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Home , Bob Menendez, Tom Cotton

The Senate Committee on Banking, Housing and Urban Affairs

Subcommittee on Economic Policy

US-: Winning the Economic Competition

July 22, 2020.

Member Opening Statements

Subcommittee Chairman (R-AR): Cotton said we rely on China for many important goods and that this shows our reliance and lack of manufacturing capacity. Cotton said we need to work to combat the ’s ambitious ideas. Cotton stated he introduced a bipartisan bill to strengthen the American semiconductor industry. Cotton emphasized that he believes we need to return America to be the greatest superpower in the world.

Subcommittee Ranking Member (D-NV): Cortez Masto said that economic growth and development do not apply to everyone if the government does not ensure that it benefits all communities. Cortez Masto stated that our government needs to be focused on helping vulnerable individuals and families. Cortez Masto said we need to invest in our international relations to prevent future pandemics. Cortez Masto noted that China produces a lot of emerging technologies. Cortez Masto emphasized that China is trying to replace the in a lot of industries and that they are not playing by the rules. Cortez Masto said we need to continue to invest in research and development to stay competitive.

Witness Opening Statements:

Professor , Chace Professor, Foreign Affairs and the Humanities

The Honorable Chris Giancarlo, Senior Counsel And Former Chairman, Willkie Farr & Gallagher, U.S. Commodity Futures Trading Commission

Mr. Tim Morrison, Senior Fellow,

Dr. Lisa D. Cook, Professor Of Economics And International Relations, Michigan State University:

Mr. Martijn Rasser, Senior Fellow, Technology and National Security Program at the Center for a New American Security (CNAS)

Member Questions:

Subcommittee Chairman Tom Cotton (R-AR): Cotton said that China placed export restrictions on personal protection equipment (PPE). Cotton asked about historical comparisons to what China is doing now to the United States. Mead stated that there is a historical comparison to Nazi Germany and the Soviet Union and that U.S. companies were supporting Germany and the Soviet Union. Mead added that China is much more entangled in the U.S. supply chains than these countries were. Cotton asked how to compel U.S. business leaders to move supply chains out of China, especially because so many Chinese companies utilize slave labor. Mead stated that the government should identify companies that are benefitting from slave labor and not allow them to be in the supply chain.

Subcommittee Ranking Member Catherine Cortez Masto (D-NV): Cortez Masto said that the growth of 5G is important and a game-changer. Cortez Masto asked who the biggest competitor in the 5G space is and how 5G should be implemented. Rasser stated that we are currently facing an oligopoly that would benefit Huawei and he believes we should have an open system with low barriers to entry. Rasser emphasized that Huawei is bad at software development and people will transition away from going to Huawei for 5G equipment. Cortez Masto stated that she is concerned about Chinese subsidies and asked about concerns about the Belt and Road initiative. Rasser emphasized that it is important we have international organizations that work on this and an international technological organization could be beneficial.

Senator (R-NC): Tillis said we need to move the links in the supply chain out of China while acknowledging the complexity. Tillis asked what the best way to do this was. Rasser stated that we need to look at an expanded democratic trading block and create trading agreements. Tillis emphasized that we need to look at reimplementing the Transpacific Partnership (TPP). Tillis stated that intellectual property theft is an increasingly difficult problem and is becoming more important. Cook said she agrees, and that China is taking advantage of the public good of the U.S. patent system.

Senator (D-NJ): Menendez said a comprehensive and integrative approach to China is needed. Menendez acknowledged that China has not agreed to the terms of the trade deal and it is unclear if China is even buying as much as they said they would. Menendez stated that the Administration never had any interest in working with China. Menendez asked if anyone on the panel believes that the Phase 1 deal requires China to stop the subsidies. Mead noted that getting China to make this change is gonged to be difficult. Menendez emphasized that the trade deal does not require China to stop cyberattacks. Menendez asked if the Phase 1 deal requires China to stop manipulating commodity markets. Giancarlo said he is not aware of any effort from China to manipulate these markets.

Senator John Kennedy (R-LA): Kennedy asked if the panelists believed that we needed support from other countries to counter China. Giancarlo stated the future is going to be determined through values and a battle of ideas. Morrison said that China wants a world where socialism defeats capitalism and we need to make it clear that capitalism is not going anywhere and working with likeminded democracies is important. Rasser noted that China is a revisionist power and does not want to be part of the system that the rest of the world is a part of. Cook said that China wants its intellectual property to be protected. Senator (D-AL): Jones stated that we need to be focused on markets. Jones said we need to manufacture more personal protective equipment and asked what we would do to bring manufacturing jobs back to the United States. Cook noted that we need to diversify the supply chain and look into both complex and simple manufacturing. Cook stated the manufacturing infrastructure is still in place all over the country. Morrison emphasized that we do not understand the extent of our supply chain and that Huawei makes pacemakers and it would be terrible if those were compromised. Giancarlo stated that the United States needs to remain a leader in manufacturing.

Senator Martha McSally (R-AZ): McSally stated that we need to ensure that China does not replace the United States. McSally said that we have become economically entangled with China and we are now reliant on an adversary. McSally asked how we disentangle ourselves with China producing essentials. Morrison stated that we need a new free trade block and to ensure that China is not producing all of our essentials. Morrison noted that we also need to leverage the Defense Production Act. McSally asked about how the United States can counter what China is doing. Morrison said that there are a number of actions that the United States can take, including limiting Chinese drones. Giancarlo added that China’s advantage is all based on technology and financial technology.

Subcommittee Chairman Tom Cotton (R-AR): Cotton asked Giancarlo what the next steps the United States should take to remain a leader in international finance. Giancarlo answered that we need to understand digitization and that we need to keep the U.S. dollar strong. Cotton asked about how to keep the dollar strong. Giancarlo said the U.S. needs to look at under-banked areas and wholesale payments and figure out ways to increase the digital presence of the dollar. Mead emphasized that the dollar should be looked at as a fundamental building block for the future.

Subcommittee Ranking Member Catherine Cortez Masto (D-NV): Cortez-Masto asked about why it is important to diversify workforces. Cook said that it is important that everyone reaps the benefit of higher living standards and this will allow people to be more competitive. Cook stated that you do not need a Ph.D. to be more competitive. Cortez Masto asked if international students can help create a stronger workforce. Cook noted that the US need to encourage the free flow of ideas as much as we can, and international students are a part of this. Cortez Masto questioned Rasser about bringing back rare earth mining to the United States. Rasser answered that the United States has a tremendous opportunity in this area and that there are a lot of rare earth supplies available.

Senator Bob Menendez (D-NJ): Menendez asked how we can replenish our resources to continue to make the U.S. one of the most competitive countries in the world. Cook stated we need to increase our research and development and increase our wireless internet connection. Menendez noted that China relies on its domestic technology firms and this is increasing during the pandemic. Menendez asked how the U.S. should approach China using technology firms to increase surveillance. Rasser said it is important for the United States to educate companies on what China is doing and explain why it is unacceptable. Rasser stated it is necessary to prevent that these technologies are exported to other countries.

Subcommittee Chairman Tom Cotton (R-AR): Cotton asked if we should bar Chinese military companies from operating in the United States. Morrison said that these companies should absolutely be banned from operating in the United States and lobbyists that represent these companies should be required to register as foreign agents. Cotton asked if the government should consider outbound export controls. Morrison emphasized that there are problems including joint ventures and cutting off investment may not be the best solution. Morrison stated that there are not private companies in China like there are in the United States.