Key Players and Current Issues in US-China Policymaking

June 05, 2023

Tensions between the United States and China have increased markedly in recent years, ushering in possible implications for both long-term national security and everyday commerce. As a first step in navigating potential and actual responses to this situation, affected companies are advised to consider the delicate interplay of the United States’ three coequal branches of government, as each branch plays a unique role in the process of developing policy, laws, and regulations.

The US Decision Tree

American foreign policymaking runs at different speeds depending on who in the US government is taking action. The executive branch has the greatest degree of flexibility and agility given that the US president is able to issue executive orders (EOs) without the oversight or approval of US Congress or the courts. However, the legislative branch acts with more certainty and controls the purse strings—a key element to any effective action by the executive branch.

That being said, while the president can issue EOs, regulations, and policies and declare suspension of a previous administration’s actions with little interference, Congress has the ability to modify such decisions. Legislators can do so by narrowing executive branch orders or policies, enhancing their provisions, or requiring reporting of actions under those authorities, thereby creating transparency into the executive branch’s actions.

Interagency dynamics, including by oversight or review committees, broaden the challenge for those seeking to monitor decision-making. Key decision-making areas include the following:

  • The Committee on Foreign Investment in the United States (CFIUS): This body reviews which deals or other economic arrangements might affect national security or market competitiveness.
  • The so-called Operating Committee: This little-known interagency unit within the US Department of Commerce’s Bureau of Industry and Security can make or break an international transaction worth billions.
  • The CHIPS Act review committee: Formally titled the Creating Helpful Incentives to Produce Semiconductors and Science Act of 2022, the legislation falling under this body’s ambit prohibits certain actors from expanding semiconductor manufacturing in both China and other countries defined by law as posing a national security threat to the United States.

Other US government regulatory agencies of note include the following:

  • The Federal Communications Commission has selective national security purview and has become increasingly assertive, particularly with respect to China.
  • The Securities and Exchange Commission conducts oversight of reporting by public companies, including such matters as export control regulations and potential violations of the Foreign Corrupt Practices Act or other compliance requirements of material impact.

Congressional authority resides in multiple standing and ancillary committees. While often slow to act, the legislative branch can pass influential laws and resolutions affecting international commerce. Through the appropriations process, it also retains the power of the purse. The branch also conducts frequent oversight through special bodies such as the US-China Economic and Security Review Commission.

Of crucial import on both sides of Capitol Hill are the Armed Services Committees, which are deeply involved in sculpting the contours of the National Defense Authorization Act. Also in play are the House Ways and Means Committee and the Senate Finance Committee, which reach into both trade and multinational commerce.

Each chamber’s intelligence committees, while relatively opaque due to the classification of data, are worth closely monitoring, not least because they have authority to review sensitive executive branch intel.

The third leg of the national security “stool” is the judicial branch, which is charged with interpreting laws passed by Congress and implemented by the executive branch. Although courts historically have been deferential to the executive branch, a potentially tectonic change might be on the horizon.

The US Supreme Court recently agreed to review the so-called Chevron Doctrine, which has ensconced a presumption of deference to the executive branch for at least four decades. Should the doctrine be overturned or modified, it could weaken agencies’ autonomy and relocate relevant powers of review to other parts of the government.

A Longstanding Engagement

Any survey of the current US-China relationship benefits greatly from an understanding that the engagement has seen more than 70 years of evolution. From embargoes in the 1950s, to a rapprochement between the two countries during the 1970s, to US concerns today about semiconductors, quantum technology, biotechnology, and more, traversing the landscape has understandably entailed changes.

More broadly, the Indo-Pacific theater is increasingly fraught, and the United States has determined that it must enlist cooperation—from the Netherlands and Australia to Japan and perhaps India—for any new sanctions or other policy shifts.

From a geostrategic standpoint, Taiwan presents a complex and perplexing challenge. The enhanced tensions between the United States and China, as well as the spillover effect of that tension on the engagements among the United States, its partners, and allies, as well as those parties and China, has created ripple effects globally.

Taiwan remains a flashpoint in part because it houses the world’s key advanced semiconductor manufacturing capability as well as a key strategic location in East Asia. Exacerbating this situation is the current inconsistent statements from the US president and his cabinet-level secretaries regarding the US position on Taiwan.

Should this continue, China could choose to react, and that reaction could include, as has been mentioned by the US intelligence community and members of US Congress, actions by China toward Taiwan. At a minimum, there will likely be countermeasures or countersanctions in retaliation for any US or allied/partner action in relation to Taiwan.

A New Reality on Capitol Hill

Meanwhile, on the US domestic front, other considerations have been developing. The interaction between CFIUS and the CHIPS Act, among other interactions, would appear to suggest a revival of US industrial policy. And that is potentially bolstered by an extremely rare display of bipartisanship.

Formed at the beginning of the new session of Congress in early 2023, the US House Select Committee on Strategic Competition between the United States and the Chinese Communist Party (Select Committee) could prove to be a potent force. Bipartisan majorities share a view of China as both competitor and adversary.

As a result, Republican and Democrat committee members alike have indicated that Congress may become increasingly engaged, particularly on questions of commercial competition oversight or restrictions on access to key technologies.

Key Issues

  • Outbound Investment: The control of capital outflows has been the subject of regular executive-legislative dialogue since at least the 1960s, the effort of which has been checkered. Now, the Select Committee has expressed an interest in everything from the financial services sector to pensions, nonprofits, and passive investing.
  • Decoupling: After years of dominance, Washington has awoken to find the United States deeply technologically enmeshed with China. That implicates policies governing a range of technologies that should be closely monitored and relationships that might be radically changed or terminated. It should be noted that this is a two-way street, and as such tracking China’s reactions is crucial.
  • CFIUS: As mentioned above, CFIUS has seen new and increasing interest. Under EOs, the committee’s jurisdiction over inbound foreign investment is expanding. Considerations include supply chains, cybersecurity, personal data protection, critical technologies, and relationships with sanctioned parties. It would be hard to overemphasize the importance of this panel.

In summary, the US-China relationship finds itself facing many inflection points. Regulation of international technological commerce, profound apprehension about national security, and geostrategic military questions all loom. What’s more, human rights concerns form a backdrop that is a constant source of friction.

If you are interested in The 118th US Congress and the Select Committee, as part of our Continuing Evolution of US-China Relations: 2023 and Beyond, we invite you to subscribe to Morgan Lewis publications to receive updates on trends, legal developments, and other relevant areas.