Wall Street wins in GOP stalemate on China

Corporate America is facing growing pressure from the right to cut ties with China, but a Capitol Hill stalemate between GOP China hawks and Wall Street-friendly Republicans is sparing industry from feeling more pain.

The conflict over how to rein in U.S. capital from flowing to China is one of the great unresolved policy disputes of this Congress. It was a glaring omission this week as House Republicans passed a raft of other bills targeting the U.S.'s biggest geopolitical adversary, in a pre-election messaging push designed to project the GOP’s tough rhetoric toward the country.

Behind the scenes, top Republicans have failed to reach a compromise on restricting U.S. investment in China despite pledging to do so late last year. Key GOP players in the clash include House Foreign Affairs Chair Michael McCaul of Texas, a leading China hawk who wants to curtail U.S. financial support from going to whole sectors of the Chinese economy, and House Financial Services Chair Patrick McHenry of North Carolina, who has pushed for a narrower approach aimed at sanctioned firms.

With the legislative window closing for this Congress, Republicans who prefer a more aggressive policy are weighing an end-run around McHenry and others who stand in their way.

“It makes such eminent sense, I can't imagine anyone really opposing it, but obviously it’s not been easy to do,” said Sen. John Cornyn , who has led Senate efforts to crack down on U.S. investment in China and is vying to succeed Sen. Mitch McConnell as GOP leader.

The conflict illustrates the influence that business-friendly, establishment Republicans retain over party policy, even as former President Donald Trump and Sen. JD Vance push the GOP toward populism that is more hostile to corporate power.

“Time and time again, we see this play out wherein we have [China] legislation that is ultimately fought just because of dollar-and-cent issues,” said Heritage Foundation policy adviser Bryan Burack, who supports sectoral prohibitions like what McCaul is proposing. “It is the ever-present and constant battle between the Wall Street- and financial services industry-friendly entities and the national security entities.”

A House GOP working group established late last year to iron out the differences between the two sides has failed to strike a deal, according to Hill aides granted anonymity to discuss the talks. McCaul has legislation that would target investment in areas such as artificial intelligence and quantum computing. McHenry has instead pushed for sanctions that would be applied to specific companies.

The group ramped up its efforts at the end of August in hopes of reaching consensus in time for inclusion in this week's package, according to a House Foreign Affairs GOP aide. Lawmakers are now reviewing updated legislation drafted over the congressional recess, according to two other people familiar with the working group’s efforts who were granted anonymity to discuss closed-door negotiations.

But a House Financial Services GOP aide said the group is no closer to a compromise than it was at the beginning of the year. The staffer said McHenry is still committed to a sanctions-based approach, in part because it takes the onus off companies to decide themselves whether an investment might be problematic. He has stressed the need to have certainty for investors and to avoid “kneecapping one of our greatest strategic assets — our capital markets.”

McHenry said in an interview this week that creating “a new regime out of whole cloth will take a lot of time, and I think we’d rather use our time-tested tools that have shown to be effective.”

McCaul said in an interview that the “easy path, and most successful path” would be to advance his bill, which House Foreign Affairs approved with bipartisan support. McCaul said he hasn’t “been in the middle of” talks on the issue, which he said are “more at the staff level at this point.”

Republicans now expect GOP leadership to make a call on which policy to include in any must-pass legislation that moves at the end of the year. House Speaker Mike Johnson said in a statement that the House’s China work doesn’t end this week.

“I am fully committed to advancing further legislation addressing China-related investments and other predatory practices,” he said. “We will continue to push for measures that ensure our nation’s security in the face of growing threats.”

Ari Hawkins and Phelim Kine contributed to this report.