If China’s existing list of economic and financial problems were not challenging enough for the nation’s leadership in Beijing, the U.S. Congress has decided to add to it.
A bill advancing through Congress would block the U.S. government from doing any business with Chinese biotechnology companies. At the same time, the House of Representatives has taken steps to ensure a much stricter enforcement of rules forbidding the import of any Chinese goods with any connection to forced labor.
None of this is as sweeping as President Joe Biden’s ban on American investments in Chinese technology, his ban on the sale of advanced semiconductors or semiconductor manufacturing equipment to China, or his administration’s decision to maintain the severe tariffs that the Trump administration first imposed on Chinese imports to the United States in 2018 and 2019. But for China, these latest measures are yet another straw on the proverbial camel’s back.
The biotechnology ban has bipartisan support in Congress and likely will get President Biden’s signature. It will have only a slight impact on overall Chinese trade, but it aims at a sector of China’s economy that is of special interest to Chinese leader Xi Jinping.
The vaguer but more wide-ranging matter of goods connected to forced labor comes out of the U.S. House of Representatives Select Committee on the Chinese Communist Party. It, too, has bipartisan support, having endorsements from the committee chair, Mike Gallagher (R-Wis.), and the committee’s ranking member, Raja Krishnamoorthi (D-Ill.).
The committee has demanded much stricter enforcement of the 2022 Uyghur Forced Labor Prevention Act. In particular, it seeks to bring goods of Chinese origin that are transshipped through third countries under the law. It also aims to close an existing loophole that presently excuses from customs scrutiny goods of $800 or less sent directly to the United States. This seems like a small matter, but it involves more than 1 billion packages a year.
In themselves, either measure will only affect U.S.–China trade at the margin, but they are nonetheless a significant sign of building hostility in Washington toward China. Their bipartisan nature is especially important, suggesting that the hostility is widespread, has a great deal of legislative support, and is not likely to change regardless of the results of the November election, either for president or Congress.
These two measures and others announce to China’s leaders in Beijing that regardless of the November vote in the United States, they should expect no relief from the severe tariffs on Chinese goods first put in place by former President Donald Trump. They also announce that the next president, regardless of who he or she is, will likely retain some version of President Biden’s executive orders banning U.S. investment in Chinese technology and sales of advanced computer chips to China, as well as chipmaking equipment. These measures further suggest that such orders and like restrictions will rise above executive orders and become law.
Meanwhile, China’s economy can ill afford any additional negative pressure, even at the margin. The nation’s exports—though up modestly in December—have declined for most of the last 12 months. These latest efforts by Congress will just add to the effects on Chinese sales imposed by the slowdown in the U.S. economy, near recession in Europe, and efforts by buyers in both these places and Japan to diversify supply chains away from China. Though Beijing has often talked about reorienting the Chinese economy away from its export dependence, that has not yet happened, making the overall economy highly vulnerable to these overseas events.
An even more serious economic impediment than the export shortfall is the legacy of failures in property development. Because Beijing refused to act when problems first appeared in 2021, financial difficulties have built, including a heavy debt overhang among local governments. The result is that Chinese finance can no longer support growth as easily as it once could. The collapse in the property sector has also caused declines in homebuying and homebuilding, once important supports for China’s economy. Nor can the Chinese consumer or domestic business make up the difference for declines in homebuilding and exports. Problems with property development have depressed real estate values, and the resulting loss to household net worth has held back consumer spending.
The legacy of the now-abandoned zero-COVID policy is another serious impediment. By shutting down economic activity periodically, these policies have made householders generally less secure about their incomes than they once were. Those same policies and the hostility shown by the Chinese Communist Party to private business have also kept managers charry of investing for expansion or hiring.
This new American legislation on China-based biotech or stricter rules on products connected to forced labor will not bring the Chinese economy down. Still, the two measures add, albeit small, challenges to an economy that is already beleaguered with economic and financial problems.
Xi and his colleagues in Zhongnanhai already have a tough job ahead of them to get China’s finances back on track and its economy moving again at an acceptable pace. These new developments make that job just that much harder.
