U.S. Considers Paying Companies, Tax Breaks to Pull Supply Chains From China

US and China will meet for the first time at a high level since Russia's attack on Ukraine as Biden tries to get Beijing's help with the war.

U.S. lawmakers and officials are crafting proposals to push American companies to move operations or key suppliers out of China that include tax breaks, new rules, and carefully structured subsidies, Reuters informs.

Interviews with a dozen current and former government officials, industry executives and members of Congress show widespread discussions underway – including the idea of a “reshoring fund” originally stocked with $25 billion – to encourage U.S. companies to drastically revamp their relationship with China.

President Donald Trump has long pledged to bring manufacturing back from overseas, but the recent spread of the coronavirus and related concerns about U.S. medical and food supply chains dependency on China are “turbocharging” new enthusiasm for the idea in the White House.

On Thursday, Trump signed an executive order that gave a U.S. overseas investment agency new powers to help manufacturers in the United States. The goal, Trump said, is to “produce everything America needs for ourselves and then export to the world, and that includes medicines.”

But the Trump administration itself remains divided over how best to proceed, and the issue is unlikely to be addressed in the next fiscal stimulus to offset the coronavirus downturn. Congress has begun work on another fiscal stimulus package but it remains unclear when it might pass.

The push takes on special resonance in an election year. While anti-China, pro-American job proposals could play well with voters, giving taxpayer money or tax breaks to companies that moved supply chains to China at a time when small business is flailing may not.

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 (here) 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.

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