Senate Needs To Keep Its Eye on the China Challenge, Not Political Spending Priorities

Walter Lohman / May 17, 2021

It has been a few months in coming, but the U.S. Senate is about to debate comprehensive legislation on how to respond to China. It’s a welcome development – as long as it’s really about strategic competition, and not a package of mostly unrelated government giveaways. Majority Leader Chuck Schumer (D-NY) offered no assurances this afternoon when he laid out a brief argument for the package on the Senate floor. He almost forgot to mention China!  

What will be on the floor the rest of this week, and probably next, is a combination of bills that Schumer tasked committees with developing back in February. The base bill will be his own legislation, the Endless Frontier Act. The other principle element is the Strategic Competition Act, co-sponsored by the chairman and ranking member of the Senate Foreign Relation Committee, Sen. Bob Menendez, D-N.J., and James Risch, R-Idaho.

There will also be a bill from the Banking Committee, the Meeting the China Challenge Act, and a group of bills from the Homeland Security and Government Affairs Committee, as well as a proposal to provide $52 billion in support for the U.S. semiconductor industry.

All the pieces of the puzzle will come into place over the next few days as other committees introduce proposals to be amended to the package. Even with the full text of the omnibus still taking shape, however, there is enough information available to offer some preliminary observations on the package. It needs a whole lot of work, not least on its $160 billion or so price tag.

1. The bill specifies an initial list of 10 “key technology focus areas” for the new technology directorate of the National Science Foundation and the Department of Energy. Much if not most of this work is already being accomplished in the DOE, where there are already research facilities dedicated entirely to certain focus areas listed. Nevertheless, the bill authorizes a significant amount of new spending on research and development, though it was greatly reduced in committee.

At the very least, before new funds are allocated, national labs must do some housekeeping of existing programs to reprogram and refocus existing spending as much as possible. Importantly, the private sector is also truly leading in research and development, and there are unintended consequences to expanding federally directed dollars to distort the direction of innovation to politically preferred ends.

Where the bill does well is to put energy into identifying regulatory and other barriers to private sector access to national lab expertise and facilities and to technology transfer from federal research.

2. Endless Frontier’s required “strategy report on economic security, science, research, and innovation to support the national security strategy” raises yellow flags. Aspects of the proposed report could better inform Congress to focus federal research activities on truly national priorities—namely, meeting specific national objectives (such as those in service of national defense) and conducting basic research that the private sector wouldn’t do otherwise.

This was the intent of the Department of Energy’s national lab network in the first place. However, the proposed strategy treads into questionable territory when it includes “economic security” in its scope.

Too often, vague political considerations of economic security encourage cronyism under the guise of national security. The U.S. should not try to beat China at its own game of industrial policy. One of the U.S.’s greatest strengths is that its system of free markets is robustly innovative, dynamic, and flexible to change. Congress should leave economic determinations to the private sector and should focus on rationalizing federal research and development on coherent national objectives.

3. The legislation lauds the economic benefits of domestic content requirements provisions (often called Buy American or Buy America), but that cannot be further from the truth. Buy America laws have proven to be costly regulatory burdens for businesses, reducing competition for government contracts and increasing costs to taxpayers.

At the same time, the industries that Buy American laws attempt to benefit are not experiencing job growth. In fact, the Buy American requirements tied to the America Recovery and Reinvestment Act of 2009 caused delays in implementing new projects. New efforts by the Biden administration and Congress are unlikely to yield different results than those of its predecessors.

4. It is not clear that security concerns with new National Science Foundation authorizations have been met. There is another bill, the Safeguarding American Innovation Act, that was reported out of the Homeland Security and Government Affairs Committee last week that gets at the tech security issues broadly. It does many things that should have been done years ago while. For instance, standardizing the grant process is something that has been called for for years. The initial set of proposals provided so far look to be a boondoggle of government programs and protectionism.

5. By contrast to the above big ticket items, the bulk of spending authorized in the modestly priced Strategic Competition Act is dedicated to rebalancing traditional spending on foreign assistance, military aid and diplomatic engagement. The truth is if the Indo-Pacific is the most strategically important place in the world for the U.S. because of the competition it faces there, our spending priorities certainly do not reflect it. It only makes sense to start evening our international accounts.

Specifically, it is nice to see the Senate Foreign Relation Committee once again get behind the 2018 Asia Reassurance Initiative Act, which was authored by Former Sen. Corey Gardner. He was one of the first members of Congress to respond comprehensivelyto the China challenge, and his effort to protect and promote U.S. interests is worth the attention.

6. There is a very interesting foreign military financing pilot program in the Senate Foreign Relation Committee section  of the package that would supplement foreign military financing assistance to countries that enter into a “challenge compact” committing them to principles of “just and democratic governance.” This sort of performance-based assistance has long-offered a preferably alternative to distribution of assistance. It is appropriate to test its application to security assistance.

7. During committee consideration of the Strategic Competition Act, Sen. Mitt Romney, R-Utah, with bi-partisan support, included an amendment mandating a diplomatic boycott of the 2022 Winter Olympics due to be held in Beijing. This is the right thing to do if the U.S. is unable to actually get the Olympics moved. 

8. The provisions on Taiwan are solid. They enhance U.S.-Taiwan relations in a balanced and constructive way, and in fact, they reinforce the policy changes that have come from the executive branch over the last year.

9. One area where the package rightly challenges the executive is on free trade with Taiwan. It makes it U.S. policy to pursue talks on a free trade agreement. It is inexplicable that the U.S. cannot get past square one on a free trade agreement. In August 2020, Taiwanese President Tsai Ing-wen made a bold move to address long-standing U.S. excuses for not concluding a free trade agreement with her country.

Yet, for all her trouble, she faces blowback from protectionist constituencies in her own country. The Trump State Department at least initiated an economic dialogue with Taiwan—the most the administration could do in light of intransigence from the U.S. Trade Representative. The Biden administration has offered nothing on the economic side of the ledger.

10. One bit of business regarding Taiwan was left on the Senate Foreign Relations Committee hearing room floor. Sen. Marco Rubio, R-Fla., offered an amendment to change the name of the director of the American Institute in Taiwan (the de facto U.S. embassy) to “representative” and making the officer subject to confirmation by the Senate.

The measure failed in committee on the spurious assertion that the American Institute in Taiwan director is not a U.S. government employee. This, as well as a Rubio amendment targeting Chinse aggression in the South China Sea that was rejected in committee on procedural grounds, should be reconsidered by the full Senate. 

11. New mandatory sanctions on Chinese entities engaged in cyberattacks or theft of US intellectual property included in the Banking Committee product are good ideas. That bill also contains a well-advised review of export controls to ensure the US is not allowing the export to China of tools of oppression. 

12. As reported out of committee, Endless Frontier rightly codifies currently annually extended prohibitions on U.S.-China space cooperation. The full Senate should look to tighten up the waiver authority in the legislation. It is only a matter of time before an administration looking to throw a bone to U.S.-China cooperation narrows in on space cooperation.

Restrictions on U.S.-China military-to-military contacts as served for twenty years to prevent using the U.S. military this way. Congress should be equally vigilant with space.  

13. It is not clear that the legislation will identify additional resources to fund the additional demands imposed on federal law enforcement by its growing China-related case load. It is something that the Senate should take a closer look at.

14. The American semiconductor industry does not need a bailout. Despite increased competition South Korea, China, Taiwan and others, the U.S. semiconductor industry remains a global leader. The industry already benefits from a permanent research and development tax credit secured at the end of 2015.

Furthermore, various federal agencies collectively spend about $1.5 billion on semiconductor-specific research. With regard to narrowly defined security issues, Defense Department contracts with private companies for its microelectronic needs through its Trusted Foundry Program.

As for the companies themselves, semiconductor and chip manufacturers spend roughly 20 percent of their sales on research and development (close to $40 billion), more than any other industry. Any funds government funds at a minimum should be tailored towards cutting edge semiconductors, not older semiconductor technologies to simply out-subsidize foreign competitors.

Additionally, proper guardrails need to be established for which no funds essentially subsidize foreign government companies and supply chains, including China’s.

Senators Should Consider the Following

This analysis touches on only a small part of the provisions in the China package that is scheduled to be debated in the Senate over the next couple weeks. It should not be taken as exhaustive or commentary on the overall advisability of the legislation in its current form. Besides, there is more to come. Other committees will be reporting into the process, and members will have amendments on the floor.

Literally hundreds of amendments have already been added in committee to the components of this package. If the Senate continues as it should, and as Schumer has promised, under regular order, there will be hundreds more. It is impossible to anticipate all of them.

As outlined by The Heritage Foundation analysts here, there are some rules of thumb to consider the range of provisions not covered here.

1. The Senate should stay focused on the big picture. So far, it seems to be doing so in spades. Still, there is an outside chance that frustration with the process could derail the all-encompassing approach, and Senators will be called on to pass a narrow bill aimed less at China and more at U.S. domestic spending priorities contained in the package.
2. Stay focused on limiting spending. Just because the context for new U.S. government initiatives is now denominated in trillions doesn’t mean that billions and millions is not real money.
3. Stage engaged. This should not be a fire and forget exercise. Sanctions and new regulations should have mechanisms that make their execution accountable to Congress. Reporting requirements can be effective in this regard. They shouldn’t, however, just serve to create new paperwork for the executive branch.
4. Limit new national interest or national-security waivers and look to tight existing ones. If Congress is not sure about a provision, reject it; don’t create an escape clause.
5. Avoid protectionism and industrial policy. This China bill is an opportunity to get China policy right. It shouldn’t be use used as an opening to reshape the American economy or protect critical political constituencies.
6. Be explicit about policy frameworks. Just because such expressions of congressional intent do not necessarily compel the executive does not mean they are not valuable. They set the context for the administration, and actually, over time can have major impact.
7. See the China challenge as about more than China itself. It is about getting U.S. relations with allies and partners right. Congress can do a great deal in this regard.

It is a good thing that the Senate is embarking on this China debate. There is a lot of good in this legislative package. Weighing it down with billions of dollars in spending and domestic priorities unrelated to the China challenge, however, will negate those things. The Senate’s work is cut out for it.