U.S. Considering Revoking China's Most-Favored-Nation Status: How Significant Is the Impact on the CCP?

The United States Capitol. (Photo by Lisa / Dajiyuan)

[People News] On November 19, the U.S.-China Economic and Security Review Commission (USCC) submitted its 2024 annual report to Congress, proposing a series of policy recommendations that could fundamentally alter the landscape of U.S.-China economic and technological competition. For the first time, the report suggests revoking China’s Permanent Normal Trade Relations (PNTR) to address the CCP’s unfair trade practices.

PNTR, formerly known as Most-Favored-Nation (MFN) status, came into effect on January 1, 2002, under U.S. law, eliminating the need for annual Congressional reviews of China’s trade status. It ensured that Chinese goods entering the U.S. market received the same low tariffs, reduced import quotas, or exemptions from special inspections as those from other countries.

U.S. Lawmakers Repeatedly Call for Revocation of China's MFN Status

U.S. media reports highlight that years of practice have shown this arrangement has led to unfair imbalances between the world’s two largest economies. In September, Republican lawmakers introduced a bill to revoke China’s MFN status, marking the third consecutive year since 2022 that U.S. officials have sought to eliminate what was once considered the cornerstone of U.S.-China trade relations.

This is the first time the USCC has explicitly made this recommendation. The commission argues that the CCP has failed to honor commitments to open markets and promote fair competition. Instead, it undermines the international trade system through practices such as market access restrictions, intellectual property theft, state subsidies, and economic coercion.

"For decades, we’ve been playing 'whack-a-mole,' attempting to address China’s increasingly bold exploitation of trade loopholes and evasion of rules through international organizations and regulatory frameworks," said USCC Chair Robin Cleveland. "No change in our government should allow China to exploit opportunities, nor should it weaken the consensus that China is the greatest economic threat of our time."

The USCC, an independent body established by Congress in October 2000, is tasked with reporting on the impact of U.S.-China trade and economic relations on U.S. national security.

In its nearly 800-page report released Tuesday (November 19), the commission states that MFN status "enables China to benefit from the same trade terms as U.S. allies, despite its intellectual property theft and market manipulation."

The report argues that revoking MFN status would provide the U.S. with greater leverage in addressing the CCP’s unfair trade practices.

What Happens if China’s MFN Status is Revoked?

The average U.S. tariff rate for non-Most-Favored-Nation (MFN) countries is 42%. Former President Donald Trump has stated he plans to raise tariffs on Beijing to over 60%. Revoking MFN status would remove obstacles to such tariff increases, placing China in the same category as countries like Russia, North Korea, Cuba, and Belarus. The average tariff on Chinese exports to the U.S. would jump from 19% to 32%, and it could reinstate annual reviews of China's trade practices, similar to the period before it was granted MFN status.

This would negatively impact U.S.-China bilateral trade, total output, and employment, with varying degrees of adverse effects. It could lead to a 0.2% reduction in U.S. exports and a 6% reduction in imports. For China, tariffs on its largest export categories to the U.S. would likely rise significantly, particularly for products such as machinery and parts, vehicle components, integrated circuit semiconductors, and minerals and metal products.

Last week, the U.S. House Select Committee on the Strategic Competition Between the United States and the Chinese Communist Party (CCP) proposed renegotiating China’s trade status. On November 14, Committee Chair John Moolenaar introduced a bill to revoke China’s PNTR status. Under the proposed legislation, Chinese goods would face a baseline tariff of 35%, with the possibility of increasing to 100%.

A calculation by Zhongxin Securities suggests that if Trump raises tariffs on China to 60%, Chinese exports to the U.S. could drop by 16%, reducing overall export growth by 2.3%, equivalent to approximately $80 billion—a significant figure.

The "Select Committee on the Strategic Competition Between the United States and the Chinese Communist Party" has urged Congress to revoke the tariff exemption for Chinese goods valued at less than $800. The report highlights that this policy, known as the de minimis exemption, gives Chinese e-commerce products an unfair competitive advantage. In addition to being tariff-free, the de minimis policy also exempts these products from strict inspections by U.S. Customs and Border Protection. According to U.S. media reports, critics argue that this policy may also facilitate the smuggling of illegal items, including fentanyl, by making it easier to bypass customs inspections.

The CCP is very unhappy

On November 11, Chinese Foreign Ministry spokesperson Lin Jian condemned the idea during a press conference, stating:
"Some U.S. politicians are attempting to turn back the clock, dragging U.S.-China economic and trade relations back to the Cold War era. This violates WTO rules and harms the mutual interests of both nations, disrupting the global economy. We urge U.S. lawmakers to comply with WTO rules and stop engaging in self-damaging behavior."

The CCP’s response reveals its deep concern and fear over the potential loss of this preferential status.

The USCC’s recommendations are based on input from 59 experts across government, business, and research organizations, as well as findings from six hearings over the past year. Commissioner Jacob Helberg noted,
"Fairly speaking, China may never fulfill its WTO commitments."

At the release of the USCC’s annual report, Commissioner Randy Shriver remarked that since becoming General Secretary, Xi Jinping has tightened domestic controls while pushing for export-driven growth, fueling concerns about a "China Shock 2.0."

Helberg also emphasized that increasing tariffs on Chinese manufacturing products could accelerate the reshoring of U.S. supply chains.

U.S. Trade Representative Katherine Tai commented that Beijing continues to operate under a "state-led, non-market economy" model, further justifying the need for stronger measures to address China’s trade practices.