Contents

Introduction and Summary 1

How the People’s Republic of China’s Economic Model Is Antithetical to the WTO and a Market-Oriented System. 2

USTR Already Has Sufficient Evidence to Conclude that the Fulfillment of WTO Commitments is not Part of the PRC’s Priorities 3

Recent ITIF Work on China’s Mercantilist Practices 5

Conclusion. 6

Introduction and Summary

The Information Technology and Innovation Foundation (ITIF) is pleased to submit the following comments for consideration by the Office of the United States Trade Representative (USTR) for its annual report to Congress on China’s compliance with its obligations as a member of the World Trade Organization (WTO). ITIF is an independent, nonprofit, nonpartisan research and educational institute focusing on the intersection of technological innovation and public policy.

USTR is required by Section 421 of the U.S.-China Relations Act of 2000 (Public Law 106-286), codified at 22 U.S.C. § 6951, to report annually to Congress on China’s compliance with its WTO accession commitments.[1] As of September 2026, USTR has released 24 editions, covering 2002 through 2025. The latest report extensively documents China’s persistent WTO noncompliance.[2] ITIF has comprehensively documented China’s continuing, and blatantly intentional, failure to comply with its WTO commitments through reports such as the 2015 report “False Promises: The Yawning Gap Between China’s WTO Commitments and Practices” and the 2020 report False Promises II: The Continuing Gap Between China’s WTO Commitments and Its Practices.”[3]Although ITIF commends USTR’s adherence to this statutory requirement, Congress should be informed that USTR would be better off using its limited resources to develop actionable responses to these established problems. After 24 editions of this annual report, it is well established that the People’s Republic of China (PRC) has repeatedly failed to meet its WTO accession commitments. USTR’s researchers and trade negotiators should focus on reinforcing trade and technology cooperation with allied partners to expand markets for U.S. technological leadership and constrain China’s ability to dominate strategic industries through mercantilist practices.

This submission explains why China’s industrial strategy foundationally and fundamentally conflicts with its WTO commitments, reviews USTR’s evidence of persistent noncompliance, and examines failed efforts to secure meaningful reforms. ITIF's findings cite cases of Chinese counterfeits, economic espionage, obscured corporate ownership, biopharmaceutical subsidies, and regulatory evasion. Building on this record, ITIF proposes revoking China’s permanent normal trade relations (PNTR) status as a last resort, with measures to protect U.S. national power industries from transition costs.[4] This submission also argues for strategic trade and technology cooperation with allies to strengthen U.S. technological leadership and counter China’s mercantilist practices—USTR should inform Congress that focusing on these trade priorities would better serve the American public than using USTR’s time to prove, once again, that the PRC is not committed to fulfilling its WTO obligations.

How the People’s Republic of China’s Economic Model Is Antithetical to the WTO and a Market-Oriented System

Most countries’—particularly large powers'—agendas are rooted in conventional development strategies designed to raise productivity or move domestic firms up the value chain. This is not the case for the PRC, which acts as a power trader, creating or inducing trade dependencies to gain a competitive advantage for its advanced industries, all to limit the development or advancement of its adversaries.[5] In other words, China uses its trade relationships to create dependencies that it can leverage against other countries. In short, China uses predatory trade practices as an instrument of national power.

The weaponization of economic relations lies at the core of China’s strategy to dominate advanced industries globally, as it lets China leverage its market size and lack of internal opposition to impose costs on trade partners. Under this view, it is easy to understand why, for example, China allows European automakers and telecom equipment manufacturers to have a relatively small market share in its economy, despite generally not needing foreign knowledge and technologies in those industries; it allows China to have a direct way to pressure European incumbents in case of eventual trade disputes.[6]

Chinese leaders’ statements show they view this project as part of a broader competition between economic and political systems. Xi Jinping himself has stated that “Technological innovation has become the main battleground of the global playing field, and competition for tech dominance will grow unprecedentedly fierce.”[7]

In this context, China’s push to dominate advanced industries follows a familiar playbook.[8] It begins by attracting foreign investment and drawing multinationals’ higher-value activities into China. These investments, coupled with forced technology transfer, enable Chinese firms to acquire foreign knowledge and build their own innovation capabilities. As domestic firms become independent innovators, Beijing shifts toward a “China, Inc.” model centered on indigenous innovation, while foreign firms lose influence and market access. Once Chinese champions dominate at home, the state supports their expansion abroad to capture market share and shape competition. Their international expansion is the culmination of China’s industrial strategy.

USTR Already Has Sufficient Evidence to Conclude that the Fulfillment of WTO Commitments is not Part of the PRC’s Priorities

The U.S. government already has a vast repository of information about specific mechanisms and coercion tools the PRC uses. For example, USTR’s 2026 National Trade Estimates (NTE) report allocates nearly 10 percent of the document to outlining China’s trade irritants.[9] The NTE report acknowledges that “the Chinese Government offers substantial government guidance, resources and regulatory support to Chinese companies while actively seeking to limit access to the China market for imported goods, foreign manufacturers, and foreign services suppliers. The beneficiaries of these non-market policies and practices, which are constantly evolving, include not only China’s state-owned enterprises but also other Chinese companies.”

Moreover, a January 2018 USTR report states clearly:

Since China’s accession to the WTO, the United States has repeatedly attempted to work with China in a cooperative and constructive manner. Using intensive, high-level bilateral dialogues, the United States has sought to resolve significant trade irritants and also to encourage China to pursue market-oriented policies and become a more responsible member of the WTO. These bilateral efforts largely have been unsuccessful—not because of failures by U.S. policymakers, but because Chinese policymakers were not interested in moving toward a true market economy.[10][11]

USTR also provides sufficient evidence to assess that China will keep using the WTO and its dispute settlement mechanisms to further extend its irritants while not changing its nonmarket orientation. The United States has brought 27 cases against China at the WTO and won every case that reached a decision.[12] However, according to the 2025 USTR report on China’s WTO commitment, they “take years to litigate, consume significant resources and often require further efforts when China fails to comply with WTO rules.”[13] Furthermore, USTR expands by acknowledging that “even when China changed the specific practices that had been challenged, it did not typically change the underlying policies, and meaningful reforms by China remained elusive.”[14]

USTR should urge China to come into full and immediate compliance with its WTO commitments; otherwise, as a last resort, the U.S. government should revoke China’s PNTR status.[15] ITIF previously proposed this approach in 2021, stating that “if China decides to develop an alternative economic system that is not compatible with existing multilateral rules, then it shouldn’t be in the WTO—or at least it shouldn’t enjoy the same benefits as countries that respect agreed-upon rules.”[16]

Revoking China’s PNTR status should contemplate transition costs. In April 2026, ITIF provided evidence to the United States International Trade Commission (USITC) for the self-initiated investigation on the effects of revoking China’s PNTR status. In this submission, ITIF estimated that revoking China’s PNTR status could cost national power industries up to $7 billion a year.[17] (National power industries span a spectrum of sectors, including pure defense production, dual-use technologies used in both military and commercial applications, and enabling industries that support the broader industrial commons.)[18] One way to mitigate this effect is to gradually increase tariff rates for goods the United States depends heavily on from China, and to temporarily exempt national power industries from any tariff-increase differential resulting from revoking China’s PNTR status.

Recent ITIF Work on China’s Mercantilist Practices

This section summarizes some of ITIF’s reports since August 2025 concerning Chinese industrial practices.

Chinese Online Marketplaces Facilitate Counterfeit and Unsafe Goods Entering the United States

ITIF’s August 2025 report, “How Chinese Online Marketplaces Fuel Counterfeits,” provides direct evidence that Chinese online marketplaces facilitate the sale and shipment of likely counterfeits and unsafe goods into the United States.[19] ITIF ordered 51 suspicious products from Temu, AliExpress, and SHEIN; by its September 2025 USTR filing, 43 had arrived, and 25 were confirmed or assessed as likely counterfeit, spanning apparel, cosmetics, toys, electronics, over-the-counter drugs, and household goods.[20] Despite increased U.S. scrutiny, these platforms have not adopted sufficient safeguards or enforcement practices to address counterfeit trafficking at the necessary scale.

China Deploys an Economic Espionage Ecosystem Against U.S. Strategic Sectors

The November 2025 report, “From Outside Assaults to Insider Threats: Chinese Economic Espionage,” examines China’s efforts to acquire American industrial and defense technologies through a network of intelligence agencies, companies, universities, and individuals.[21] The PRC combines cyber intrusions with recruiting trusted insiders and using U.S. business platforms to obtain trade secrets. The report identifies insider access as the most damaging channel. This approach links the acquisition of proprietary knowledge with Beijing’s efforts to build indigenous capabilities in strategic industries.

One newer case concerns the July 2025 arrest in Italy of Xu Zewei, a contractor employed by Shanghai Powerock Network. U.S. authorities alleged that Xu conducted hacking under instructions from the Ministry of State Security’s Shanghai State Security Bureau. The case adds detail about the alleged relationship between a commercial contractor and a state intelligence service. The report’s analysis places such relationships within a broader system that channels foreign technology toward Chinese industrial and military priorities, allowing Chinese entities to acquire capabilities developed through American company investments.

Chinese Companies Obscuring Their Ties With the PRC to Enter the U.S. Market

ITIF’s November 2025 report, “How Some Chinese Companies Obscure Ties to China and What Policymakers Should Do About It,” documents how companies obscure their ownership and strategic intent while gaining access to American markets, talent, IP, and public funding.[22] Farasis Energy provides a recent example. In 2025, Guangzhou Industrial Investment Holding Group, a municipal state-owned enterprise, became Farasis’s controlling shareholder, with the group and its affiliates holding 16.1 percent. The transaction encompassed its international subsidiaries, including Farasis Energy USA. The report’s analysis traces Chinese state ownership and identifies a $2.6 million publicly supported battery-development contract covering 2023–2025. The resulting arrangement combines state control and industrial support in China with continued access to American research capabilities and funding.

China Uses Subsidies and Regulatory Evasion to Advance Its Biopharmaceutical Industry

The June 2026 report, “China’s Burgeoning Biopharmaceutical Competitiveness Demands a US Response,” highlights how China’s growing capabilities in this sector are boosted by practices that distort competition.[23] Its newer evidence documents company-level subsidies and the export of unapproved pharmaceutical compounds.

In 2025, Junshi Biosciences received over RMB 16 million ($2.2 million) in grants related to plant and equipment and RMB 39 million ($5.4 million) in R&D subsidies. The company also reported RMB 167 million ($23.2 million) in deferred subsidies—support already received but not yet recognized as income. These disclosures provide concrete evidence of government financing for a Chinese biopharmaceutical competitor.

Separately, the report documents Chinese vendors selling injectable peptides directly to Western consumers through social media, messaging platforms, and e-commerce channels. These vendors bypass drug approvals by labeling products “for research use only,” while prices are often one-fifth of retail prices.

Conclusion

China’s failure to fulfill its WTO accession commitments is well established. Twenty-four annual USTR reports have documented persistent noncompliance and the limited effectiveness of efforts to secure meaningful reforms. This submission nonetheless provides additional evidence of counterfeits entering the U.S. market, economic espionage, obscured corporate ownership, biopharmaceutical subsidies, and regulatory evasion, demonstrating how China’s mercantilist practices continue to evolve—ultimately harming U.S. competitiveness.

Congress and USTR should use this evidence to develop a viable pathway to revoke China’s PNTR status if Beijing continues to reject its commitments. Implementation should minimize transition costs by phasing tariff increases, providing temporary exemptions for strategic sectors, and expanding domestic and allied supply to protect the U.S. national power industries.

Nonetheless, securing U.S. strategic sectors against Chinese aggression requires re-establishing trade relationships with allies. An effective U.S. trade policy centered on techno-economic competition with the PRC needs to prioritize building safeguards—not tariff walls—with its allies.

Thank you for your consideration.

Endnotes