US mulls paying companies, tax breaks to pull supply chains from China

US lawmakers and officials are drawing up proposals aimed at encouraging American companies to move operations or major suppliers out of China.

There are widespread discussions currently underway about the proposals which will include tax breaks, new rules, and carefully structured subsidies, Reuters reported Monday citing interviews with a dozen current and former government officials, industry executives and members of Congress.

The proposals, which also include the idea of a “reshoring fund” originally stocked with $25 billion, aim to push US companies to drastically revamp their relationship with China.

The funding would encourage companies that produce essential goods to move production home, making it possible to make products far down the supply chain domestically, according to two administration officials.

US President Donald Trump has long promised to bring manufacturing back from overseas, however, the coronavirus pandemic and concerns about US dependency on China in terms of medical and food supply chains are “turbocharging” new eagerness for the idea in the White House.

Meanwhile, Republicans and Democrats are both crafting bills to reduce US reliance on Chinese products, which made up some 18% of overall imports last year.

“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 earlier this month.

“Coronavirus has been a painful wakeup call that we are too reliant on nations like China for critical medical supplies,” US Senator Lindsey Graham said in a press release on Friday. He is likely to propose a new bill this week.

In addition, Republican Senator Josh Hawley seeks local content rules for medical supply chains, and "generous investment subsidies" to encourage domestic producers to increase their production of a range of goods and components.

On May 10, Republican Senator Marco Rubio introduced a bill that would forbid sale of some sensitive goods to China, and increase taxes on US firms' income from China.

Meanwhile, Democratic Representative Anna Eschoo and Republican Representative Susan Brooks have introduced a bipartisan bill that would commission a panel to come up with ways to decrease drug supply reliance on China.

“SOS Act” put forward by Republican Representative Mark Green also proposes funding takeovers of susceptible American companies that are critically important to US national security.

Lawmakers are also hopeful of including reshoring provisions in the National Defense Authorization Act, or NDAA, which specifies the annual budget and expenditures of the US Department of Defense that Congress passes annually.

On Thursday, Trump signed an executive order, giving a US overseas investment agency new powers to help manufacturers in the United States.

The objective is to "produce everything America needs for ourselves and then export to the world, and that includes medicines," Trump said.

The US State Department in cooperation with other agencies and foreign governments is also trying to move American supply chains from China.

“This includes returning manufacturing to the United States and expanding our base of international manufacturing partners,” a spokesperson said.