The Outlook for US-China Relations

[Music] good afternoon my name is kim shawn holtz and i'm delighted to welcome you to today's panel on the outlook for u.s china relations the host of today's program is the stern center for global economy and business which serves nyu through outreach to the broader community including the academic business and policy worlds thank you very much for joining us for today's webinar we're going to begin with brief introductory remarks by each of the panelists followed by audience q a the session will finish at 6 15. for the q a portion please enter your questions through the q a mechanism and zoom since we have already received many questions from students and faculty i will limit repetition by grouping the questions together please note that anonymous questions are not accepted let me now briefly introduce our distinguished panelists [Music] elizabeth economy is a senior fellow for china's studies at the council for foreign relations and a senior fellow at the hoover institution dr economy is an acclaimed author and expert on chinese policy her most recent book the third revolution xi jinping and the new chinese state appeared in paperback last year politico has named her as one of the 10 names that matter on china policy dr economy received her phd from the university of michigan and has taught at columbia johns hopkins and the university of washington steven orleans has served as president of the national committee on u.s china relations since 2005. previously he was managing director of carlisle asia and chairman of the board of taiwan broadband communications one of taiwan's largest cable tv and internet providers earlier in his career he served as president of lehman brothers asia in the 1970s he was a member of the state department legal team that helped establish diplomatic relations with the people's republic of china he received his undergraduate and law degrees from harvard brad setzer is the stephen a tannenbaum senior fellow for international economics at the council on foreign relations his expertise includes macroeconomics and global capital flows dr setzer was deputy assistant secretary for international economic analysis in the us treasury from 2011 to 2015. previously he was director for international economics for both the national economic council and the national security council in addition to authoring numerous books and papers dr setzer blogs regularly at follow the money he received his phd in international relations at oxford elizabeth will now present her initial remarks followed by stephen brad thereafter we'll begin the q a thanks so much kim it's a pleasure to be here with you stephen brad to discuss prospects for the u.s china relationship i think we all recognize that the bilateral relationship is at one of its lowest points since formal relations were established more than four decades ago what i'd like to do is just make five quick points about why i think we are where we are and then what we might do at least to arrest the downward trajectory if not actually to reverse course first just a quick reminder that it takes two to tango uh responsibility for the current free fall in the u.s china relationship rests with both the xi and trump administrations both countries have undergone radical shifts in their foreign policies that have brought them into significant conflict xi jinping's quest for the great rejuvenation of the chinese nation has translated into a china that is more repressive and authoritarian at home and more ambitious and expansive abroad in ways that materially challenge u.s values and interests the us for its part has reset its relationship with china moving away from a traditional approach of engage but hedge to one that i would characterize as as compete counter and contain in addition the trump administration's america first platform has telescoped u.s values and interests on the global stage to the point that the united states can no longer be counted on to lead globally in addressing many of the world's most pressing challenges halting the downward spiral in the u.s china relationship will require both countries to modify their ambitions on the global stage and their approaches to the other second the most immediate threat both in terms of the bilateral relationship and the impact of the relationship on the global stage is the trend toward economic and technological decoupling i would argue that this decoupling process actually began with china with its made in china 2025 program that's a project in which china is looking to ensure that it controls manufacturing in 10 critical cutting edge areas of technology such as new energy vehicles new materials and artificial intelligence among others it creates an uneven playing field for multinationals and limits prospects for u.s companies to do business in china in many areas where they now lead globally the chinese government has also undermined the autonomy of its own private technology companies by enhancing the role of the chinese communist party in the firms and passing a law in 2017 that required the companies to turn over any information that the chinese government demands these steps have led the united states and others in the international community to conclude that companies such as huawei or tencent ticktock cannot be trusted to protect users information and may seek to shape users experiences in ways that are antithetical to us values for example by blocking all mentions of kian online or hong kong democracy activists for its part the trump administration has pushed u.s companies to move manufacturing back to the united states from china made it difficult for companies such as huawei to access core components such as semiconductors that are essential to its very functioning and has lobbied other countries hard to prevent them from either providing these same technologies or permitting huawei access to the markets the world is rapidly developing into two camps one that will use and accept chinese technological infrastructure standards and platforms and one that will not this trend i believe will only be exacerbated as new technology standards are debated in various international standard setting bodies third i think the greatest danger to the bilateral relationship or in the bilateral relationship is military conflict in the south china sea or over taiwan under xi jinping china has moved from staking claims uh around sovereignty to realizing them he has created and militarized seven artificial features in the south china sea and we've seen the market increase in the assertiveness of the chinese military with regard to a number of disputes including with taiwan japan and india the us has responded by increasing its military presence in the asia pacific ratcheting up freedom of navigation operations in the south china sea strengthening military relations with allies and new partners at the same time however as tensions and opportunities for miscalculation and accidents between the united states and china have increased unfortunately exchanges between the u.s and china chinese militaries have fallen off significantly fourth the most significant battle is the one over political values there has been a sweeping crackdown over basic political and civil rights in china since xi jinping came to power most egregiously of course are the extraordinary human rights abuses in xinjiang where as many as one million uyghur and kazakh muslims have been forcibly relocated into labor and re-education camps there is continued repression in tibet new acculturation practices in mongolia which have led to widespread protests there and of course the new national security law in hong kong which undermines the essence of the basic law in the one country two systems agreement the environment for foreigners within china has also become less secure in 2017 china implemented a new law in managing foreign ngos that put control of foreign ngos in the hands of china's ministry of public security and made their registration and activity approval process far more difficult as a result the number of foreign ngos operating in china has dropped from over 7 000 before 2017 to under 500 sharply limiting opportunities for u.s china cooperation of the type that steve's organization leads in addition we've seen an increasing number of cases of foreigners being detained without due process such as the canadians michael kovrick and michael spavor more recently the australian broadcaster changle the 12 hong kong citizens that were attempting to flee to taiwan and a near call a near call for the two australian reporters just the other week in addition beijing is trying to shape norms and values in the international system to align with chinese preferences for example it holds cyber security seminars and training for belt and road countries to advise them on how to do real-time censorship of the internet it advances revolut resolutions in the united nations that undermine the ability of human rights activists to testify at various forms and it tries to control the global narrative on issues like hong kong and taiwan through course of economic practices i'm sure many of you remember just recently a year ago it punished the houston rockets and the nba more broadly by canceling broadcasts and licensing agreements because of a tweet by the general manager of the houston rockets that said fight for freedom stand with hong kong i frankly find it extraordinary to think that china is punishing the nba for something that a u.s citizen said in the united states on a platform that is banned in china and there's rising concern within the united states and other democracies about chinese government influence operations united states for its part has stepped up to the plate on issues like xinjiang and hong kong to criticize and sanction chinese officials and companies involved in repression it has called out china for its coercive tactics and has responded to the specter of of chinese influence with aggressive rhetoric calls for the closure of confucius institutes the cancellation of visas for selected chinese students and the investigation of more than a thousand researchers in u.s universities and labs on suspicion of lying over their ties to the chinese government or stealing intellectual property well i believe that some amount of reset along these lines was necessary i would argue that the form that has taken over the past few years has contributed to a rise in anti-chinese sentiment and rhetoric in ways that are truly appalling finally let me just conclude by saying that the issues that i've touched on only begin to suggest the profound divide that now characterizes the u.s china relationship i don't actually think it's possible to bridge the divide at this particular point in time i think it would require far more moderate voices to lead in both china and the united states but that doesn't mean that we can't start the process first i think both countries should behave in ways commensurate with their great power status and find common purpose in cooperating to address issues like global public health climate change and standards around international economic development this would be an important first and not overwhelmingly difficult step that both countries could take to help forestall a further deterioration in the relationship second the u.s and china need to restart their comprehensive bilateral dialogue these dialogues should not be the first thing to succumb uh when there is a downturn in the relationship they should be the floor that prevents conflict from hardening to something more permanent such as a cold war third in the area of decoupling i think china should step back it should allow its private companies to act according to their economic interests and it should ensure a level playing field for multinationals in the areas identified and made in china 2025. for its part the u.s needs to develop what former secretary of defense robert gates called a high fence in a small yard to distinguish between those technologies that are truly of national security importance and those that are not i also think that looking ahead there may be some room for both sides to find new common ground around issues of data privacy and finally on human rights the strongest card that the united states can play is to get back in the game in the united nations human rights council to do the hard work of building coalitions to bring pressure to bear on china not just among advanced democracies but also among the developing economies of latin america africa and the middle east at the same time within the united states we should be using a scalpel not a sledgehammer to address potential malign activities by the chinese government recognizing that only a tiny percentage of chinese students and researchers are likely engaged in any sort of influence activity and of course the united states should live up to its own best ideals around human rights that would be our greatest strength of all now let me turn it over to steve thanks in fact please stay visible and brad and kim please stay visible it's much more fun to talk to on zoom when when you remain visible i guess that's that's not happen that's not happening one of the difficult parts of talking on zoom is you can't tell if anybody's laughing at your jokes so um let me just do four things first i think i need to fully disclose uh my various prejudices at this point i need to talk a little bit about the history of u.s china relations because i've been around it for almost 50 years talk very brief briefly about where we are and where we're going and associate myself with liz's recommendations i think all of them are a great idea first my hat's off to kim schoenhaltz he has participated with me in 21 track 2 dialogues that we have held the mail committee has held with the chinese with peking university and associated economists there he the chinese would call him the laodung moffat the labor hero because he is the one who pulls together the different threads from both sides and allows the two sides to arrive at a consensus at the end of that so if you expect me to criticize the moderator you're not going to happen liz economy is director of the national committee on u.s china relations in addition to her many other uh accomplishments so if you expect me to criticize her views she can fire me so that's going to be pretty limited and then brad i follow his his his podcasts his blog follow the money and he educates me for instance he was the person who made me aware very recently of china's vastly increasing current account surplus which is something again we shouldn't look at bilateral deficits but we should look at china's current account surplus uh fourth prejudice is it was the 50th anniversary last two months ago of my starting the study of chinese the chinese language and i started it because of our involvement the united states involvement in vietnam i couldn't understand why good people the american government who taken my parents in as refugees did bad things the war in vietnam so i believe that we didn't have enough asia expertise in studying chinese was a way to get it but it's left me throughout my entire life skeptical of the us government and fifth as kim mentioned in his introduction of me i was lucky enough as a young graduate of harvard law school to be on the team that helped establish diplomatic relations with the people's republic of china and there is a narrative that's prevailing today that the 41 years of diplomatic relations with the chinese has been a disappointment it hasn't worked and i totally reject that it may not be perfect but again somebody who arrived in asia during the war in vietnam since we established diplomatic relations no american soldiers have died in asia in the prior decades 250 000 american soldiers died and millions of chinese died so to kind of reject a policy that has given us peace i think is deeply mistaken and deeply misguided um in this 41 years as liz said this is sure this is the worst that we've seen the relationship i think there is no question and it's the worst partly because of the breadth and the depth of the deterioration i think i think back to the three times uh since i was in the state department that u.s china relations really turned south one was after june 4th that after you know the killings that occurred on june 4th the united states and china basically we didn't break diplomatic relations but both people people-to-people relations and diplomats started stop talking to each other because president h w bush believed we needed to maintain that relationship because the soviet union was still around we still needed china as a partner in opposing the soviet union he was able to maintain that the second was when the united states um mistakenly in a nato mission mistakenly bombed the chinese embassy in belgrade uh it caused an enormous disruption in u.s china relations chinese surrounded our embassy in beijing but ultimately we were able to get through it and last was in 2001 when we had a reconnaissance plane an ep3 flying near heinon island and a chinese fighter crashed into crashed into it the plane ultimately ditched in hainan but was able to land the chinese pilot was killed and it created an enormous risk in the relationship and where communications were not good between the united states and china we could not our ambassador and our secretary of defense had great trouble leading reaching the leadership um in china ultimately did we did ultimately we negotiated a settlement and we ultimately relations continued on um those three instances which were the worst in my 41 years are not comparable to now because not only and as liz has pointed out not both governments the chinese government and the united states government are adopting policies which are creating problems in the relationship on the chinese side i mean liz listed a bunch of you know chinese policy in the south china sea chinese i say as i hope brad will talk about chinese kind of uh not following through with promised economic reform from the third plenum of the 18th party in congress not opening to foreigners the way they thought though today um you know the premier of china like had a speech which he said we're going to uh focus on more opening continuing intellectual property theft what liz talked about in xinjiang the hong kong national security law taiwan cyber violations the initial response to covet 19 and not sharing sufficient information with the united states the ngo management law which has reduced the people-to-people relationship with the rest of the world including the united states that those issues have pushed america away and in a way taken constituencies which used to favor constructive u.s china relations and turn them against it on the united states side my list is equally as long you know the trump administration's demonization of china its focus as again i hope brad talks about its focus on a bilateral trade deficit rather than systemic reform in china it's overly broad crackdown on chinese students it's closing of the chinese consulate in houston i think of um you know when they it's never been clear they have not specified what went on but when they say there was spying in the uh consul coming from the consulate in houston you know i'm reminded some of you are old enough to remember casablanca uh but when the inspector says in the gambling i'm shocked shocked to find gambling here and then is handed his gambling winnings for those two young to remember that well that their spying going on in consulates is not something that should be a surprise the arbitrary and capricious enforcement of our entity list export restrictions that are bad for america the expulsion of china from rimpac when they really were getting little benefit from it um i could go on but it's it's much of it is a product of both the chinese government's policies and the april 17th memo from the republican national committee to republican candidates throughout the united states saying when the trump administration is criticized for not handling the corona virus well just say he banned visitors from china and anyhow it's all chinese it's all the chinese fold so some of these disruptions in the relationship are created by the politics and the last factor is there are those in the administration uh probably mr navarro secretary pompeo uh a number of others who believe that china is an existential threat to the united states i believe that is not the case and i think brad and liz if we want to discuss that later um we can what has happened part of the path for the pandemic was laid not only by china's not sharing information early on but by the u.s reducing cdc presence in china to the point that we lost our early warning system that if you look at the data in 2016 the cdc had 41 both american employees and chinese employees in china including one who was embedded with china's cdc and then at the time of the pandemic that was down to 11. so what's happened is this deterioration in the relationship has kind of paved the way for the pandemic to ravage america i'm running out of time so let me just say i think we've got three time periods in the u.s china relationship going forward one is the next till the election day that between now and then there's a confluence in the administration between those who believe that china is an existential threat and those who believe that we that they must use china to see if they can secure trump's reelection so it is very difficult to predict what is going to happen then there's the period from the election to inauguration where i think the campaign folks step back but those especially if president trump loses those who believe china is an existential threat may seek to take actions which make it difficult for a new administration to um reverse that and finally the period after either president trump is inaugurated for a second term or vice president biden is inaugurated for a first term when one hopes we will move back to a more stable professional u.s china relationship and on that note i've gone exactly 10 minutes kim per your request let me turn it over to brad and it's good to see him because usually i'm reading his uh his blog well i'm uh i'm more comfortable writing than i am speaking so i'm uh quite happy generally to interact through the pen or the electronic equivalent rather than look forward and look at steve's three coming periods i thought i would look back and look back much more on the economic side and look at what i would characterize as kind of three shocks to the economic relationship the first shock i'll call the china shock to u.s workers starting with wto entry the second shock is you know probably the most debatable but i think they're probably at some point was a chinese shock to us business when u.s business lost confidence in the direction of economic and political change inside china and then third there's clearly been a trump shock which really is tied much more to the election of president trump and the policies president trump has chosen to pursue than anything that china itself has done so the first uh shock which i think is important for setting uh the stage that eventually leads to the trump shock was the chinese shock to u.s labor markets to u.s workers after china's wto entry now you could imagine a trade agreement and the china's entry into the wto was a major agreement leading to a symmetric expansion in trade the u.s would import more from china but it would also export more to china but that broadly speaking didn't happen u.s exports grew but u.s exports and manufacturers grew relatively more slowly and they certainly didn't grow as fast as um us imports from china increased in the period immediately following china's wto entry the u.s deficit from china from asia and from the world and manufactured products increased by about a percentage point of u.s gdp significant but to be honest let's admit compared to the kind of shocks that were seen from covet 19 not huge but there probably a million workers in manufacturing communities not just the workers themselves saw a significant loss of jobs hours and opportunity and the broader impact on those communities meant according to the famous work of the otter dornan hanson and the china shock another indirect million jobs lost now there were gains elsewhere in the u.s economy the losses were concentrated in those parts of the country that had strong manufacturing sectors whether in electronics furniture home appliances or the like and the gains were generally found elsewhere so it was a regionalized shock but it corresponded to a period of time when china was very friendly to multinationals and very friendly to companies that wanted to use china as an export base most obviously by intervening very heavily in the currency market to hold china's currency the yuan down kept it from appreciating when the positive shock should have pushed the yuan up quite significantly this is the period of time when china's overall surplus rises to around 400 billion dollars with the world and when chinese intervention in the foreign exchange market on an annual basis tops half a trillion dollars why is this an important period well because in contrast to now when political action on reactions to china have dominated u.s policy discourse the u.s did not actually respond very aggressively to the china shock in a policy sense two things i would note here one the special safeguards that were negotiated as part of china's wto entry so-called 421 safeguards were never in fact used even though there clearly was a surge in u.s imports from china precisely what those safeguards were designed to uh react to and then second even though china was clearly manipulating his currency the u.s made a political judgment not to name china a currency manipulator on the grounds that it wouldn't accomplish much but broadly speaking the consensus in the u.s at the time was that the shock could be managed that the u.s could specialize in other activities and that the surge in trade with china didn't demand a major policy response second period i think i was also very tied to the fact that at the time many multinational companies were really benefiting from the use of china as a production base it helped them lower the price of their goods take markets uh and raise profits apple would make less money if it couldn't use china as its production base second period you might call the china shock to u.s business and i think it's hard to precisely date that shock but the convenient date would be president xi and his emergence as china's leader i think there was a recognition then and liz has written about this more persuasively than anyone else a recognition that president xi actually really was a communist now by a communist that doesn't necessarily mean a socialist china's commitment to social safety nets leaves a lot to be desired but she clearly believed in the leading role of the communist party in chinese life and that included an economic life private business included and she clearly was committed to maintaining a large state role in the economy and to using the power of china's of china state to accelerate china's technological convergence all that seemed rather threatening to u.s business particularly because china's technological convergence was proceeding much faster than china's convergence in the economic sphere state enterprises state-backed national champions even privately owned in china were emerging as real competitive and technological threats tech transfer doesn't seem like such an onerous requirement if you believe that the companies with which you are informally expected to partner with and transfer technology to won't be capable of using it and state-backed competition didn't seem such a threat when it seemed like the state and state-backed companies were lumbering giants incapable of emerging and competing effectively in international markets huawei started off largely displacing u.s and european and canadian telecommunication equipment suppliers in the chinese market and then became the supplier who took markets in africa and other lower income countries and then the dominant supplier in europe so it quickly had moved from being well behind the technological frontier to being on the frontier or close to it in some sectors china and chinese companies and in those sectors where china lagged it was clear through china 2025 that china intended to use the power of the chinese state to accelerate convergence and potentially displace u.s companies u.s companies exporting to china like boeing and also u.s companies producing in china for the chinese market third shock is the trump shot it's clearly related to both of the previous two shocks the political preconditions in my judgment for a presidential candidate to win an election based on a platform that quite clearly argued that trade with china was the result of a bad trade deal that needed to be renegotiated stem from the fact that there are workers in manufactured intensive communities who really believe that the china shock had diminished their opportunity and that legacy remained trump though like has trade grievances against pretty much everyone half the time he seems to sound like europe is a bigger trading problem than china so the fact that there was a set of business concerns around trade and the economic relationship with china meant that the trade war with china had broader political support and trump's other attempted trade wars i think trump introduced a set of new concepts or brought them to prominence one was a notion that the original terms of china's engagement economic engagement with the world uh weren't fair weren't reciprocal he noted things like back at the time of china's wto entry china's tariffs were allowed to remain much higher than u.s tariffs and that seemed unreciprocal unfair and all that he arguably has a point but trade professionals would say that's the consequence of not having done any trade global trade deals since china's wto entry but it does on the face seem a bit strange that china has under the wto rules the right to impose higher tariffs on u.s goods than the u.s does on china trump also famously focused on the bilateral trade deficit the fact that the u.s was importing 500 billion from china and only selling 150 billion of goods now bilateral measures are imperfect the 500 billion includes an awful lot of taiwanese japanese and korean content uh and the like but it did reflect the fact that the us is a very large manufacturing importer and china is a very large manufacturing exporter and the sectors that were winning on the us side uh were in different parts of the country and different business lines and the like and then third trump made clear that the u.s was not going to be bound by his wto tariff commitments and it introduced tariffs as a tool of negotiation and leverage in a way that they hadn't been used before tariffs in the past had been essentially off the table except in a few narrow cases because the u.s was bound by its wto commitments trump decided that the u.s was going to exit from those constraints which meant that u.s chinese economic relationships relations i had to find a new equilibrium i think the question that has yet to be settled and may not be settled even by the election is whether the trade war has in a sense been fought to exhaustion and the phase one deal uh at the end reflects uh a settlement will prove more enduring because it provides the basis for limited decoupling or whether the phase one deal is it's the precursor to a new either renegotiation of the relationship or renegotiation of the deal the essence of the phase one deal was to leave a whole bunch of issues undecided the issues around china's technological convergence china 2025 the issues that the us has uh with you know the huawei tik tok uh examples of chinese technological success those were sort of essentially set aside and not dealt with in the deal what the deal did do was take the threat of future tariffs off the table for a while which has been important and it committed china to buy and buy more u.s goods even with significant tariffs on 250 billion of of trade the question is whether or not that uh provides a framework for a more decoupled world and whether trade can in some sense become less central to the relationship not because it's a force that is enormously positive but because there's a a settlement that has provided clarity around the scope of trade engagement while other issues particularly issues of technological competition uh haven't been addressed i think i'll stop there uh great that was wonderful thank thanks to all three of you and steve thank you for the flattery um the uh it's really hard to follow up this uh this this introduction because you've covered so many bases but let me start by bringing up steve's question uh which is sort of a big um a big issue namely is china an existential threat to the united states i i assume you meant that both in terms of security uh economic issues and and all kinds of other issues ideology potentially even cultural so i i think it would be great if each of you would take a moment to address that yeah what i meant kim is is you know it's not a military existential threat to the united states it's neither in china's history or tradition or current plans to have a military confrontation where they land in in san francisco i think that's it and the economic look if we don't rebuild our infrastructure if we don't make investments in america if we don't read you know brad's point about how trade has had very unequal effects throughout the united states if we don't spend a lot of money kind of retraining people who've been displaced by trade if we don't rebuild america then not only is china an existential threat is the eu is everyone is in the sense that that we um will stop being the great country that we are great elizabeth or brad you want to jump in you know i would agree with both of the points that steve just made you know i don't anticipate that china has plans uh to to you know land or bomb or anything with san francisco or anywhere else in the united states but i do think that um china poses i mean existential such a big word um but pretty close to an existential threat when it comes to many of the norms and values of the liberal international order and if you just just take you know ideas around freedom of navigation or free trade or basic you know what we would call universal you know human rights um you know civil and political liberties freedom of assembly and of speech and the media religion etc these are all things that china does chinese interests and values don't align with those and i think what we see now with this much more ambitious and expansive china under xi jinping is an effort as she himself has said on several occasions now you know to lead in the reform of the global governance system uh and from my perspective that is really upending the current system and many people say oh china isn't really trying to you know china has benefited from the system that's the line that you hear all the time and it has benefited from the system and now it believes under xi jinping that it has enough military and economic wherewithal as well as political influence to shape that system in ways that better serve its current interests um and some of its current interests are things like pushing the united states out of east asia as the regional uh you know dominant military power um you know rewriting rules of the game when it comes to human rights norms uh setting up new standards and new values around things like internet governance um you know i i so for me i think that china does pose a form of an existential threat i i think we have to recognize the really serious challenge that it poses to some of the values and norms that the united states and other market democracies have held most deer for you know 70 years now i'll respond to liz but let brad go first all right um well i think the answer is uh to the question of whether china poses in an existential economic threat is clearly no ultimately the strength of the u.s economy is overwhelmingly a function of policy choices that the u.s makes at home that impact most of our daily lives far more and whether we're importing from china or vietnam or frankly whether gm has a huge operation in china or not uh that doesn't fundamentally change the trajectory of the u.s economy it matters much more for individual businesses but for the overall economy we can survive we're not threatened by china's success that said the success of a country which is on trajectory to have the world's largest economy within the next 10 years with a very different economic and political system than ours poses enormous challenges it poses the challenge liz outlined in asia where china's ambitions would involve if realized domination of the united states relative position and it poses a challenge in the sense that china is big enough and its market is big enough and its reach is big enough that the threat the possibility that china would set up its own set of parallel institutions which don't doesn't destroy the institutional order that the u.s created but creates a parallel one that may be as important or more important that threat is real so i think china is not existential but it is clearly the one of the largest challenges that the us has faced in some time but i would ask i would ask liz though kim does the united states pose a greater threat to the international order than china does we fail to appoint judges in the wto we withdraw from the iran agreement the international court of justice we've never adhered to the law of the sea we withdraw from the who we it's to compare china's trying to change the world order versus the united states i would argue that in the last three and a half years the united states has been more destructive towards the world order than china to the extent you're absolutely right in one aspect to the extent that human rights norms and others that apply within china that the international order is trying to apply them within china then china wants to change those rules absolutely right but with respect to the others you know i uh i think the united states is more culprit than the chinese so i mean i think we'd have to distinguish between the this period of the trump administration and you know everything that has come before and hopefully everything that comes after um but again what i'm talking about and us pulling out of things is indeed quite destructive i agree but you know it's it's funny because china has stayed in paris climate accord of course uh but its co2 emissions have increased each year for the past three years u.s emissions have in fact decreased and that's not an argument that we we should have pulled out we shouldn't we should get ourselves right back in the agreement of course as somebody's spent much of my life focused on china's you know environment environmental issues and climate change uh there's no doubt about it um and certainly we shouldn't be pulling out of the world health organization or any of the other agreements and institutions that the trump administration uh has withdrawn us from or has threatened to withdraw us from um but again what i'm talking about is it's a long term you know effort to subvert you know norms and and institutions and you know china's setting standards in the itu around technologies right or china surveillance you know system that it's exporting to many countries i mean willing partners it's not imposing these things on on countries but it does you know act to strengthen authoritarian regimes around the world um you know it could be china's establishing parallel um you know organizations that are different but i would argue also that within the united nations within existing institutions china threatens things it it's ships it ships away at norms um until it's kind of like the south china sea steve uh right where you know it it dredges all it dredges all of the the sand it builds up these islands it militarizes them over a period of you know whatever 17 20 months and all of a sudden you blink and the entire landscape has changed and that's how i see china behaving in international organizations it's not a big thing like the united states just withdrawing but it's over time chipping away at norms and values right um you've all painted how complex this relationship is it extends into the economic sphere the political sphere the security sphere cultural sphere um when u.s policymakers are trying to set goals and or make a devise a strategy for addressing let's say economic issues to what extent can they separate those economic issues from issues like security issues human rights issues and all the rest does it make sense is there some sense of separation that makes sense or are is everything have to be bound together when the two countries are addressing each other i i'm surprised to hear quiet waiting for somebody else back there i i'll say just briefly so that i'll give these guys some time to think um i guess um from my perspective there are certain areas where you know these issues are distinct and then others where they are conjoined together and part of the challenges is deciding you know where those boundaries actually exist and i think the trump administration has been less bound to the boundaries have have shifted in ways that um make it much more likely that they are going to use uh economic tools for political reasons right so the sanctions on um you know around xinjiang or around hong kong i mean those are coming from congress as well so it's not really just the trump administration i should i should make that clear um and so i think there's less less divide less clear divide i think it's very difficult i think it's one of the great challenges and part of the challenge comes because china itself so often uses uh economics uh for political purposes right and so the temptation to some extent right is at this point is to respond in kind um i guess i'll just finish by saying i think what this administration has done well uh is to take a step back and and to look across the board at each one of those issues politics security and and uh economics and say where have we been disadvantaged you know brad was talking about where has it been unfair where has there not been reciprocal sort of uh policy and and to say okay time to reset this table right and to restore some sense of fairness and and balance we can argue that in many places it's been excessive steve and i both talked about what's taken place inside the united states in terms of you know attacks on you know on chinese students what's that or you know just in in terms of the rising you know anti-chinese sentiment that's not good um but i do think that this administration has done an important job of of resetting the relationship and maybe now for the next administration something that's a next different administration there's an opportunity to recalibrate i i take what you're saying that they've done so many things badly it's easy for the next administration to reverse some of those things but that's the way i would interpret it that day i think liz is right it's more difficult today now to separate the issues they all lead one into the other i'm repeatedly pointing out to the chinese government that the south china sea issue where years ago i said you know even before the philippines the arbitration tribunal decision under the convention of the law of the sea even before they found that china's uh reclamations were inconsistent with uncle with the law of the sea um i was calling them out and i said that issue it sounds like it's just the south china sea issue it's not it not only bleeds into an overall view of china it bleeds into trade cases it brings it bleeds into investment cases it bleeds into human rights because you lose your credibility and that it's extremely difficult now to shape policies which don't take into account the entire relationship granted you want to jump in i guess i'll make uh three uh observations uh first observation is that the traditional way uh security and economics were kept distinct was the argument that increasing economic interdependence would over time constrain china change china improve china so you didn't want to use economic levers too heavily because the long-run success of u.s strategy hinged on facilitating china's integration into the global economy uh that was a a useful i mean i don't know if it's useful but that was a a mechanism for arguing to that separate spheres should be kept separate and you shouldn't and bring economic pressure the strongest economic tools of pressure to bear to try to influence other spheres of the relationship the other argument is the argument that president trump has made which isn't really the argument that a lot of his administration makes and that is you know to put it baldly who cares about human rights or political change in china what really matters is trying to buy in our stuff and if you take that view then you also end up keeping economic leverage in the economic realm because you're essentially using your economic tools to achieve or try to achieve uh economically nationalist but economic goals not to react to political or human rights or the south china sea i think it will be very hard in part for the reasons liz has outlined that the fact that china uses and links access to its markets to silence around certain political issues and the like i i think it will be very hard in that world for either of the two arguments for keeping economics separate to win out kim can i can i add a comment china has changed and china has changed for the better and we need to look at it over this 50-year periods 48-year period since president nixon and secretary kissinger visitors since i moved there in 1979 when i moved there i couldn't travel outside of beijing i couldn't have lunch or dinner with the chinese chinese who graduated from college where the word is fun pay they were uh what is the word in english they were sent to the place where they had to work they couldn't even choose it they couldn't travel abroad they couldn't talk about anything the idea that china that investment and trade hasn't changed china is wrong it has helped change china and there's studies about places where there has been foreign investment tend to be more have better human rights standards have better labor standards have better environmental standards so the idea that this has failed is another part of the fictional narrative is it perfect of course it's not perfect there are tons of problems and we need to continue to focus on the problems but we need to be careful not to throw the baby out with the bath water that in fact trade and investment have succeeded okay let me just say now that steve raised that i have to say one thing which is uh you know i would agree with you steve um so i'm not in the camp that says engagement has failed but i do think it's important to to look at the difference sort of pre and post xi jinping and i think if you were making this argument back in 2010 2011 it would be much easier for me in any case you know to swallow the idea that you know foreign trade and investment has had you know some kind of very positive effect on helping to open china you had a much more vibrant internet it was a really virtual political space in many respects right clamoring for improvement in the environment even calls for political reform were tolerated it was a really different china politically in that's in that period before xi jinping i think it's hard to make the case now looking at what has happened what has transpired politically in china uh look just even the point that i made earlier about the foreign ngo law right that's a that affects us and the kind of work that we do very directly very difficult to make the case that the foreign trade and investment is is playing that same role so i think uh you can you can argue that it can play that role it may play that role but i would argue that at this point in time it really is not playing that do you know that china has progressed this way over time it has never been a linear increase and we're in a period i don't deny the tightening i don't deny the problems created by the ngo law i've led american ngos in trying to get it amended in china and trying to get it implemented uh properly so i i agree with that but i think you have to look at it over a long period and we've seen i've lived in china during periods of tightening i lived in china on june 4th i lived in china during the spiritual pollution campaign and what happens is there's pushback against this over time so we have to be careful when we craft policies that we understand that china will change that it is neither a monolith nor is it static so um let me pick up on something that that liz started with and she sort of articulated you can come back to this liz later but you articulated some of the goals that you would set for american policy makers in the next few years in trying to what what their objectives should be in the relationship with china and i wanted to pose the question to brad and to steve to say if you were in charge of u.s china relations over the next few years what goals would you uh prioritize and what strategies would you use brad let me start with you if it's okay sure um so i think i would start with a recognition that the us lacks sufficient economic leverage to compel china to change the fundamentals of its economic system so the basic choice the u.s faces is what level of economic interaction do you want with a china that broadly speaking despite steve's optimism is probably going to look a lot like what it looks like now particularly since it doesn't seem like president xi is going anywhere anytime soon and a china that will in all probability succeed in a narrow sense at uh increasing its economic autonomy by displacing certain u.s products i think you would have to assume that china's efforts in the chip in this free will bear are at least partial success and that china will make a functioning uh small under 200 seat civil jet civil aviation jet something i know would note that the us and boeing isn't able to do but hopefully we'll be able to do soon and so in that broad context my assumption is that economic engagement and economic interaction is going to be more restrained than it was five or six years ago that the basic shift that trump started won't be fully reversed we're not going back to the past and the basic challenge will be to be find rules for a more limited form of integration that is allows you know decoupling in those sectors where decoupling is necessary i would include pharmaceuticals in that i mean others will draw the line differently i think we need to think carefully about uh electronic supply chain vulnerabilities and whether there are certain products that u.s companies cannot manufacture without china's help and therefore china has already gained potential sources of leverage but equally we need to find those areas where trade and integration doesn't pose a threat there's no obvious reason why a less integrated than in 2015 trading relationship couldn't involve the exchange of soybeans for chinese-made april clothing and home appliances those the ground rules that would allow trade to no longer be at the forefront of all the dialogue i think that would be kind of the long run goal and part of that is to open up space to allow hopefully cooperation on things like the environment and climate but i would also i mean to be in all honesty we spent the last four years talking exclusively about trade trade delivers at most a shock to u.s gdp of a percentage point trade with china maybe a little more if you don't do anything in response and the covet shock uh led to a 10 contraction and output in the second quarter uh there there are actually more important things than uh the trade of soybeans for home appliances the uh well we could spend the next um 12 hours i mean liz says every one of her points is is you know i agree with i mean on the recommendation side you know it's right what we need to do is is step back and recognize that the policies the demonization of china that is occurring in the united states is destructive to our foreign policy goals and to the american people that what's happening is when you confront the chinese the way secretary pompeo did in the speech at the nixon library and say you know we're we're counting on the chinese people to throw off the yoke of the of the chinese communist party what that does is anytime an american raises an issue whether it's economic reform xinjiang hong kong south china sea you name it it's seen in the context of that and they're therefore not responsive to the u.s government you want to talk about the enforcement of the national security law in hong kong that's because you're trying to undermine the rule of china the rule of chinese communist party you want to talk about xinjiang that's because you want terrorist incidents in xinjiang you want to talk about implementing the third plenum of the 18th party congress that's because you want to undermine the rule of the chinese country that every single thing that you raise is seen in that context so the first thing we need to do is talk about china in a rational way where we need to compete we should compete but where we need to cooperate climate change you know confronting economic crisis terrorism pandemic we need to find ways to cooperate and from what i want from our leaders is to focus on the cooperation obviously when we need to compete we compete it's fine if we need to run freedom of navigation operations in the south china sea don't run them you don't have to put them on cnn you don't have to stick your thumb in the eyes of the chinese there's so many things that we can do and that's why i wasn't kidding with liz by saying what has happened is we've seen actions by our own government that hurt the american people and especially they hurt kind of not they don't hurt the wealthy people so much but they really hurt the working class of the united states tariffs hurt the working class of the united states when prices go up the chinese are paying it it's the it's the walmart customer who's paying it this competition that the trump administration has the strategic competition that the administration has fo so focused on will require us to take money when we're out of money now because of our pandemic relief take money from social programs take money from education take money from infrastructure to put it in the defense budget to compete with china militarily so we've defined ourselves into those problems so we need to stand back and reverse a lot of the bad stuff that's gone on you're muted kim sorry lucy do you want to follow up uh take us back to uh compete contain sorry compete counter and contain by your beauty my three c's right and of course what's missing from that is what we've just been talking about which is you know finding areas of cooperation and again i think you know competition is is good and we should be willing and able to do it openly i think pushing back against china when necessary is also uh important um but we we need to find some some common ground the way that we used to i think that's critical uh and it's also critical for the united states and it's standing on the global stage uh you know a lot of people thought that when the u.s withdrew from all of those institutions and agreements that steve mentioned that china was somehow going to rise and fill the vacuum that remember a lot of media reports to this effect uh but china didn't rise actually to fill the vacuum um xi jinping talked a lot but actual action uh to sort of forge new agreements or to address issues around the refugee crisis or even on climate or whatever it might be china did not step up to fill the gap instead you had on various issues kind of constellations of smaller actors that tried but really no two countries have the same political and economic where with all the united states and and china do and so it's incumbent on us frankly uh to step up and to not just focus on our narrow self-interest like the great rejuvenation of the chinese nation in america first and to consider the global good as part of our own concept of a great rejuvenation of the chinese nation in america first that these that these issues are part of of what we stand for and what we want to do for ourselves and for the rest of the world so i guess that's you know my way of of ending on that i do want to say one thing in response to some of the chat questions if i could um just on this issue some people have raised and there have been many good questions i was tempted to type in some responses but i wasn't sure that was really appropriate so apologies for that but but just on this issue of of whether you know the u.s is one-sided media and china has a one-sided media and so we're basically both the same this kind of equivalence we're really not the same you know and and the simple fact of the matter is that we couldn't have this discussion in china and we openly right with open participation from masses of people saying whatever they wanted to say uh without fear of some kind of retribution might or might not happen um and we have chinese news stations cgtn perfectly able to broadcast 24 7. uh china daily you can pick it up and you know newsstand on the street corner in new york city and the little you know freebie thing whatever you cannot access the new york times the wall street journal um you know or the washington post uh freely in china uh you can't access an english language newscast freely you can get cnn in some places and then you can have somebody say something that the chinese government doesn't like and it's blacked out so you know yes we've got fox news we've got msnbc we have the full range of what one might call biased media or media with a certain perspective but we've got it all and that is a very fundamental difference between the united states and china so um brad i always go i wanted to just encourage people to look at your blog follow the money which is really excellent and uh to do that i was hoping you might this probably the last question hoping you might comment on uh where where china is headed and trying to internationalize the rnb what are the factors that are affecting that process well i uh thanks for the plug for my blog by the way uh you actually write a pretty good blog yourself but uh we'll uh we'll set that aside for the moment um like in general i'll make a general observation to just kind of get off the chat my chest so that i can focus on your actual question which is i think that the internationalization of the renminbi tends to attract way more attention than it really is warranted particularly more attention from people in the u.s who think it is a threat than is warranted if the internationalization of the renminbi means that a whole bunch of investors around the world pour a lot more money into the chinese government bond market because china offers an interest rate on 10-year bonds of close to three percent and you can't get anywhere close to a percent on ten-year us treasuries you can't even get zero on german treasury bones then [Music] all that does is create pressure on china's currency to appreciate which would make through natural market forces china less attractive as a location for global production and chinese consumers more able to buy the rest of the world's products so the the notion that foreign inflows into the chinese government bond market are in some way a threat to the united states is one that i find difficult there is a component of the internationalization of the yuan that is tied to china's desire for autonomy from the u.s payment system and not not domestic us payment system but the global payment system that uses the dollar so for a very long time most trade between say china and russia which doesn't touch the united states in any physical way was nonetheless denominated in dollars and anything that is denominated in dollars tends to at some point touch a u.s legal entity and thus at some point be potentially sanctionable so in a big part of the effort to internationalize the yuan is very tied to a desire to make sure that china can trade with the world in a way that the u.s can't sanction and the irony or strangeness is that china has progressed much much much more slowly on that agenda than anyone would have expected six or seven years to go uh in part because i the internationalization of the yuan was always subordinate to chinese domestic policy goals so when china wanted to manage a set of economic shocks associated with the rise in the dollar in 2014 and 2015 the fall in oil prices china's own economic contraction they believed a weakening of the yuan was called for they didn't want foreign capital flows to make the uh weakening of the yuan more destabilizing than it need be and so they limited access to the chinese market to foreign capital which had as a byproduct uh uh it made the yuan less attractive as a global settlement currency i think china now given the broad shift in the relationship is going to put a lot more priority on increasing the use of yuan the yuan in china's own trade and i don't think there's that much the us can do to stop it the u.s can certainly accelerate it with uh sort of overuse of u.s sanctions the the acid test comes uh when it's time to start figuring out how you denominate say trade between africa and iran just to pick two random parts you know will that be denominated in yuan will that be denominated in dollars well probably not if it involves iran or will it be denominated in europe which is a perfectly reasonable alternative to the dollar and the irony that i at least observed in a recent news story is that when china and russia reached agreement to reduce the use of the dollar in their own trade they didn't actually decide to use the yuan they decided to use the euro [Music] right well first i hope i'm sure everybody in the audience is joining me right now to thank our uh panelists for their wonderful contributions it's been a great discussion thank you very much um we also hope to see our audience again uh there are three upcoming events from the center in the month of october on october 6th we have a panel on the live board transition and then on october 15th and 27th we're going to have fireside chats with the president of the minneapolis fed and the director of research at the imf respectively so thanks to our panelists and many thanks to our audience um thank you thank you [Music] you

Channel: NYU Stern

Views: 6,093

Keywords: new york university, nyu stern, stern school, Kim Schoenholtz

Id: ChbQl4hwnto

Length: 75min 28sec (4528 seconds)

Published: Tue Sep 29 2020