Short-term Deadlines, Long-term Consequences

What’s Happening: The deadline for Congress to finalize a short-term funding bill to avoid a government shutdown is tomorrow, December 20. The text of the continuing resolution thus far was released late Tuesday night and its (now doubtful) passage would ensure the government is funded until March 14. The 1,547-page bill touches on countless areas of policy but for trade policy specifically will include restrictions on outbound investment into China, an extension of special rules on apparel imports from Haiti, and the establishment of a working group to analyze critical supply chains. The outbound investment restrictions come after the Department of Treasury finalized rules on President Biden’s 2023 Executive Order that would require companies to notify the government when transacting with and investing in China, as well as restrict artificial intelligence, semiconductor, and other sensitive electronic investments in China.

Why It Matters: The stop-gap spending bill would provide $150 million to the Department of Commerce for two years to reach out to industries and individuals impacted by new outbound investment restrictions and informing them of consequences and prohibited technologies. It would also reaffirm presidential authority to introduce sanctions and utilize “all authorities” under the International Emergency Economic Powers Act (IEEPA) to prohibit U.S. investment in China and counter covered entities such as the Chinese Communist Party. Prohibited and scrutinized technological investment includes various circuits, semiconductors, advanced artificial intelligence, and quantum computers, which will certainly have wide-ranging implications for numerous U.S. firms and further strain already tense trade relations with China. Additionally, the bill would extend the Caribbean Basin Economic Recovery Act special privileges for Haiti until September 30, 2030, thereby removing tariffs and merchandise-processing fees on the imports of most apparel products manufactured in Haiti (as long as these imports do not cross a certain threshold and most of the process takes place in Haiti). This new legislation would also create a working group to analyze any gaps in U.S. supply chains within 120 days of enactment, which would certainly have an impact on industries reliant on critical technologies and minerals.

Looking Ahead: If the stop-gap bill passes in its current form – and it isn’t likely to – there would be long-term implications for domestic industries because of its focus on shoring up supply chains and reducing reliance on U.S. adversaries for critical technologies and minerals. The bill may also be used to further justify the use of IEEPA against China during the upcoming Trump Administration, which could deepen concerns of the extension of IEEPA authority to levy tariffs.

Notably, this legislation avoided eliminating or amending the de-minimis trade rule – which faces bipartisan agreement on restricting its use – which allows imports valued under $800 to enter the United States without being saddled with excessive fees or tariffs. There was also no mention of extending the African Growth and Opportunity Act or the Generalized System of Preferences, both of which lower trade barriers, tariffs, and ultimately costs for U.S. consumers. This means that each of these programs will likely be further examined in the coming year, especially the de minimis trade rule. Each of these programs has long-term implications for U.S. consumers, with the elimination of de minimis alone costing between $8—$30 billion annually.