An Appeal to Keep Tariffs on Rail Products

Written by Erik Olson, Executive Director, Rail Security Alliance

When global rail manufacturer CRRC (China Railway Rolling Stock Corp.) entered the U.S. passenger rail market nearly ten years ago, winning a $560 million contract to manufacture new railcars for the Massachusetts Bay Transportation Authority (MBTA), its bid amounted to only about half as much as its market competitors. It was the Chinese SOE’s (state-owned enterprise) first entry into the U.S. transit market, adding to its already monopolistic self-declared 83% share of rail rolling stock manufacturing worldwide.

In the years since MBTA turned its passenger train manufacturing over to China, CRRC has been awarded more than $2.6 billion in U.S. taxpayer-supported contracts to make passenger railcars for Boston, Chicago, Philadelphia and Los Angeles. Federal funding played a part in three of the four contracts. In the process, according to an Oxford Economics report (download below), the U.S. has lost thousands of domestic freight rail manufacturing and supply jobs to China.

As the U.S. Trade Representative (USTR) conducts its required review of Trade Act of 1974 Section 301 tariffs, it’s worth remembering that CRRC is just the kind of foreign entity that Section 301 of the Trade Act is intended to guard against.

U.S. Trade Representative Katherine Tai (Official White House Photo by Stephanie Chasez)

In a letter to USTR Ambassador Katherine Tai, the Rail Security Alliance—representing domestic rail manufacturers and suppliers and the industry’s 65,000 family-wage jobs—urged the Biden Administration to maintain Section 301 tariffs “on all railcar parts, as this represents U.S. policy that has spanned Republican and Democratic Administrations and has wide bipartisan support on Capitol Hill.”

In calling on USTR and the Biden Administration to maintain these tariffs, RSA joins other American manufacturers and suppliers who urgently called on the need to safeguard the U.S. from China’s unfair trade practices.

Meanwhile, recent news coverage reports that CRRC may be blaming its litany of quality problems, train derailments, years-long production delays and management failures on Section 301 tariffs. As Commonwealth Magazine recently reported, an MBTA executive said the agency may be now looking “to ease up on tariffs and sanctions against China.” For the record, that is exactly the wrong thing to do.

While CRRC has made alarming inroads in the U.S. transit arena, quality issues aside, the threat to America’s freight railcar manufacturing industry is equally imminent.

Addressing Ambassador Tai, RSA commented on the critical role of freight rail in America’s critical infrastructure: “It safely and efficiently carries hazardous materials, military equipment, key commodities, energy products and everyday goods. In 2013, President Obama and Vice President Biden recognized freight rail’s importance to the security of critical infrastructure by issuing Presidential Policy Directive 21 (PPD-21), explicitly including the freight rail industry. It is vital to every state in the U.S.”

One only must look at Australia to see CRRC’s designs for the American freight rail market. In less than a decade, CRRC employed anti-competitive tactics to entirely wipe out Australia’s once-thriving domestic railcar manufacturing industry. Today, Australia’s railcar manufacturing is completely controlled by CRRC.

Then there’s the issue of China’s anticompetitive practices toward foreign firms in China: “For instance, foreign market access to China’s rail markets has decreased dramatically in recent decades. The Association of the European Rail Supply Industry (UNIFE) found that the Chinese rail market was only 17% accessible for the period of 2017–2019, as compared with 63% for the period of 2009–2011. China also has a long, continuing pattern of forced technology transfer in the rail sector.”

Given China’s playbook—as well as the fact that CRRC receives significant subsidies from the Chinese government, including $271 million in explicit government subsidies in 2020 and larger implicit subsidies—maintaining Section 301 tariffs on all rail components is not optional.

“The Center for Strategic and International Studies estimated that direct subsidies to Chinese firms represent less than 20% of total industrial spending. For instance, as one of the ten sectors China targets under the Made in China 2025 strategy, CRRC is also eligible to receive preferential subsidies and tax incentives for R&D. In addition, China reduced the income tax rate for high-tech firms like CRRC from 25% to 15% and raised the rate of additional deductions of R&D expenses from 50% to 75%.”

Equally troubling is the fact that CRRC has twice been included on the U.S. Defense Department entity list, and that company executives and employees have direct ties to the Chinese Communist Party and the People’s Liberation Army.

All of these factors enable CRRC to significantly underbid private companies for global rolling stock contracts, posing a direct threat to our domestic rail manufacturing industry and national security. All these factors warrant maintaining Section 301 tariffs on all rail components.

Voicing the interest of 65,000 American workers, RSA called on USTR and the Biden Administration to uphold America’s interests:

“Section 301 of the Trade Act of 1974 is a key enforcement mechanism that can be used to address a wide variety of discriminatory acts, policies and practices of U.S. trading partners. Current Section 301 tariffs are vital to push back aggressively and appropriately on China.”

And there’s no entity more in need of push-back than CRRC.

Further Commentary

North American Rail Supply and China: Why We Should Be Concerned
SAFE TRAINS Act: Get On Board

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