trade measures advance the international competitiveness of the US semiconductor industry?
  • Failed outcome for the antidumping phase = D;
  • intermediate outcome for the market opening phase = B
• Did trade measures save jobs at a reasonable cost?
  • Failed outcome for the antidumping phase = D;
  • successful outcome for the market opening phase = A

• Did trade measures advance the technological frontier of semiconductor production? Intermediate outcome for the antidumping phase = C;
  • successful outcome for the market opening phase = A

Solar Panels – fared better in the ratings:

• Did tax credits advance the international competitiveness of the solar panel manufacturing industry?
  •  Failed outcome = D
• Did tax credits create jobs at a reasonable cost?
  •  Successful outcome = A
• Did tax credits (together with the earlier NSF research program) advance the technological frontier of solar panel production?
  • Successful outcome = A

As a result, the conclusion was “Analysis of impacts in four US industries—steel, textiles and apparel, semiconductors, and solar panels—shows that trade protection has not been a winning formula for industrial policy, judged by the twin tests of establishing an internationally competitive industry and saving jobs at a reasonable cost to household and business consumers. The main reason, of course, is that sunset industries have been more successful in obtaining trade protection; sunrise industries rarely appeal for new tariffs or quotas. To be sure, trade protection may mitigate the pain of job displacement, but when trade protection endures for a decade or longer, new workers will replace those who retire or quit, thereby prolonging the adjustment process.”

There conclusions may be right for the data they analyzed to answer the questions posed, but I disagree with the questions establishing the criteria for the ratings. In my opinion, the following are the questions that should be asked in establishing industrial policies:

• Are these products part of the military and defense supply chain?
• Are these products important to maintaining the health and welfare of Americans?
• Are these products competing with imports from China or another country within China’s sphere of influence?
• Would it endanger the ability of American manufacturers to produce their products if imports of components and assemblies from China were cut off?
• Would it harm America’s ability to be self-sufficient in producing critical products domestically?

If the answer to any of these questions is “yes,” then whatever policies are needed to protect these domestic industries must be implemented.  We cannot defend our country if the products needed by the military and defense industry become unavailable. I don’t just mean the steel needed to produce products for the military. Semiconductors are needed for both military and commercial systems and equipment, as well as textiles and apparel. The COVID pandemic proved that we cannot rely on imports of pharmaceuticals and PPE equipment and supplies to protect the health and welfare of Americans, both military and civilian. The automobile industry doesn’t just make cars for civilian use; they make trucks, tanks, and other military vehicles.  Solar panels are used by military bases and government agencies.  We need an integrated domestic supply chain if we want to remain a free country.  It’s time for all Americans to wake up America to the dangers of being dependent on other countries for manufacturers goods, especially one that has become our enemy – China.

On November 17, 2021, the U.S.-China Economic and Security Review Commission held a virtual public release of its 2021 Annual Report to Congress in Washington, DC.  This report provides “a review of economics, trade, security, political, and foreign affairs developments in 2021” with a focus on the “CCP’s economic and technological ambitions, the Chinese government’s evolving control of the corporate sector, U.S.-China financial connectivity and risks to U.S. national security, China’s nuclear forces, Chinese military capabilities and decision-making for a war over Taiwan…”

After China was granted Most Favored Nation status by President Bill Clinton and allowed to become a member of the World Trade Organization, “the U.S.-China Economic and Security Review Commission (USCC) was created on October 30, 2000 by Public Law 106-398 (the Floyd D. Spence National Defense Authorization Act for 2001) as amended. The purpose of the USCC is to monitor, investigate, and report to Congress on the national security implications of the bilateral trade and economic relationship between the United States and the People’s Republic of China.”

Every year since 2001, the Commission has issued an annual report of its evaluation and findings as required by the law. The introduction of this year’s report notes that 2021 marked the 100-year anniversary of the founding of the Chinese Communist party, during which the CCP has “not only celebrated its successes in overseeing China’s transformation into a formidable power on the world stage but also presented its political and economic model to the world as superior to democracy and capitalism.”

The report states, “China’s strengths and the threats it presents to U.S. interests are considerable…The CCP was and is aggressively advancing its economic interests to control global resources and markets and influence decision-makers… At stake in this clash of identities and sovereignty is the safety and security of the United States and its partners, friends, and allies. The CCP is a long-term, consequential, menacing adversary determined to end the economic and political freedoms that have served as the foundation for security and prosperity for billions of people.”

The Commission found that “Despite continued tense rhetoric between Washington and Beijing during 2021, bilateral trade is returning to pre-tariff levels and U.S.  capital flows to China are on the rise.  As commercial and financial flows weave the economies closer together, the Biden Administration is consolidating a complex mix of the Trump Administration’s policy initiatives with its own to defend against China’s unfair economic policies and threats to U.S.  national security…Many U.S.  multinational corporations meanwhile, continue to view China as a priority market despite rising concerns about China’s protectionist business environment.”

China’s leaders know they are in direct competition with the U.S. for global economic leadership, and “China’s economic policy blueprint issued in March 2021, emphasizes innovation and development not only for economic growth but more importantly for technological self-sufficiency, national security, and international influence.”

Since the Executive Summary of the key findings and recommendations of the report are too lengthy to consider in depth, but I will summarize a just few of the most important as follows:

The Commission found that China faces “growing debt, income inequality, demographic decline, and technological dependence on the United States” and “the international environment as becoming increasingly hostile to the Party’s aims.”

China’s influence in Latin America and the Caribbean is expanding through trade for commodities and raw materials that China needs, as well as investment and financing through its Road and Belt Initiative.  China has cultivated political relationships at all levels of government (local, state/province, and national.)  The Commission warns that “China’s expanding control over entire supply chains in the region may also harm U.S. competitiveness and threaten U.S. access to critical inputs for emerging technologies.”

China’s government is “formalizing a legal and regulatory framework to counter foreign trade restrictions and sanctions, aimed especially at U.S. export controls on Chinese companies and financial sanctions on Chinese individuals.”

The CCP believes state control rather than economic liberalization is essential to achieving economic growth while maintaining political stability and is expanding government control of nonstate-owned companies by developing “numerous avenues through which to monitor corporate affairs and direct nonstate firms and resources toward advancing CCP priorities.”

• China is focused on augmenting emerging technologies, such as synthetic biology and new mobility.  Synthetic biology includes chemicals, medicines, fuel, food, materials, agriculture, and human engineering. New Mobility “captures everything from ride-hailing services to autonomous vehicles [and] is a strategic imperative for the CCP as it seeks both to lower China’s carbon emissions and to improve domestic transportation.”  

• China expansion of access to its financial markets for foreign investors “poses distinct economic risks to U.S. investors and national security risks to the United States” as China “further fuses military and civilian corporate operations” and tightens “control over China’s corporate sector.”

• The “CCP expanded efforts to control all aspects of Chinese society and culture it viewed as threatening” and “continued its repression of ethnic minorities in the frontier regions of Xinjiang, Tibet, and Inner Mongolia.”

• China “stepped up its use of military coercion in the East and South China Seas, the Taiwan Strait, and along the Indian border” through “forced sterilizations, coerced abortions, and other human rights abuses against Uyghurs and other ethnic and religious minorities…”

• China “grew more confrontational toward democratic countries” [and] “expanded its partnerships with Russia and Iran and attempted to cast itself as a leader of developing countries across Africa, the Middle East, and Central Asia.”

• “China is engaged in an unprecedented buildup of its nuclear forces…constructing hundreds of new silos for its intercontinental ballistic missiles…growing its stockpile of warheads, developing a nuclear triad, and improving the accuracy of its delivery systems…The scale of China’s nuclear buildup, however, suggests it could also be intended to support a new strategy of limited nuclear first use.”

• ”China’s increasingly coercive approach to Taiwan puts almost daily pressure on the cross-Strait status quo and increases the potential for a military crisis…if Chinese leaders believe the United States is not militarily capable of or politically willing to intervene…,” the risk of a Chinese invasion of Taiwan increases.

Lastly, “the CCP-controlled Hong Kong government’s implementation of the National Security Law upended the city’s social and political environment…Strict implementation of the National Security Law is stripping Hong Kong of long-held advantages that made it a global financial center.  This means that

“The 1,283 U.S. companies and estimated 85,000 U.S. citizens residing in Hong Kong, as well as any who transit the territory, must now contend with the possibility of arrest…Changes diminishing corporate transparency and weakening rule of law endanger U.S. businesses in Hong Kong. “

The Commission made 32 recommendations to Congress, but emphasized 10 recommendations in the Executive Summary.  Even these 10 recommendations are too lengthy to be quoted completely.  As briefly summarized, the Commission recommends:

1. “Congress consider comprehensive legislation to address risks to U.S. investors and U.S. interests from investments in Chinese equity, debt, and derivative instruments…”
2. “Congress take urgent measures to strengthen the credibility of U.S. military deterrence in the near term and to maintain the ability of the United States to uphold its obligations established in the Taiwan Relations Act…”
3. “Congress ensure the effective implementation of the Export Control Reform Act of 2018 and the Foreign Investment Risk Review Modernization Act of 2018 by enacting legislation that…”
4. “Congress consider legislation to create the authority to screen the offshoring of critical supply chains and production capabilities to the People’s Republic of China (PRC) to protect U.S. national and economic security interests…”
5. “Congress enact legislation expanding the jurisdiction of existing U.S. investment restrictions targeting Chinese entities placed on the Non-Specially Designated Nationals (SDN) Chinese Military- Industrial Complex (NS-CMIC) Companies List…”
6. “Congress prevent the erosion of U.S. strategic nuclear superiority and respond to China’s qualitative and quantitative theater nuclear advantages by directing the Administration to continue implementation of the Obama-Trump Program of Record for nuclear modernization.”
7. “Congress direct the SEC to require that publicly traded U.S. companies with facilities in China report on an annual basis whether there is a CCP committee in their operations and summarize the actions and corporate decisions in which such committees may have participated.”
8. “Congress consider comprehensive legislation to ensure Chinese entities sanctioned under one U.S. authority be automatically sanctioned under other authorities unless a waiver is granted by the president or the authority applying the initial sanction.”
9. “Congress mandate from Treasury an annual update of the accurate U.S. portfolio investment position in China since 2008, including money routed through offshore centers, such as the Cayman Islands.”
10. “Congress direct U.S. Customs and Border Protection to initiate action to impose a region-wide Withhold Release Order on products originating from Xinjiang, China.”

The problem is that for the past 20 years Congress hasn’t paid much attention to this annual report and has rarely acted on any of the recommendations. Thus, I have no confidence that the current Congress will act on any of the recommendations of this report.  Very few Americans realize the dangers China poses to our freedom of our way of life and our national security. The notion of many Western experts that China would become a more liberal, democratic China as it became more prosperous has proved false.  We the people need to urge our elected Congressional representatives and senators to take this report seriously and act on these recommendations.  Our individual freedom and national security are at stake.