April 27, 2021

Asia

US/CHINA: US legislation to counter China unlikely to spark retaliation

BY Gabriel Wildau

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( 4 mins)
  • Two pieces of legislation focused on US competition with China are likely to pass the US Congress with broad bipartisan support.
  • The bills are an outgrowth of strong anti-China sentiment among US policymakers but are unlikely to trigger direct retaliation by Beijing.
  • The most important provisions of the two bills are domestically focused, providing new funds to support US research and development, and manufacturing in strategic industries.

The US Senate Foreign Relations Committee approved the Strategic Competition Act with broad bipartisan support on 21 April. The bill is likely to become law alongside separate China-focused legislation, the Endless Frontier Act, which the Senate Commerce Committee may approve in early May. Though the bills are an outgrowth of strong anti-China sentiment among US policymakers, few if any of the specific provisions are likely to spark direct retaliation by Beijing. Rather than imposing new sanctions on China, the bills largely focus on information operations and investment in US domestic economic and technological competitiveness. But both bills will be subject to amendments before final votes in the House and Senate, which means the final contents may change.

Combatting “malign influence”

The most important provisions of the Strategic Competition Act are as follows:

  • Requiring a boycott of the 2022 Beijing Olympics by US officials, though not by athletes.
  • Appropriating USD 300mn per year in 2022-2026 to a “Countering Chinese Influence Fund” that will be used for public diplomacy efforts highlighting China’s “malign influence,” including the “negative impact of activities related to the Belt and Road Initiative” (BRI). The funds will also be used to counter Chinese “front organizations and agents which target businesses, universities, think tanks, scholars, journalists, and local state and Federal officials” in the US;
  • Appropriating USD 80bn in new capital for the Interamerican Development Bank, which can provide an alternative to BRI for development finance in Latin America;
  • Granting new authority to the Committee on Foreign Investment in the US (CFIUS) to review and veto foreign grants to and contracts with US universities that receive federal funding.

The bill also includes several nonbinding “Sense of Congress” declarations about how the executive branch should conduct China policy. One stresses the need to strengthen alliances in Asia, including with regional institutions like the Association for Southeast Asian Nations (ASEAN) and the Quad. Another declaration calls for prioritizing military investments in the Indo-Pacific region. A third affirms the “centrality of sanctions and other restrictions” in dealing with China over issues like Hong Kong, Xinjiang, North Korea, intellectual property theft, and trafficking in opioids, including fentanyl. Nevertheless, the executive branch maintains full discretion on imposing specific sanctions.

Strategic industries and supply chains

The Endless Frontier Act is largely focused on promoting domestic investments in science and technology research and development, allocating USD 100bn over five years. It allocates an additional USD 10bn for at least ten regional technology hubs, with grants awarded for specific investment initiatives that promote R&D, entrepreneurship, and advanced manufacturing. The bill also establishes a Supply Chain Resiliency and Crisis Response Program that aims to reduce US reliance on China for critical supplies through increased US production and cooperation with US allies and partners (it remains unclear which, if any, specific sectors the bill will target). The bill may also appropriate up to USD 50bn to fund provisions approved in last year’s CHIPS Act – which was passed in December as part of the annual defense appropriations bill for 2021– to subsidize domestic semiconductor research and manufacturing. Alternatively, that funding may be shifted into President Joe Biden’s pending infrastructure bill, the American Jobs Plan.

Beijing’s response

China’s foreign ministry condemned the Strategic Competition Act, saying it “grossly interferes with China’s affairs and reeks of Cold War and zero-sum mentalities.” But consistent with Beijing’s generally cautious approach to retaliation, the Chinese government’s response to both bills is unlikely to extend much beyond condemnatory rhetoric. A diplomatic boycott of the Olympics presents little opportunity for a reciprocal response, while China’s government already engages in foreign propaganda comparable to what the US legislation envisions. Similarly, Beijing already subsidizes strategic industries in a broadly similar manner to what the Endless Frontier and CHIPS Act propose.

Nevertheless, Beijing will take note of the extent to which the two bills reflect the extraordinarily unified and bipartisan nature of the current anti-China sentiment in Washington. Indeed, these bills may turn out to be the only significant legislation to pass Congress with significant bipartisan support during Biden’s first year in office – and perhaps longer. Beyond signaling political unity, the bills establish a broad framework for the US government to pursue containment of and competition with China across various issues, including economics, national security, and diplomacy.

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