September 02, 2020
U.S. mulls paying companies, tax breaks to pull supply chains from China

U.S. mulls paying companies, tax breaks to pull supply chains from China

U.S. mulls paying companies, tax breaks to pull supply chains from China

 

BIPARTISAN APPEAL

Both Republicans and Democrats are crafting bills to decrease U.S. reliance on China-made products, which accounted for some 18% of overall imports in 2019.

“The whole subject of supply chains and integrity of supply chains... does have a greater place in members’ minds,” Representative Mac Thornberry, the top Republican on the House of Representatives Armed Services Committee, told reporters May 7.

The medical supply chain and defense-related goods are top of the list.

“Coronavirus has been a painful wakeup call that we are too reliant on nations like China for critical medical supplies,” said U.S. Senator Lindsey Graham in a press release on Friday. He is expected to issue a new bill this week.

Republican Senator Josh Hawley is pushing for local content rules for medical supply chains, and “generous investment subsidies” to encourage increased domestic production of a range of goods and components. Republican Senator Marco Rubio introduced a bill May 10 that would bar sale of some sensitive goods to China, and raise taxes on U.S. companies’ income from China.

A bipartisan bill introduced by Democratic Representative Anna Eschoo and Republican Representative Susan Brooks would commission a panel to recommend ways to cut drug supply reliance on China.

 

Republican Representative Mark Green’s “SOS Act” proposes funding takeovers of vulnerable U.S. companies that are critical to our national security.

Lawmakers also hope to include reshoring provisions in the National Defense Authorization Act, or NDAA, a $740 billion bill setting policy for the Pentagon that Congress passes every year.

PAY TO STAY

A controversial idea being floated in Washington would allocate as much as $25 billion to companies that make essential goods to move production home, ensuring that even products far down the supply chain were sourced domestically, according to two administration officials.

No lawmaker has publicly embraced it, but several congressional aides acknowledged it is part of the broader discussion in Congress. One of the administration officials said states could administer the funds through their separate economic development organizations.

That would be a boon for states that are struggling to pay their own bills after widespread lockdowns, plummeting tax revenues, and a huge surge in COVID-related costs, one state official said.

 

But given longstanding concerns about the government setting “industrial policy”, the notion of subsidizing industry directly is polarizing, even among Trump’s top advisers.

Outright subsidies are a non-starter, said one of the two administrative sources. “Internally some are questioning why we should be providing funds to companies that have left in recent years.”

White House economic adviser Larry Kudlow has talked publicly about using tax incentives instead to prod U.S. companies to move some manufacturing home.

White House trade adviser Peter Navarro wants the federal government to buy more U.S.-made medical goods and drugs, but Trump has not signed an executive order Navarro is promoting.

Treasury Secretary Steven Mnuchin and others favor building trusted networks of drug and medical suppliers, said two officials familiar with the discussions.

Giving federal dollars directly to companies to shift supply chains away from China would likely run afoul of World Trade Organization rules, and could discourage foreign companies from doing business in the United States, critics of the idea say.

The State Department, meanwhile, is working with other agencies and foreign governments to diversify American supply chains from China. “This includes returning manufacturing to the United States and expanding our base of international manufacturing partners,” said a spokesperson.

Additional reporting by Humeyra Pamuk. Editing by Heather Timmons, Chris Sanders and Diane Craft

 

https://www.reuters.com/article/us-usa-china-supply-chains/u-s-mulls-paying-companies-tax-breaks-to-pull-supply-chains-from-china-idUSKBN22U0FH

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