Worried about China? Make it easier to source elsewhere

Emerging stories of prison labor camps in China are sparking outrage. Washington policymakers are keen to act but fear that an abrupt halt to U.S.-China trade would be prohibitively costly for our economy, where manufacturers rely on Chinese inputs. There is something they can do, though: Make it easier for Americans to do business in other low-cost countries.

Simply eliminating tariffs on these countries’ products would go a long way — particularly if (as it appears) the Biden administration is keeping the Section 301 tariffs on Chinese products. But there are other good options.

If you’ve read Amelia Pang’s shocking new book, “Made in China,” you may be thinking twice about whether you need those toys or household items with “Made in China” on the packaging. Pang tells the story of Sun Yi, the Chinese engineer who found himself locked in a gulag for meditating with a group the Communist Party did not like, and campaigning for the right to do so.

He endured torture, including being hung by his wrists to the point of unconsciousness, swollen ankles and long-term injuries. His story is known only because an SOS note he left in a package of Halloween decorations found its way to a mom in Oregon.

Or the story of Ma Chunmei, who thought it was strange when – after labor camp guards would not give her medical care following electric baton beatings or a detached thumbnail from a particularly violent encounter with the guards – she was escorted out of camp to get a physical at a nearby hospital with no apparent need for medical attention. They never told her the purpose of the exams, though she suspects it was for illegitimate (and involuntary) organ harvesting.

As horrible as these stories are, American companies continue to source from China. Shareholders demand profit, and customers demand low prices. Whether knowingly or not, it’s hard to find a cheaper place to do business than a country that includes some zero-cost labor. Of Chinese manufacturers, Pang writes, “If they are ever desperate to fill a last-minute order, they know they can turn to Gulags for cheap and fast production.”

But the tide may be turning. An increasing share of consumers are turned off by Beijing’s human rights abuses. A March Pew Research poll found that two-thirds of Americans have “cold” feelings toward China on a feeling thermometer. Seventy percent support trying to promote human rights in China, even if it harms economic relations, while only 26 percent favor the opposite approach.

“We are very dependent on China for our business,” Katherine Gold, CEO and owner of Denver-based Goldbug, Inc., told me. The company sells baby socks, shoes and other apparel and accessories in large retail stores across the United States. Gold indicated a longstanding interest in diversifying the supply chain, with some success in Vietnam after a five-year effort. There’s a lot of safety requirements and regulation: “It’s much harder to make, if you can believe it, an infant sock than an adult sock. So it took us many, many years. Currently, about 60 percent of our infant hosiery is made in Vietnam, still about 40 percent in China, and we are moving that down.”

Congressional leaders appear motivated. Last month, Senate Finance Committee Chairman Ron Wyden (D-Ore.) said he wants to focus on “ending the import of goods produced with forced labor.”

That will be hard to do without any clear way of identifying goods made with forced labor. There are unofficial estimates — Pang reported that half of all ceramics (e.g., coffee mugs, kitchenware) in the United States are made with Chinese forced labor. But without legitimate audits, it’s nearly impossible to verify. With around 20 percent of U.S. imports coming from China, full sanctions would severely disrupt the U.S. economy.

Short of that, here are three things policymakers can do:

First, eliminate tariffs with other low-cost countries. Make it easier for U.S. companies to produce intermediate inputs in places with similar cost structures as China, but without prison labor camps. U.S. import prices may rise a bit, but they have already been rising due to the China tariffs. A host of Asian and Southeast Asian countries such as Vietnam, India and Bangladesh are good candidates.

Second, require all goods sold in the U.S. to have the country or countries of origin on the label. Amazon is reportedly allowing products to be sold without country of origin. Consumers should be able to make informed choices, and this would be a simpler and less-expensive regulation than heavy-handed trade-policy alternatives. 

Third, accelerate the use of technology and innovation for businesses and customs officials to digitally audit goods before entry to the United States. Producers around the world who can comply will do so, and those goods should get priority access to the U.S. market. 

Christine McDaniel is a senior research fellow with the Mercatus Center at George Mason University.