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The Implications of the Federal Ban on Chinese Railcars

The “trade war” between the United States and China continues to play out on the global stage. While it does, a seemingly benign but thorny matter about the manufacture of mass transit vehicles and freight railcars has risen to the surface, pitting macro issues about national security and economic competitiveness against cities’ interest in investing in their transportation systems as well as their budgetary bottom lines.

Specifically, it appears that the United States Congress will soon approve a policy that restricts spending certain federal funds on transit vehicles from companies owned or subsidized by the government of the People’s Republic of China.

The focus of the new policy—at least in part—stems from national security concerns. The 2019 appropriations bills contain several references to potential threats posed by Chinese telecommunications and information technology manufacturers. In addition, the new defense authorization law will require the Department of Homeland Security to perform a study of the national security implications of Chinese-manufactured transit given the proliferation of advanced electronics components in new transit vehicles. Related economic concerns around technology transfer and intellectual property are widespread.

The target of the vehicle ban is CRRC Corporation Limited, the world’s largest supplier of rail transit equipment with annual revenues of around $30 billion, good enough for 385th on the Fortune Global 500 List. CRRC is almost completely dominant in the enormous Chinese railcar market and has been successful abroad in the last few years, handily winning contracts for new rail transit cars in major American cities like Boston, Chicago, Los Angeles, and Philadelphia. In each case, CRRC beat other foreign-owned manufacturers since there are no American transit railcar manufacturers today.

While the relatively low purchase prices clearly benefit transit agencies and governments, proponents of the ban argue that the degree to which CRRC has been able to underbid other manufacturers is due to the heavy subsidies it receives from being a state-owned enterprise (SOE). Competing unfairly in the market this way, ban proponents assert, would allow CRRC to corner the transit railcar market. They then point to domestic freight railcar manufacturers (there are several in the United States) as the next target for CRRC. Of course, being an SOE in a so-called ‘non-market economy’ also sets off alarm bells from may corners of the national security community, especially the perception of growing risks to America’s critical infrastructure.

Opponents of the policy change focus on the relief to taxpayers from the low costs of transit vehicle purchases. They also contend the American jobs created from the construction of vehicle assembly plants—as well as the adherence to local policy and priorities to support disadvantaged workers—are important counterbalances to the potential loss of market share for domestic freight car manufacturers.

With new vehicle purchases slated in major transit markets like New Jersey and Atlanta, it is important to fully examine the rationale and implications of the ban and contextualize the issue in order to inform the larger national debate. The purpose of this policy brief is to analyze the impetus for the proposed ban on vehicles produced by Chinese SOEs and understand the implications for American cities and manufacturers. It illustrates the recent Congressional action, federal rules such as Buy America, and the broad impacts on American manufacturing jobs. The brief also recognizes and includes the real and valid security worries inherent in the manufacture of modern, connected rail vehicles and the relationship to elevated clashes between the United States and China. Ultimately the goal is to inform the development of a policy framework for lawmakers to consider.

 

Photo: CRRC-supplied subway train undergoing testing on Beijing Subway’s Line 16, September 2016. Courtesy of Wikimedia Commons user N509FZ.

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