Should the Commerce Dept. Have More Flexibility to Punish China for Trade Cheating? (S. 3379)

What is S. 3379?

(Updated October 12, 2019)

This bill — known as the Play by the Rules Act — would give the Commerce Dept. additional flexibility when reviewing anti-circumvention petitions filed against non-market economies like China. It’d allow the Commerce Dept. to combat China’s attempts to circumvent international fair trade rules by taking actions related to anti-dumping — deterring imports priced at below market-value — and imposing countervailing duties (ie tariffs) in response to such dumping.

Argument in favor

Unfair trade cheating by China hurts U.S. industries and workers. Empowering the Commerce Department to address this issue benefits U.S. companies and their employees, ensuring that U.S. trade policies are enforced to ensure fair markets.

Argument opposed

Since Chinese trade cheating is an international issue, the U.S. shouldn’t take China on alone. We should instead work with the G7 and World Trade Organization, as well as within the bounds of international trade agreements, to put pressure on China on multiple fronts.

Impact

International trade; Department of Commerce; and China.

Cost of S. 3379

A CBO cost estimate for this bill is unavailable.

Additional Info

In-Depth: Sen. Tammy Baldwin (D-WI) introduced this bill to crack down on unfair trade cheating from non-market economies, such as China:

“China has refused to play by the international trade rules they agreed to and they should be held accountable. This bipartisan legislation will give the Commerce Department the flexibility it needs to take stronger actions that protect American workers and businesses against China cheating.”

Original cosponsor Sen. Shelley Moore Capito (R-WV) added that fair trade rules and policies are important to U.S. economic competitiveness and domestic jobs:

“Fair trade rules and policies help protect U.S. jobs and ensure economic growth in our country. Unfortunately, there are times that non-market economies refuse to adhere to those policies or manipulate the system to put the United States at a disadvantage. When that happens, it’s important that we hold those countries accountable to ensure we are putting American jobs and the American economy first. This bipartisan legislation will provide the Commerce Department the flexibility it needs to hold bad actors accountable and ensure that our trade policies are followed and respected.”

China has consistently decried the imposition of U.S. anti-dumping duties on Chinese products. In May 2016, after the Commerce Dept. clamped down on a glut of steel imports by putting a 450% anti-dumping and anti-subsidy duty on imports of corrosion-resistant steel from China, China’s Commerce Ministry expressed its dissatisfaction at the move, which it called “irrational” and harmful to U.S.-China cooperation.

Xinhua, Beijing’s official news agency, has also called blaming China for the global steel industry’s problems a “lame and lazy excuse for protectionism.” In a commentary piece, Xinhua warned against the imposition of protective tariffs, saying that “blaming other countries is always an easy, sure-fire way for politicians to whip up a storm over domestic economic woes, but finger-pointing and protectionism are counter-productive.”

The Information Technology and Innovation Foundation (ITIF), in a recent report, has argued that rather than countering Chinese trade manipulations by raising tariffs, the U.S. should instead use a global free-trade regime against China. This would mean bringing more actions against China in the World Trade Organization (WTO); working to update WTO rules to capture Chinese cheating (and to begin thinking of a new organization for regulating international trade if the WTO proves inadequate); joining, and influencing the formation of, multilateral agreements like the Trans-Pacific Partnership; and forging bilateral agreements with up-to-date standards that reinforce principles that China undermines. The ITIF report’s authors argue that the stakes of this realignment of U.S. trade policy are huge, writing that:

“A failure to complete and to implement next-generation trade agreements that establish higher-standard rules, principles, and norms for market-based global trade will only cede the terms and structure of global trade to Chinese leadership.”

Similarly, Carson Block, Chief Investment Officer of Muddy Waters Capital LLC, an activist investment firm, argues that international coordination against China, rather than unilateral U.S. trade retaliation, is needed to curb Chinese abuses:

“I would strongly urge that rather than unilaterally impose tariffs that make the U.S. look like the rule breakers, we should work with the rest of the G7 to compel compliance by China through coordinated forceful trade action. At the end of the day, China has much to lose from being isolated from the international regime, and would almost certainly respond to coordinated insistence on compliance.”

This bill is supported by the United Steelworkers and Columbia Forest Products. Gary Gillespie, Executive Vice President of Columbia Forest Products, says:

“The Chinese government has subsidized plywood dumped by Chinese companies in American markets. Last year, the U.S. took action and assessed anti-dumping duties, which allowed Columbia Forest Products to re-hire workers in Wisconsin, Maine, Vermont, North Carolina, Oregon, Virginia, and West Virginia. Unfortunately, China is circumventing the duties, threatening to undo our progress. [This] legislation provides the Commerce Department with the tools we need to crack down on trade cheating from China.”

The Trump administration has made American trade deficits and stricter enforcement of U.S. anti-dumping laws to prevent foreign manufacturers from undercutting U.S. companies by selling goods at unfair prices linchpins of its trade policy.

There is one cosponsor of this bill, who is a Republican.

Of Note: As defined by the Organization for Economic Cooperation and Development (OECD), circumvention is “getting around commitments in the WTO such as commitments to limit agricultural export subsidies. It includes: avoiding quotas and other restrictions by altering the country of origin of a product; measures taken by exporters to evade anti-dumping or countervailing duties.”

China has been repeatedly accused of circumventing anti-dumping and countervailing duty orders for a range of products, including steel, mattress innersprings, plywood, and furniture. In the case of steel, four steel producers filed a petition in September 2016, charging China with circumventing anti-dumping and countervailing duty orders for corrosion-resistant carbon steel and cold-rolled carbon steel by sending substrate materials for Vietnam for processing and re-exporting.

By changing the origin of products, circumvention allows producers to pay lower duties than they would otherwise have. For example, in a 2008 trade involving mattress innersprings from China, Chinese producers received anti-dumping duties of 165-235%, while South African and Vietnamese producers received duties of 116-121%. In order to pay lower duties, Chinese producers began shipping innersprings to Malaysia that were then re-exported to the U.S. to avoid the higher duties levied on Chinese mattress innersprings.

Media:

• Sponsoring Sen. Tammy Baldwin (D-WI) Press Release