By Pam Martens and Russ Martens: September 30, 2022 ~

Yesterday, Senator Robert (Bob) Casey, Jr. (D-PA) and Senator John Cornyn (R-TX) testified before the Senate Banking Committee. At a time when there is little that the two political parties can agree on in Congress, it was refreshing to hear these two Senators from different parties earnestly explain the threat that China’s ambitious agenda poses to the U.S.; how outward investment by U.S. corporations is furthering China’s agenda; and outline legislation to deal with the threat.

Senator Casey explained the problem as follows:

“For decades, the United States has steadily ceded its manufacturing power to other countries, particularly foreign adversaries, like the Chinese Communist Party (CCP) and the Russian Federation. Outsourcing our manufacturing and supply chains has put our economic and national security at risk. Unfortunately, the pandemic exacerbated this problem, as we experienced acute shortages of things like PPE and computer chips, simply because we were reliant on other countries to manufacture them and a broken supply chain to get them to us.

“In 2020, during the COVID-19 pandemic, I first introduced the National Critical Capabilities Defense Act to require targeted government screening of certain transactions by U.S. companies doing business in adversarial countries. This bill would help the U.S. better understand the risks of allowing foreign adversaries to gain access to critical capabilities and technology and to design and manufacture goods critical to our economic and national security interests. Over the past two years, we have garnered growing bipartisan and bicameral support for this concept, and Biden Administration officials and key stakeholders have expressed support for an outbound investment screen, but we need more focus on this across the government and Congress…

“At the heart of this is manufacturing, which is core to our economic competitiveness. In the United States, manufacturing represents about 11 percent of GDP, but is responsible for 70 percent of R&D [Research and Development], according to analysis from the consulting firm McKinsey. Manufacturing drives innovation. When you lose manufacturing, you lose innovation. Countries that don’t make things don’t endure.

“Working men and women in Pennsylvania have seen the damage that decades of offshoring and the hollowing out of American manufacturing strength and knowledge does to communities and industries. Pennsylvania suffered record manufacturing job losses over the last generation. According to the Economic Policy Institute, China, governed by the CCP, cost the U.S. 3.7 million jobs between 2001 and 2018. 2.8 million jobs —three-fourths of the total jobs lost in this time period—were in manufacturing. 137,300 of those jobs were in Pennsylvania.

“Jobs numbers alone provide little insight into the family and community trauma, as well as economic scarring, that have ravaged many small towns. In key sectors such as communications equipment, electronics and computer technology, we have ceded up to 40 percent to 60 percent of the domestic market share to Chinese imports, and globally the People’s Republic of China (PRC) has captured extensive market shares in those sectors as well…

“The level of U.S. investment in Chinese companies is staggering, which benefits the CCP. U.S. foreign direct investment has flooded into the PRC over the last three decades. Lately, U.S. firms have been targeting investments in high-tech and advanced service sectors. According to SEC data, in 2020, U.S. firms collectively invested in Chinese companies over $200 billion in artificial intelligence, $50 billion in biotech, and approximately $80 billion in telecom, semiconductors and other technologies. In fact, many of these investments have been made in companies owned, controlled or influenced by the CCP. As of 2020, U.S. investments in PRC companies totaled by capital investment $152 billion to Chinese state-owned enterprises and $54 billion to Chinese military companies.”

Senator Cornyn added the following points in his testimony:

“The American people should know if a company is investing in critical industries on a foreign adversary’s soil. For example, if a U.S.- headquartered company chooses to finance AI software for the People’s Liberation Army, it is actively investing in China’s military strength. In the event of a conflict with Taiwan or worse, our own men and women in uniform, China would have a military advantage that was funded in part by an American company.

“I’d like to note that this is not a hypothetical example – this happened. That’s why this is so critical. There’s an old saying attributed to Vladimir Lenin. ‘The capitalists will sell us the rope with which we will hang them.’ That’s exactly what China is trying to do – use the enterprising minds of America to choke our economy. The challenge we face with regards to China in particular requires a shift in our way of thinking – a new paradigm. The focus on proxy wars and diplomacy are a relic of the past. We need real action.”

Senators Casey and Cornyn are sponsors of the National Critical Capabilities Defense Act (S. 1854) to deal with the problem. This hearing was an opportunity to hear from multiple voices on the subject.

Senator Sherrod Brown (D-OH), Chair of the Senate Banking Committee, had this to say in his opening remarks:

“Protecting U.S. technological leadership is an important part of this conversation, and it’s why we’re here today. It’s also not the whole story. Part of this story is an issue that Ohioans know all too well. Over the last 30, 40 years, corporations searched the globe for cheap labor. First, they went to anti-union states in the South. Then, corporations lobbied for tax breaks and bad trade deals to help move jobs overseas – always in search of lower wages. They started with manufacturing jobs, but they didn’t stop there — corporations moved R&D jobs abroad too. And Wall Street rewarded them for it, over and over and over. In some cases, investments abroad outpaced investments in American workers. It undermined our national security and hollowed out our middle class.

“Protecting technological leadership and protecting jobs are connected. Ohioans know how much innovation happens on the shop floor.”

Think about that last sentence for a moment. When U.S. corporations ship their advanced manufacturing technology to shop floors in China, it’s Chinese workers who fine-tune and improve that technology on the shop floors in China. It’s difficult to believe that the Chinese Communist Party isn’t making use of that fine-tuning and enhancement of U.S. manufacturing technology.

Brown continued:

“Investing in our workers, our infrastructure, our educational system, and our research, development, and manufacturing ecosystem will help shore up supply chains. From the Infrastructure bill to the CHIPS and Science Act to the Inflation Reduction Act, this Congress is laying down a new marker: the technology of the future – from semiconductors to batteries to electric vehicles – will be developed in America and made in America, by American workers. It hasn’t been easy, and our work is far from finished, but I’m optimistic. I look forward to working with the Administration and my colleagues on this important issue.”

One of the impediments to getting this legislation passed is expected to come from lobbyists and trade groups representing multi-national corporations in the U.S. that don’t want to see any restrictions placed on their ability to improve their bottom line from outsourcing – regardless of its impact on American workers or national security. (There’s a good reason these corporations are called “multi-national.”)

Other witnesses testifying at the hearing included:

Professor Sarah Bauerle Danzman, Associate Professor of International Studies at Indiana University; Richard Ashooh, former Assistant Secretary for Export Administration, U.S. Department of Commerce; Thomas Feddo, former Assistant Secretary for Investment Security, U.S. Treasury; and Robert Strayer, Executive Vice President of Policy at the Information Technology Industry Council (ITI).

ITI’s members include some of the largest multi-national technology companies in the world, including Apple, Amazon, Google and Microsoft. Testimony from ITI’s Robert Strayer at yesterday’s hearing attempted to straddle the fence between sounding supportive of U.S. national security while cautioning curbs on technology companies’ ability to make profits in foreign countries.

The full testimony of all witnesses can be accessed here along with a video of the hearing.