House panel urges tougher trade rules for China, raising chance of more tariffs if Congress agrees

A special House committee focused on China is calling for altering the way the U.S. treats Chinese-made goods, possibly subjecting them to higher tariffs even if its risks increased tensions between the two economic superpowers.

The report does not specifically call for repealing China's preferential trade status, but it does recommend placing China in a new trading category that some liken to a de facto repeal. The committee's chairman said he envisions a process where Congress would determine regularly which economic sectors would be subject to higher tariffs and which would see lower tariffs.

Lawmakers in both parties endorsed the proposal, a reflection of the growing willingness in Congress to build on the tariffs enacted during Donald Trump's presidency, even if it risks retaliatory actions from China that would harm many farmers, ranchers and U.S. exporters.

The committee crafted the recommendation after several months of deliberation and hearings. Members hope that the nearly 150 recommendations in the report, many focused on trade, can be adapted into legislation that Congress could pass before next year's elections.

“You’ve got to play by the rules, and if you’re not, we’ve got to protect our businesses from being undercut and destroyed,” said Rep. Raja Krishnamoorthi, the ranking Democrat on the committee.

A little more than two decades ago, Congress granted China preferential trade treatment in the form of lower tariffs and trade barriers. The committee essentially called for ending it. The shift would be phased in over a short period of time to give the U.S. economy time to adjust.

Tariffs increase the cost of goods for the importer and are generally passed along to the consumer. The committee calls for using the revenue raised from increased tariffs to expand market opportunities for U.S. producers and to advance national security.

“It's a strategy that of course involves tradeoffs, but I think a strategy built on the recognition, if nothing else, that the status quo is not working," said Rep. Mike Gallagher, the Republican chairman of the committee.

In the event of retaliation from China, the committee said Congress should also consider additional spending to offset the harm done to farmers, ranchers and other U.S. workers.

The U.S. Chamber of Commerce said China has failed to live up to the structural reforms it promised when it joined the World Trade Organization and gained permanent normal trade relations status with the U.S. It said China deserves criticism and a strong policy response. But instead of a “de facto repeal” of China's trade status, it called for more targeted approaches through existing law.

“Repeal of PNTR would inflict heavy losses on American farmers and ranchers in heartland states, U.S. manufacturers of all sizes, and families struggling with high prices," said Charles Freeman, senior vice president for Asia at the U.S. Chamber of Commerce.

The need to confront China economically appears to be a common thread of agreement from lawmakers. It's part of the rationale lawmakers used when approving new investments in semiconductor manufacturing and research in 2022.

But the two countries rely heavily on the other economically. China accounted for 16.5% percent of total goods coming into the U.S. last year, amounting to $536 billion in imports. Meanwhile, the U.S. exported $154 billion in goods and $41.5 billion in services. Any disruption of that trade flow has the potential to upend broad sectors of the U.S. economy, a cost lawmakers will have to weigh as they determine whether the legislative fixes proposed by the committee should be passed into law.

As part of its recommendations, the House committee is also calling for a lower threshold by which imports can come into the U.S. duty-free. It seeks to reduce the current threshold for such treatment, now at $800, to an unspecified, lower amount, “with particular focus on foreign adversaries," including China.

Congress raised the U.S. government’s threshold for expedited, duty-free treatment from $200 to $800 in 2016. The volume of products coming into the U.S. that benefit from the “de minimis rule” has soared since then. But those who back the higher threshold said it has cut costs for many U.S. small businesses as well as consumers, and that collecting duties on low-value shipments really isn't worth the government's expense and time.