China’s “most favored nation” trade status with the U.S. which has been in place for over two decades, would get revoked under a bill that Senator Josh Hawley (R-Mo.) will introduce this week.
Hawley’s bill, known as the Ending Normal Trade Relations with China Act, would require the U.S. to withdraw China’s most favored nation (MFN) trade status two years after the bill’s enactment. It would allow the president to impose tariffs on all goods from the People’s Republic of China, including tariffs in excess of those described in the government’s tariff schedule.
“As we face a new age of competition with China, we need an agenda in Washington that will make our working class strong and independent,” Hawley said in a press release. “We can start by revoking the sweetheart deal D.C. elites handed to China 23 years ago – end normal trade relations, put in place strong tariffs, and protect American workers.”
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World Trade Organization (WTO) rules require that member nations grant unconditional MFN status to all WTO members, although exceptions are permitted for regional free trade areas and customs unions, if preferential treatment is extended to developing countries, or if national security exceptions are claimed.
In practice, this means that the U.S. is obligated to provide the same treatment to all WTO members when applying tariffs – which are taxes on imports – on a given product unless an exception is claimed.
The U.S. Senate voted in favor of permanently granting MFN to the People’s Republic of China in 2000 ahead of China joining the WTO the following year. Hawley’s office cited economic research from opponents of the decision that blamed China’s MFN trade status as contributing to the loss of 3.7 million jobs in the U.S. manufacturing sector in the wake of that decision.
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According to data released by the Bureau of Economic Analysis (BEA) earlier this month, the U.S. trade deficit with China stood at $63 billion for the fourth quarter of 2022, a decrease of about $30.2 billion. The BEA data indicated that U.S. exports to China grew by $1.7 billion to a total of $51.1 billion, while imports from China decreased by $28.5 billion to $114.1 billion in the fourth quarter.
Hawley’s bill isn’t the first piece of legislation to end China’s preferential trade treatment that has been introduced in the current Congress.
A group of Republicans – including Sens. Tom Cotton (R-Ark.), Ted Budd (R-N.C.), Rick Scott (R-Fla.), and J.D. Vance (R-Ohio) – introduced the China Trade Relations Act in the Senate earlier this year. The bill would revoke China’s permanent most-favored-nation status and require the president to renew it each year while giving Congress the ability to move legislation rejecting a presidential extension of most-favored-nation status.
Additionally, their bill would broaden the list of human rights and trade abuses that would disqualify China from MFN status without a presidential waiver to include:
Similar legislation was introduced in the House by Rep. Chris Smith (R-N.J.).
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There is a process for revoking the MFN status of a WTO member. In the spring of 2022, Congress and President Joe Biden enacted legislation revoking permanent normal trade relations with Russia, effectively stripping it of MFN status, following Russia’s invasion of Ukraine. The U.S. and several other like-minded countries cited a national security exception that allows WTO members to take actions inconsistent with their obligations to provide market access to fellow members.
The Office of the U.S. Trade Representative noted that following Russia’s invasion and loss of MFN status, the “increased geo-political tensions and the reputational risks have led hundreds of U.S. companies to withdraw from, or significantly reduce their presence in, Russia.”