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The Federal Reserve should be required to stress test US banks’ ability to “withstand a potential sudden loss of market access to China”, according to a congressional committee.
The proposed legislative change was among dozens of recommendations in a report on Tuesday from the US House of Representatives’ China committee about enhancing US economic competitiveness to counter the rise of China.
The House panel, created in January to boost scrutiny of the Chinese government, said the Fed should also assess the impact on financial markets of sanctions against Chinese financial companies in the event of a conflict between the US and China.
US-China tensions have soared over the past three years, partly because of concern about conflict over Taiwan. Those concerns have eased in recent months as American admirals and generals have stopped making public predictions about timelines for Chinese military action against Taiwan.
The bipartisan report also called on Congress to require the administration to craft plans with allies “to enact severe diplomatic and economic costs on the Chinese Communist party in the event that it engages in military aggression against Taiwan or other US allies or partners”.
The recommendation followed two war games the committee held this year, including one with Wall Street executives, which raised questions about how the US could respond economically to Chinese aggression towards Taiwan without inflicting “severe harm” on its own economy.
In a recent report, Emily Kilcrease, a sanctions expert at the CNAS think-tank, said the scale and interconnected nature of China’s economy meant the negative impact of sanctions would “rebound globally through China’s deep economic ties to nearly every country . . . including the US”.
President Joe Biden and his Chinese counterpart Xi Jinping sought to stabilise relations between the countries at a summit in San Francisco last month. But business consultants who advise companies on China say top executives remain worried, particularly because of the difficulty they would face moving supply chains in the event of war with China.
The China committee report said the US government should create a “coordinating office” responsible to assessing the economic, financial and supply chain ramifications of Chinese military and economic aggression.
The report included recommendations to boost efforts to prevent China from obtaining advanced US technology, urging Congress to better fund the Bureau of Industry and Security, which oversees export controls at the commerce department.
Commerce secretary Gina Raimondo recently pleaded for more money, saying BIS’s budget was equal to the cost of a few fighter jets. “If we’re serious, let’s go fund this operation like it needs to be funded.”
In another technology-related recommendation, the panel said Congress should compel the commerce department to create a rule to “limit US technology from enabling advanced cloud computing clusters above a certain threshold to foreign adversaries”.
The panel also recommended that the administration revoke licences that allow US groups to sell technology to Huawei, the Chinese telecoms equipment company that the US believes facilitates espionage by Beijing.
“The United States now has a choice: accept Beijing’s vision of America as its economic vassal or stand up for our security, values and prosperity,” the report concluded.