Sullivan Hosts First Commerce Security Subcommittee Hearing as Chair on China

WASHINGTON, DC – Yesterday, U.S. Senator Dan Sullivan (R-AK) convened the Senate Commerce Subcommittee on Security for the first time as chairman. The hearing examined the security implications of China’s harmful practices in the marketplace, including issues of manufacturing competitiveness, intellectual property (IP) challenges, data localization requirements, standards-setting, and cybersecurity threats.

The conversation is relevant as policy makers work to fortify current and future American economic competitiveness. In 2018, the Trump administration announced expansive tariffs on some Chinese products in response to the continual theft of U.S. technology and intellectual property. The administration is undergoing trade talks between U.S. and Chinese officials, and issues with IP theft have been central to negotiations between the two countries to secure a new trade deal.

In the hearing, Senator Sullivan recounted a meeting he attended in the Oval Office during his tenure as a staffer on the National Security Council between President George W. Bush, then-National Security Advisor Condoleeza Rice, and the vice premier of China.

“Then-Vice Premier Madame Wu Yi told the President of the United States that it was in China’s interests to address the intellectual property theft that often occurs between our two countries, and she would personally take steps to ensure this happened,” said Senator Sullivan. “That meeting was over sixteen years ago, and the IPR theft problem between the United States and China is actually worse.”

Eric Rosenbach, co-director of the Belfer Center at Harvard’s Kennedy School and former chief of staff at the Pentagon, provided insight as to why the dynamic of Chinese intellectual property theft has not improved.

“Our response to Chinese cyber-attacks that steal personal data and intellectual property has been weak, resulting in the perception by China that an attack on the American economy will not incur costs,” Rosenbach said.

Among other measures, Rosenbach recommends the U.S. “develop precise and legal offensive cyber operations that change the current dynamic of America simply sitting back and absorbing the blows of adversarial actions.”

Cybersecurity expert Samm Stacks detailed a “small yard, high fence” approach, a term coined by former Secretary of Defense Robert Gates, to Chinese intellectual property theft.

“The question is how to address the challenges posed by China in a way that does not undermine ourselves in the process,” Stacks said. “This means being selective about what technologies are vital to U.S. national security, but being aggressive in protecting them.”

Jonathan Kallmer, executive vice president of policy for the Information Technology Industry Council, cautioned the committee that “Preventing China from stealing technology alone will not help us achieve our goals. The U.S. government must invest in America’s future. This means investing in research and development, education, science and technology, artificial intelligence (AI), and digital infrastructure.”

Below are the four witnesses that testified before the committee, as well as their submitted testimony:

The Honorable Eric Rosenbach, co-director, Belfer Center for Science and International Affairs, Harvard Kennedy School [Testimony]
Mr. Jonathan Kallmer, Executive Vice President of Policy, Information Technology Industry Council [Testimony]
Mr. Daniel Rosen, Partner, Rhodium Group [Testimony]
Ms. Samm Sacks, Cybersecurity Policy Fellow and China Digital Economy Fellow, New America [Testimony]

Here are Senator Sullivan’s opening remarks as delivered:

This is our inaugural hearing of the newly created Subcommittee on Economics and Security. I want to commend Chairman Wicker on his leadership in creating this subcommittee to provide a venue in Congress to focus on the nexus between commerce, economic issues and security, and his constant focus to bolster national security and the economic competitiveness of the United States.

I am very honored to be named as the subcommittee chair, and I am excited to be serving with my good friend, Senator Markey, as the subcommittee’s ranking member. Senator Markey has a long and accomplished career and history of public service, including his work in the House on the homeland security to close gaps in our nation’s defenses. I look forward to working with you, Senator Markey, and the members of this subcommittee on these important issues.

Be forewarned, we will be a very active subcommittee. There is a lot of territory and ground to cover. The ranking member and I have already had a number of good discussions on where we want to begin. So where are we beginning?

There is no more relevant issue today in terms of the effect on our economy and our security States than the strategic challenge posed by the rise of China, and its subsequent retrenchment into authoritarianism and rejection of international norms and standards which, in many ways, has helped so much with their own rise and lifting millions and millions of their citizens out of poverty.

The stakes are high. China is now the largest U.S. merchandise trading partner, biggest source of imports, and largest destination market for U.S. exports outside of North America.

The bilateral relationship supports approximately one million jobs in the United States even in places like the great state of Alaska. China has quickly eclipsed other long-established trading partners to become our largest trading partner.

China remains a critical market for American companies, and our economic and commercial ties have long been the underpinning of the relationship between our two nations. If steps are not taken by China – and soon – to address some of the concerns we’re going to raise today, this relationship could be needlessly at risk.

While it has been suggested during the Trump administration’s ongoing trade discussions with the Chinese, that they are receptive to offsetting the trade imbalance by increasing purchases of American goods, like farm products or LNG, it is imperative that the Chinese also commit to structural changes in their economy. Those changes would include the curbing of industrial subsidies, state owned enterprises, the bolstering of intellectual property protection, and an end to forced technology transfers, which the Chinese deny they do, but we all know they do do.

Also, the issue of officially sanctioned corruption globally is another issue that they need to address.

Additionally, when the United States supported China’s entry into the World Trade Organization (WTO) in late 2001, the expectations were that China would lower its trade barriers and follow WTO trade practices, including respecting intellectual property rights, promoting basic safety standards for exports, and not subjecting imports to illegal non-tariff barriers.

China has not kept these commitments.

I saw this up close many years ago when I was a staffer on the National Security Council working for Condoleeza Rice and President George W. Bush. In a meeting I attended in the Oval Office in 2003, then-Vice Premier Madame Wu Yi told the President of the United States that it was in China’s interests to address the intellectual property theft that often occurs between our two countries, and she would personally take steps to ensure this happened. That meeting was over sixteen years ago, and the IPR theft problem between the United States and China is actually worse.

President Obama also tried to stem these blatantly unfair trade practices. But Beijing has not honored the “common understanding” reached between President Obama and Xi Jinping on curbing cyber-hacking of government and corporate data for economic gain. The U.S. Trade Representative estimates that Chinese theft of American IP costs the U.S. economy as much as $600 billion per year, not to mention thousands of American jobs.

From foreign equity restrictions with joint venture requirements to intellectual property theft, China is pursuing its narrow economic interest in ways that contradict and undermine the global trading system that has fostered decades of global growth and stability – and allowed China its own strong economic rise.

The Trump administration should be commended for its reorientation of the U.S.-China relationship under its current trade negotiations.

The United States must insist that the bilateral relationship with China be defined by something understood by every American citizen: reciprocity and fairness. For too long, the U.S. has accepted unfulfilled Chinese promises of greater market access even as we opened our economy to Chinese companies.

A demand for fairness and reciprocity should not undermine China’s success, as market principles would work toward long-term stabilization, as state-directed economic growth can produce massive overcapacity and mountains of debt.

To put it bluntly, the United States is suffering from a decades-long “promise fatigue” with China. We get commitments from China, they make promises, and then they don't keep them. In order to move forward, great countries need to keep their word.

It is my hope that this hearing will help inform us on some of the challenges to U.S. commerce in our current relationship with China as they relate to China’s harmful practices stemming from its industrial policy, intellectual property theft, forced technology transfer, cyber espionage, and many other practices.

With that, I want to thank all our witnesses for being here today and I now recognize the Ranking Member for any opening statement that he may have.

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