The Strategic Competition Act of 2021,1 approved by the Senate Foreign Relations Committee on April 21, 2021, signals continued bipartisan consensus to orient U.S. policy towards aggressive action to counter China. Given the broad bipartisan support in Washington to address China's malign activities, the bill will likely pass the Senate and House of Representatives. This bill is a useful barometer of congressional sentiment towards China and may guide the Biden administration's future China-related actions. The bill recognizes that U.S. ability to effectively compete with China requires domestic support for competitive industries and engagement with international partners to counter Chinese influence in international institutions and on international standards. The bipartisan support for the bill signals that Congress will continue a confrontational approach to U.S.-China relations.
If enacted, the bill would direct the Executive branch to impose further sanctions in response to China's actions in Xinjiang, bolster oversight of foreign gifts and contracts to U.S. universities and colleges, and help small- and medium-sized U.S. companies diversify their supply chains outside of China. The bill also includes broader measures such as increased military spending in the Indo-Pacific, authorizing funds to promote democracy in Hong Kong, and establishing a program to help Indo-Pacific countries develop infrastructure to counter China's Belt and Road Initiative. The bill should be viewed in tandem with the Endless Frontier Act,2 which was referred to the Senate Committee on Commerce, Science, and Transportation on April 20, 2021. The Endless Frontier Act would significantly increase federal investment in domestic science and technology research, supply chain resiliency and diversification, crisis response, and jobs training to allow the United States to compete more effectively with China. The Strategic Competition Act and the Endless Frontier Act are part of a broader U.S. strategic realignment towards the Indo-Pacific that aims to leverage international support to deter Chinese malign activities, while also making the necessary domestic investments in education and research so that the U.S. maintains a competitive edge in critical sectors of the future.
Summary
- The Strategic Competition Act includes the following key components:
- The bill would require the Committee on Foreign Investment in the United States (CFIUS) to review the national security implications of certain foreign gifts or contracts to federally-funded universities and colleges. CFIUS would be able to review these gifts or contracts in two circumstances: (1) those that relate to critical technologies and provide the foreign person with access to material nonpublic technical information possessed by the university or college; and (2) those that include certain conditions that give the foreign person control over the institution. U.S. institutions of higher learning have expressed concerns that these provisions would stifle innovation and reduce important sources of funding.
- The bill would require the Executive branch to impose sanctions against certain Chinese entities that are determined to be engaged in forced labor and other activities in Xinjiang. Specifically, the bill would require the President to freeze the assets of persons that are engaged in: (1) serious human rights abuses in connection with forced labor in Xinjiang; and (2) systematic rape, coercive abortion, forced sterilization, or involuntary contraceptive implantation policies and practices in the region. The bill reflects congressional concerns that more aggressive implementation is required counter China's malign activities and adds to prior measures to address forced labor and human rights issues in Xinjiang such as the U.S. Customs and Border Protection's January 2021 Withhold Release Order3 banning cotton imports produced in the region.
- The bill also places a spotlight on abuses committed by Chinese companies that are active in U.S. stock exchanges. The bill would require the Executive branch to prepare an annual report that publicly identifies Chinese companies listed or traded on U.S. stock exchanges that have contributed to activities that undermine U.S. national security, serious abuses of internationally recognized human rights, or substantially increased financial risk exposure for U.S.-based investors. The legislation includes a non-exhaustive list of factors for identification, notably, whether the company has failed to comply fully with Federal securities laws, including audits by the Public Company Accounting Oversight Board (PCAOB). The bill may be a precursor for additional congressional action but does not impose specific sanctions or countermeasures for listed companies. The bill would build on the Holding Foreign Companies Accountable Act, enacted in 2020, which bans state-owned companies from U.S. stock exchanges if the PCAOB is unable to audit the issuer's public accounting firm for three consecutive years, and the trading bans imposed by the Trump administration under Executive Order 13959.4 The U.S. Department of the Treasury's Office of Foreign Assets Control has delayed the implementation of the trading ban until May 27, 2021, while the Biden Administration undertakes a review of the Trump Administration's China-related policies.5
- The bill also includes measures to help U.S. companies diversify their supply chains outside of China. The bill would authorize the Secretary of State to establish a program for U.S. embassies to contract with experts to help micro-, small-, and medium-sized U.S. companies with supply chain management issues related to China. The experts may help U.S. companies exit the Chinese market, relocate production facilities outside of China, diversify input sources to locations outside of China, and identify alternative markets for production or sourcing outside of China.
- This bill can be viewed as a counterpart to the Endless Frontier Act, a proposed bill that would significantly increase federal investment in science and technology research, supply chains, and training to better compete with China. Among other things, the Endless Frontier Act would provide the National Science Foundation with $100 billion over five years and would prioritize research and funding in ten key areas, including artificial intelligence, high performance computing and semiconductors, quantum computing, robotics and automation, biotechnology, cybersecurity, and advanced materials. The Endless Frontier Act would also provide the Department of Commerce with $10 billion over five years to designate at least ten regional technology hubs as well as establish a Supply Chain Resiliency and Crisis Response Program to monitor supply chain vulnerabilities and provide investments to diversify supply chains in critical products.