US lawmakers urged to boost American alliances and trade blocs after Chinese balloon row

Top concerns about Washington’s efforts amid Beijing’s competitive advances aired at House hearings by financial services and armed services panels
Biden administration should renegotiate Comprehensive and Progressive Agreement for Trans-Pacific Partnership, ex-Trump official says

US-China relations

Orange WangandRobert Delaneyin Washington

Published: 8:05am, 8 Feb 2023

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The Chinese balloon shot down last week by the American military became a main talking point at a US congressional hearing on Tuesday about economic challenges from Beijing, in which former government officials urged lawmakers to bolster ties with allies and trade blocs to counter China’s growing influence.

A witness who advised former president Donald Trump said the US should return to an Asia-Pacific free trade bloc Trump withdrew from, while an ex-Biden administration official called on Washington to work closely with partners and “throw sand into the gears” of Chinese efforts to build an alternative international payment system.

The hearing, focused on “combating the economic threat from China” and convened by the House Financial Services Committee, took place as the world’s two largest economies stay locked in an increasingly tense competition spanning a wide range of pursuits.

That strain grew more pronounced in recent days over a Chinese balloon detected over American air space and the ensuing postponement of a planned trip to Beijing by US Secretary of State Antony Blinken. His visit was meant to “build a floor” under the fraught bilateral relationship.

“The actions of the Chinese Communist Party last week serve as a clarifying moment,” said Republican congressman Patrick McHenry, the committee’s chairman, in his opening remarks at the hearing.

“China is not an ally or a strategic partner. They are our competitor and pose the single greatest threat to America’s global standing,” McHenry of North Carolina added.

Democratic congressman David Scott criticised US President Joe Biden’s decision not to shoot the Chinese balloon down earlier.

The Georgia congressman framed the delay as a mistake that gave leeway for “an economic and military order in which China sets trade and then investment rules” for the Indo-Pacific region.

Apart from posing a national security threat to the US with its balloon, Beijing sought to challenge Washington’s economic and geopolitical leadership by collecting new trade partners around the world, testified Clete Willems, a partner at the law firm Akin Gump Strauss Hauer & Feld.

It was “unacceptable”, Willems said, that it was now easier for 14 other Indo-Pacific countries to link their supply chains with China than the US under the Regional Comprehensive Economic Partnership, once regarded as a China-backed alternative to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.

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The CPTPP is the successor to the Trans-Pacific Partnership, from which Trump withdrew as one of his first actions as US president in 2017.

“Congress should pressure the administration to move forward with bilateral trade agreements with the United Kingdom, Kenya, Taiwan, as well as to renegotiate the CPTPP,” said Willems, a former deputy director of the US National Economic Council during the Trump administration.

“If we are serious about competing with China on supply-chain issues, we need a serious trade policy to match.”

Strengthening ties with Taiwan was a key subject in a separate hearing convened by the House Armed Services Committee, which featured retired admiral Harry Harris, former commander of US Pacific Command, as a witness.

Harris, who was appointed US ambassador to South Korea under Trump, also endorsed a free-trade agreement with Taiwan to clear a path for other allies to do the same.

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He said Washington’s official policy of strategic ambiguity towards the self-ruled island should change to clarity because Beijing “is clear about its intent that it’s ultimately going to seize Taiwan if need be”.

Taking aim at Biden’s efforts to restrict hi-tech exports to China, several witnesses – including Richard Ashooh, a former Commerce official during the Trump administration – said a more comprehensive approach was needed. They added that the effort to stop selling some advanced technologies to China should be done in coordination with US allies.

“The ad hoc approach as currently utilised in the area of semiconductors, for example, should be replaced with an agreed-upon system among a smaller group of stakeholder nations that can act in concert,” Ashooh said.

Meanwhile, Peter Harrell, formerly a member of the National Security Council and the National Economic Council in the Biden administration, said Washington should pursue multilateral economic deals and deepen its ties with existing allies while working to strengthen relations with newer partners like India in its protracted competition with Beijing.

Peter Harrell, formerly a member of the National Security Council and the National Economic Council in the Biden administration, says Washington should develop a strategy to maintain the pre-eminent role of the US dollar.

He warned that if the US failed to raise its borrowing limit and triggered a default, it would undercut the confidence of American allies and partners.

“A default would give the CCP a priceless talking point about the irresponsibility of the United States,” Harrell stated in his written testimony.

Acrimony between Republicans and Democrats over the US federal debt ceiling came up repeatedly throughout the financial services committee hearing, with the Democrats using the issue to accuse their rivals of boosting China’s geopolitical clout.

Last month, the US Treasury Department resorted to so-called extraordinary measures – mostly accounting maneouvers – to keep from defaulting on creditors after hitting the current debt cap of US$31.4 trillion. It is not clear how long those measures will enable the US government to keep paying its debts.

Both Harrell and Willems believed the US should continue to galvanise the G7 to develop a shared policy on China with like-minded countries, with Willems saying the G20’s ability to achieve effective coordination was limited.

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Harrell said Washington should develop a strategy to maintain the pre-eminent role of the US dollar and the US financial system globally, as Beijing was trying to create its own cross-border payment network.

“That’s going to require us to both be competitive … in what can we do to make the dollar attractive, and it’s going to require us to throw some sand in the years of efforts by the Chinese … to try to build out these alternative payment rails,” Harrell said.

Asked about the challenge China’s digital yuan, also known as e-CNY, posed to the US dollar, Harrell said the threat was not substantial and that many Chinese consumers were reluctant to use it owing to privacy concerns.

Eric Lorber, a former Treasury official, also rejected the idea that China’s digital currency would threaten the US dollar in the next few years.

“The general concern with the digital yuan in particular is related to transparency and the question about what type of data or information the Chinese could have access to given the widespread implementation and usage of the digital renminbi,” Lorber said.

Additional reporting by Khushboo Razdan in New York