U.S. lawmakers are intensifying efforts to reshape trade relations with China by introducing a bipartisan bill aimed at revoking China’s Permanent Normal Trade Relations (PNTR) status. Known as the Restoring Trade Fairness Act, this legislation is led by Representative John Moolenaar (R-Michigan), chair of the House Select Committee on the Chinese Communist Party, and co-sponsored by Representative Tom Suozzi (D-New York). If passed, the bill would impose steep tariffs on Chinese imports, eliminate the “de minimis” exemption for low-value goods, and permanently reset trade relations between the world’s two largest economies. This bold move underscores growing concerns about China’s economic practices and their impact on U.S. national security and economic resilience.
What Is PNTR and What Does It Do for China?
Permanent Normal Trade Relations, previously known as Most Favored Nation (MFN) status, ensures that a country’s exports enjoy lower tariffs when entering the United States. For China, this status has been pivotal since its entry into the World Trade Organization (WTO) in 2001. It has allowed Chinese goods to flood U.S. markets with minimal trade barriers, giving China a significant competitive advantage. Representative Moolenaar highlighted this in a statement, saying, “Granting China PNTR had ushered in waves of Chinese imports, depleted U.S. manufacturing, and made the U.S. susceptible to economic coercion from its ‘foremost adversary.’”
Specific benefits of PNTR for China include reduced tariffs on a variety of goods. For instance, clothing imported under PNTR might face tariffs of 4.4% to 9.4%, whereas without it, tariffs could soar to 60-90%. Similarly, toys currently tariff-free could see rates of 30-90%. Electrical goods would experience a tariff increase from 2.5% to as high as 35%. These low tariffs have been a cornerstone of China’s ability to dominate U.S. retail markets.
Economic Costs to China
The potential loss of PNTR status poses severe challenges for China’s export-driven economy. Analysts estimate that revoking PNTR could reduce China’s GDP by as much as 2-3% over five years, amounting to hundreds of billions of dollars. Moreover, up to 744,000 Chinese jobs could be lost, particularly in manufacturing sectors that rely heavily on exports to the United States.
Zhao Wei, chief economist at Shenwan Hongyuan Securities, calculated that the average tariff on Chinese goods could exceed 60% if PNTR is revoked. This includes a combination of current tariffs and new Section 301 tariffs. “If the U.S. revokes China’s MFN status, tariff barriers will significantly increase, resulting in a plummeting of trade between China and the U.S.,” Zhao stated. “Many Chinese exporters will suffer from shrinking orders and rising costs. Some small- and medium-sized enterprises may even face risks of bankruptcy.”
Statistical Snapshot of Potential Losses
- GDP Impact: A projected 2-3% reduction in China’s GDP over five years.
- Job Losses: Up to 744,000 manufacturing jobs could be at risk.
- Tariff Rates: Tariffs could rise to an average of 60% on Chinese goods.
- Export Decline: Approximately 48% of Chinese goods currently benefiting from low tariffs could lose competitive pricing in the U.S. market.
U.S. Motivations and Legislative Details
The Restoring Trade Fairness Act seeks to address several grievances the U.S. has with China’s trade practices, including state subsidies, intellectual property theft, and economic coercion. The proposed legislation outlines a phased tariff increase on Chinese imports, starting at 10% in the first year and rising to 35% for non-strategic goods and 100% for strategic goods by the fifth year. Additionally, the bill would eliminate the $800 “de minimis” exemption that allows low-value Chinese goods to enter the U.S. without customs duties. This exemption has been criticized for enabling the import of illicit goods, including fentanyl precursor chemicals.
Moolenaar emphasized the bipartisan nature of the bill, stating, “This legislation will safeguard U.S. national security, enhance supply chain resilience, and bring manufacturing jobs back to America and our allies.” Similar sentiments were echoed by Senator Josh Hawley (R-Missouri), who co-sponsored a companion bill in the Senate.
Reactions from China
China’s response to the proposed legislation has been swift and critical. Liu Pengyu, a spokesperson for the Chinese embassy in Washington, called the move a regression to Cold War-era policies. “Some U.S. politicians are trying to reverse history and drag Sino-U.S. economic and trade relations back to the Cold War era,” Liu stated. The Chinese government has also emphasized the interdependence of the two economies, highlighting that bilateral trade supports 70,000 U.S. companies and generates $50 billion in annual profits for American firms operating in China.
Despite these criticisms, some Chinese commentators have noted opportunities for domestic economic reforms. A columnist using the pseudonym “Beibei” suggested that China could mitigate the impact by focusing on domestic markets and expanding trade with Belt and Road Initiative countries. “This could be a chance for Chinese manufacturers to shift from labor-intensive industries to knowledge-based sectors and increase the added value of their products,” Beibei argued.
Broader Implications for Global Trade
Revoking China’s PNTR status would mark a significant shift in U.S.-China trade relations, potentially destabilizing global supply chains. The unilateral action could also erode the multilateral trading system governed by the WTO. Deborah Elms, a trade expert, warned, “This radical change in U.S. trade policy could unleash catastrophic damage to the multilateral order and significantly reset the playing field for businesses everywhere.”
Furthermore, the move could provoke retaliation from China, including tariff increases on American goods and a shift in trade alliances. Analysts predict that U.S. consumers and businesses reliant on affordable Chinese goods could face higher costs, adding to inflationary pressures.
The push to revoke China’s PNTR status reflects a bipartisan consensus on the need to address longstanding trade imbalances and security concerns. While proponents argue that the move will restore U.S. manufacturing and protect national interests, critics warn of significant economic and geopolitical risks. For China, the challenge lies in navigating these headwinds while maintaining its position as a global manufacturing powerhouse. The outcome of this legislative effort could reshape not only U.S.-China relations but also the broader global trade landscape.
FAM Editor: We don’t provide financial mind, so do your own research and make up your own damned mind. But if this comes to pass and looks like it will stick, one would thing the largest exporting companies from China would be ripe for a short sale.
