Mr. President, when the story of the 21st century is written, there will be a couple chapters about Vladimir Putin's Russia, most certainly chapters about radical jihadists, and perhaps a few…
Mr. President, when the story of the 21st century is written, there will be a couple chapters about Vladimir Putin's Russia, most certainly chapters about radical jihadists, and perhaps a few chapters on some other things we have yet to fully anticipate.
There still remains over 80 years in this century, but there is no doubt that the vast majority of the story about the 21st century will be about the relationship between the United States and China. China-- the most populous nation on Earth, the second largest economy, and soon to be the largest economy on the planet--is a country that cannot be contained. It will be a major factor, both economically and geopolitically, as it should be for a nation of that magnitude and a culture that deep, with such long history. However, there are imbalances developing in that relationship, which I believe are threatening, not just to our Nation but ultimately to the peace and security and the stability of the world.
It is on that topic I wanted to come to the floor and speak today and perhaps about some of the things we need to do about it. There was a consensus--which I would admit I, perhaps, from time to time, was a partaker in--that China was a country that would, eventually, as it grew more prosperous, become not just more democratic but more willing to live by the rules the world has conducted itself by since the end of the Second World War.
Perhaps I wasn't as strong an adherent to that as some others. I have always been, of course, deeply suspicious of communism and autocratic nations, but there was still the belief that things could work out, and, eventually, at some point, both demographics and economics would force China to accept the benefits and the wisdom of a global economic order that has maintained the peace since the end of the Second World War.
That was a terrible mistake. For, in fact, that is not how it has played out. For the better part of 30 years now, China has been allowed to systemically violate all of the rules of fair play in trade and commerce under the guise of saying, eventually, they are going to come around and behave. Not only has it not worked, it has allowed them to accelerate their economic growth to the detriment of American workers, American industry, and economies all over the world.
Today, China is 3 years into a plan called Made in China 2025. What ``Made in China'' means, and what it is all about, is China intends to be the dominant power and dominate 10 key sectors of the future economy. They outline what all 10 of those are.
Now, if that dominance was the result of being more innovative or spending more money on research or just being better, then we would have little to complain about. It would be on us to become more innovative ourselves and put more money into research and technology and these sorts of things. That is not what it is the product of. It
is the product of cheating. It is the massive theft of intellectual property--the largest single transfer of wealth in the history of mankind stolen; stolen because they buy small companies that are developing some key component in a broader technology, and they take it for themselves; stolen because when an American company or any foreign company, for that matter, wants to do business in China and have access to their 1.4 billion people, you have to partner with them. They make you partner with a Chinese company. Your ``partner'' steals your secrets and then they kick you out and now they are your competitor.
So think about it. They are able to make all of these advances without paying for them. Imagine if you had a business that was able to grow without having to pay for all the research that went to getting you to that point. This is what they do. It has allowed them to expand militarily, commercially, and economically to the point where we are at the edge of a very dangerous economic and geopolitical imbalance that needs to be addressed. It needs to be addressed now. We are almost out of time because 5 years from now, 6 years from now, or 3 years from now, it may be too late to address this.
I want to reiterate what I said at the outset. This is not about containing China, nor is it about crippling China. It is about ensuring that we are going to have stability in the world; a stability in which our companies and their companies can partner, but they need to do so voluntarily; a stability where they cannot steal our secrets; a stability where they cannot violate the rules of trade but benefit from the rules of trade.
That is what I hope to address through a new bill called the Fair Trade With China Enforcement Act, which I am introducing today. The first problem we want to address is that China is building its industrial capacity with U.S. intellectual property and technology.
I have highlighted how they steal our technology and our intellectual property, and they use it. As an example, General Electric and Honeywell technology is being used in China by one of GE's and Honeywell's competitors. They didn't sell it to them. It was stolen from them. Two American companies had their secrets stolen, and now their competitor in China is using their technology that they spent money and time investing in.
The solution to that problem is to pass a law that prohibits the sale of national security-sensitive technology and intellectual property to China. The bill would do this by directing the Department of Commerce to use its export control authority to block military capacity exports and components of Made in China 2025 exports to China.
So, basically, the Department of Commerce would look at Made in China 2025. These are the sectors they are trying to dominate, and we would prohibit the sale or the transfer of intellectual property sensitive to those industries. That means American companies--even if they have a partnership with China--would be prohibited by law in sharing this information with them willingly.
The second problem we have, frankly, is here at home. We have these large multinational U.S. companies that have very valuable intellectual property and technology that partner with Chinese firms. They know their intellectual property is going to be stolen, but they don't care. They don't care, No. 1, because they are not going to pay the full cost of the loss of this intellectual property. It is going to be borne by the entire country.
A great example of that would be a CEO or business executive who knows they are only going to be at the company for x number of years. They make the decision: I don't care if they are going to steal our intellectual property. I want to have access to the Chinese market because it is 1.4 billion people. That is going to allow us to sell a bunch of stuff there. Our profits will go up. I am going to look good in the quarterly reports and look good before the board of directors. Who cares if this harms the United States? My obligation is to the corporation and not the country.
That is their view. In fact, many of these CEOs of large multinational companies consider themselves to be citizens of the world before they consider themselves to be citizens of the United States. They are willing to turn these things over because by the time we are hurt by it as a nation, they are long gone; by the time they are hurt by it as a company, they are long gone, but they are going to have some pretty good quarters as they expand into the largest market in the world, and their shareholders and board of directors are going to be very happy about it.
That is a big problem. Just because a company has their address in the United States, does not mean they consider themselves to be American companies. Of course, this is a big problem among many large multinational corporations that are doing business there and know exactly what is going on but are more interested in the short-term profits than the impact on our national security.
The solution I propose to that problem in this law is to increase taxes on multinational corporations on the income they earn in China. The tax would be increased equal to the amount of the lost value of the stolen intellectual property or technology. So if we lost $1 billion, there would be a $1 billion increase in that business's profit that they made in China through that partnership.
It does this by imposing a tax rate of 2 percent--roughly equal to what the Trade Representative's office estimates is the cost of lost intellectual property as a percent of total corporate profits in China.
The third problem we have is that China--and I mean China, both its sovereign wealth management and individuals who made a lot of money, directed by the government, in many cases--has gone on a buying spree of U.S. debt--meaning Treasurys, stocks, and even real estate. My hometown of Miami is one of the places being heavily invested in now to increase their trade surplus and to weaken the U.S. economy.
You say how? Let me give you an example. After China rose to the World Trade Organization, it had all this excess capital resulting from its large surpluses. That drove them to take that excess capital they were making now that they were part of the WTO and invest it in the United States in real estate, for example. Here you have people coming in and paying for real estate above the value of the property, driving up prices. It is one of the things that helped fuel the housing bubble. You can only imagine that if the property next door, the building next door, or the luxury condominium units next door are sold at a price higher than what the asking price might be, you are driving up the market for everyone. But they do this over and over again. This cheap financing of our debt, this buying up so many of our Treasury notes because there is such demand for our debt, our yield--the amount of interest we pay back to the investor--is lower. The result is it is one of the things that has driven our national debt here. It has been easy to borrow because it has been cheap.
What is the solution? The solution is to update the income tax treaty that was signed in the 1980s and that taxes China's profits on these investments, including their holdings of the national debt at a preferential rate for what it would be for anybody else.
What my law would do is make withholding taxes on China's investment income revert to what the law is for everyone else. For example, the U.S. payor would withhold the greater amount of tax on distributions to Chinese payees, so whatever income they are making from the debt, from the stocks, from the assets they bought in the United States and they have invested in--whatever they are making on it, they would pay taxes on that income the same as anyone else would, as opposed to under a preferential rate from the 1980s.
This is important because among the things that all of this surplus investment does in the United States, it increases the value of the dollar artificially. They did that when they were manipulating the currency. The stronger the dollar, the weaker our exports, the more expensive it is to buy something in the United States than somewhere else.
The currency fluctuates as a matter of course through economic engagement. This is the deliberate manipulation of our currency. This is one of the byproducts of this. Taxing the income
they make on those investments the same as anybody else would have to pay--and not this preferential rate--would help bring some balance to that.
One additional problem we want to address is that the Chinese Government's Made in China 2025 plan is a plan to displace advanced American manufacturing, and they intend to do that no matter what it takes. Let me give you an example. Made in China 2025 targets artificial intelligence and next-generation information technology. They target robotics. They target new energy vehicles. They target biotechnology--meaning biopharma, biologics--in terms of curing disease. They target energy and power generation. They target aerospace, which is not just airplanes and space travel. They target high-tech shipping, advanced railway, new material, agricultural machinery. These advanced, high-tech industries are supposed to be the competitive advantage of the United States in the 21st century.
What I am talking about is not protectionism. If this were a fair competition of these technologies versus them, that is what free markets are supposed to do. That is not how they are doing it. The way they compete with us in these industries--in addition to stealing our secrets and buying up the companies that are up in the supply chain--is to deny our companies access to their markets, but they want full and unfettered access to ours.
What is the solution? The solution is to prepare duties on and impose Chinese investor shareholding caps on U.S. companies producing goods targeted by Made in China 2025. This bill would do this by defining Made in China 2025 as a countervailable subsidy for American industries affected by Made in China 2025 exports, thus reducing future demand for Chinese exports in these industries.
We have to raise the prices of the products they are stealing from us; otherwise, they will put our industries out of business, and our children will live in a world where we depend on China for artificial intelligence, for robotics, for new energy vehicles, for aerospace, for biopharma.
Can you imagine living in a world where the cure to Alzheimer's is controlled by Chinese pharmaceutical companies--the amount of leverage it would give them geopolitically? If they reach that plateau because they outhustle us, that is one thing. But to get there by stealing what we produce, by denying our companies the ability to sell over there but asking us to allow their companies to sell here--that is not competition; that is theft. That is an imbalance that needs to be addressed.
We will also have the SEC block any majority stake acquisition of a listed company producing the component goods in any of these industries--the Made in China 2025 exports--in order to limit their ability to buy up our small companies or buy up enough of a controlling interest in American companies to take them from us. That is the other strategy they have. They go into industries that go under the threshold of what the government looks into, and they buy up percentages of the company or the entire company itself. Then they control what is supposedly an American company, and they own it. Try doing that in China if you are an American.
The argument that we should continue to allow them to do it because they are a developing industry is ridiculous. No one can make that argument anymore. That is the argument that has been made for all of these years.
There is one last thing we need to do, and it has been on the news a lot lately. The Chinese have tried in the United States and around the world to use their companies involved in telecommunications, particularly Huwawei and ZTE, to infiltrate U.S. networks. Basically how that works is they wanted us to buy components, parts, and equipment from Huwawei and use it for our cell phone networks, our internet networks, our servers and routers--put those in our country. If you are a country that, as a matter of geopolitical strategy, steals--not just spies as normal countries do, but steals intellectual property and corporate secrets to build your economy at the expense of someone else's and you control the routers and the telecom system or enough of it in another country, we are just making it easier for you to steal these things from us.
Imagine a major U.S. university conducting research, and their entire back office and all of their computer networks in which it is stored has Huwawei equipment. This would allow the Chinese Government to go into this equipment and use it remotely to extract all of this information. They don't even have to send any spies over here because we have brought them inside. This is a problem across the economy, and that needs to be dealt with in broader terms.
In this bill--a bill I have separately introduced with Senator Cotton--we would prohibit the Federal Government or subsidiaries and contractors of the Federal Government from buying telecommunications equipment or services from Huwawei or ZTE. What we cannot afford is to have in our own government--or in companies that are servicing the government--telecommunications equipment and services vulnerable to espionage, either corporate or national security.
Let me close with this. There are a lot of big issues going on in the world, and for a lot of people, including myself, this issue is pretty new. I have long been concerned about China's military expansion. They are putting all kinds of missiles now on the islands in the South China Sea. I most certainly have long been concerned about human rights violations--what they have done with Tibet and the way they are bullying people in Taiwan. By the way, just so you know the sort of influence level they have, Marriott Corporation fired an American worker--an American living in the United States, working for Marriott, was fired because they liked a social media post about Tibet. So the Chinese got mad. They told Marriott: You need to correct this. And they fired the employee--this American--because he liked a social media post by mistake about Tibet.
Do you know that United Airlines and American Airlines just got a letter from the Chinese Government saying: Unless you change your website so that it says Taiwan-China and not just Taiwan, we are going to start fining you and may take away your ability to fly into China. These are American companies that I hope do not give in. This is happening every single day.
Do you know that Hollywood movies are made so that they will be allowed to be distributed in China? Hollywood entertainment is deliberately not making movies or saying certain things in movies-- political things, things that would offend the Chinese Government-- because if they do, they will not let them sell their movies to 1.3, 1.4 billion people. Do you know there are actors, like Richard Gere, for example, who can't make major movies anymore because they can't be distributed in China because he is in favor of Tibet and its independence?
These things are happening, and we are arguing about a bunch of other silly things. This is historic. This is the single biggest challenge facing this Nation for the next 20, 30, or 40 years, and we are almost out of time to take it seriously.
Just a week ago, I traveled to Latin America. I was in Panama, where the Chinese have built not one but two port facilities on the Panama Canal. Not surprisingly, because of all this investment, last year Panama decided to switch. It no longer recognizes Taiwan. It switched to China. Last week, while I was in Panama, the Dominican Republic announced they have switched. Little by little they are going and using their investments in these countries, first just to get them to derecognize Taiwan but, ultimately, because they are spending so much money in these countries to leverage them, to align their foreign policy to China's in our own hemisphere.
We do not want conflict with China. We want parity, stability, reciprocity, and fairness. That is not what we have right now, and we have taken far too long to take it seriously. Now is the time to do it.
This is about more than just trade. This is about geopolitics and national security. It will be the defining issue of the century, and the time to take it seriously is now.
My bill, which we hope to continue to build on and improve, is our effort to hopefully begin this dialogue and take steps on this very important topic.
