Republicans Call for ‘Aggressive, Smart’ Tax Incentives to Compete With China

October 1, 2020 Updated: October 1, 2020

WASHINGTON—The pandemic has exposed serious flaws in global supply chains, prompting a committee of Republican lawmakers to push for “aggressive, smart” tax incentives to help relocate key supply chains back to the United States.

The China Task Force, made up of 15 House Republicans, released a report on Sept. 30 with more than 400 recommendations to counter threats posed by the Chinese Communist Party (CCP).

The committee called for decreasing dependence on China and supporting manufacturing capabilities in the areas of semiconductors, critical minerals, and pharmaceuticals.

“This pandemic exposed various U.S. supply chain vulnerabilities, the dangers of U.S. overreliance on the PRC, and the need for a more robust domestic medical and technological manufacturing capacity,” the report said.

To better protect U.S. economic and national security, the committee calls for “aggressive, smart, and targeted tax incentives” for research and development and production of key medicines, medical supplies, ingredients, tests, and vaccines.

“It is imperative that the U.S. develop market-based incentives without imposing sweeping government mandates or controls in order to increase U.S. domestic manufacturing,” the report said.

The overhaul of the federal tax law in 2017 reduced the U.S. corporate tax rate to 21 percent from 35 percent, making the United States more competitive. Democratic presidential candidate Joe Biden, however, has pledged to raise the corporate tax rate to 28 percent.

Congress and the Trump administration should keep U.S. tax rates globally competitive, the report urges, to attract domestic manufacturing and spur innovation.

The panel also asked Congress and the administration to make securing supply chains the top priority in trade and economic discussions with allies and like-minded nations. It also suggested the administration begin trade agreement negotiations with Taiwan.

“The U.S. response so far has been too slow and reactive; it has failed to establish a threat-specific supply-chain strategy and expand partnerships,” the report said.

If a country monopolizes the production of a critical medicine, the task force warns, it could substantially lift drug prices or reduce supply when it wishes to retaliate against the United States. And the CCP has dramatically increased its leverage by becoming a critical link in the global supply chains of many essential everyday items that Americans rely on.

Tech Competition

The report also highlights the need to protect the U.S. semiconductor industry, which is critical for numerous modern technologies and innovation.

The United States has over the years lost its advanced semiconductor manufacturing capabilities. While the country is still the global leader in intellectual property and design of semiconductors, nearly 90 percent of the world’s chips are produced overseas, according to the report.

The committee urges the government to create a grant program and tax incentives to secure the U.S. supply of advanced semiconductors.

China seeks to become a global leader in key emerging technologies such as advanced robotics, artificial intelligence, electric cars, and bio-pharmaceuticals, as outlined in its “Made in China 2025” national strategic blueprint. The program mobilizes state-owned enterprises, uses massive government subsidies, and forces technology transfer from foreign companies to take control of the industries of the future.

The United States and its allies are also at a growing disadvantage, the report states, because Beijing controls the bulk of the global supply of critical and strategic minerals, including rare earth elements. This makes the electronics and high-tech industries as well as the defense industrial base more vulnerable. The committee recommended “overhauling the federal permitting process for mineral development and prioritizing advancements in mineral refining.”

Hours after the report’s release, President Donald Trump issued an executive order declaring a national emergency to deal with the threat posed by overreliance on critical minerals “from foreign adversaries.” The order seeks to ramp up domestic production of critical minerals and support mining jobs to reduce reliance on China.

Slave Labor

The report highlights the dire fact that “concentration camps are being used as a feeder system for forced labor” throughout the Chinese economy. According to human rights groups, supply chains of many famous global brands, including Apple, Gap, and Nike, use forced labor, and U.S. consumers unwittingly buy these forced-labor-made goods.

“It is almost certain that the closet of every American has clothes spun with cotton produced by the slave labor of a people subjected to ongoing crimes against humanity,” the report stated.

Speaking at a press conference, House GOP leader Kevin McCarthy (R-Calif.) said there’s an urgent need to modernize the U.S. government to counter the threats posed by the CCP.

“When you look at the Department of Treasury, they have a team that can focus on sanctions when it comes to North Korea or Iran, but they do not have a team that focuses on China,” he told reporters on Sept. 30.

Republicans started the task force in May; Democrats originally agreed to participate in the process but pulled out before its launch.

Rep. Mike Gallagher (R-Wis.) said in a statement that the report “kept the spirit of bipartisanship,” with more than two-thirds of its legislative recommendations being backed by both parties.

The task force drafted the report in several months, interviewing more than 100 individuals, including Obama-era Secretary of Homeland Security Jeh Johnson, Secretary of State Mike Pompeo, and former Google CEO Eric Schmidt. The report addresses six challenges posed by the CCP: ideological competition, supply chains, national security, technology, economics and energy, and competitiveness.

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