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The Future of US-China Trade Relations
Image Credit: Washington State China Relations Council

The Future of US-China Trade Relations

 
 

Trans-Pacific View author Mercy Kuo regularly engages subject-matter experts, policy practitioners, and strategic thinkers across the globe for their diverse insights into the U.S. Asia policy. This conversation with Ambassador Carla A. Hills – chairman and CEO of Hills & Company International Consultants; chair of the National Committee on U.S.-China Relations; and a former U.S. trade representative (1989-1993) – is the 84th in “The Trans-Pacific View Insight Series.” This content was adapted from Ambassador Hills’ keynote address and curated conversation with Ambassador Gary Locke at the 37th Annual Banquet of the Washington State China Relations Council on March 15, 2017 in Seattle, Washington.

Explain the importance of U.S.-China collaboration on trade and security issues.

A strong collaborative relationship between both countries is important because it impacts domestic and global security. The U.S. and China must work together effectively on North Korea, South China Sea, the Paris Climate Agreement, etc. Building habits of cooperation in the economic and trade arena will strengthen our bilateral trade. Strategic mistrust has grown in the last couple of years. Increasingly you hear these concerns – can the two largest economies, with the largest militaries, collaborate to enhance future prosperity? Or have competitive economies, with differences, make challenges too great to handle?  My answer: we can and we must.

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Given your leadership role in negotiating NAFTA [North American Free Trade Agreement], what are your thoughts on the Trump administration’s plans to renegotiate NAFTA and more broadly, the transition from multilateral to bilateral trade agreements?

NAFTA has made the North America region the most competitive region in the world. Canada is our largest export destination; second is Mexico. We sell more to Mexico than to Germany, France, Great Britain, and the Netherlands. Do we want to be hostile with a partner, Mexico? Borders everywhere else are on fire, but here in the North America, we are at peace. Do we want to upset that?

What are China’s main priorities and challenges?

China’s priorities are: 1) [maintain] preeminence of the Communist Party; 2) ensure stability of its people through economic growth; 3) meet the promise to double GDP from 2010 and 2020; and 4) enhance China’s respect globally. The means to achieve one goal can conflict with other goals. Chinese President Xi Jinping noted that a reliance on exports no longer works. State-owned enterprises consume credit. Layoffs could fuel instability. The China Labor Bulletin observes more protests over time. This past December, the Chinese economic workgroup noted that stability is of overwhelming importance. China’s reform efforts have slowed down.

With political challenges since 2013, President Xi has moved away from Hu Jintao’s collective leadership to one-man leadership. China’s anti-corruption campaign has removed individuals. This fall at the 19th National Congress of the Chinese Communist Party, the biggest leadership turnover in 40 years is anticipated. The outcome may give Xi power to appoint [new leaders]. How will he use his power? China will keep its doors open, allow access to China’s market, and integrate China with the world.

In which direction is U.S.-China trade policy headed?

Globalization is under attack. Since World War II, whether Democratic or Republican administration, we have believed open markets are good for us and nations worldwide. As President John F. Kennedy said, “A rising tide raises all the boats.” President Trump seems unconvinced. He is skeptical of the benefits of trade relationships with China. He blamed China for stealing jobs and devaluing currency. He has stepped back from currency and the “One China” policy. But keep in mind, 4,000 administrative positions are yet to be filled and we’ll see how policies will develop.

What are the key issues in the U.S.-China trade dialogue?

We need to address four issues:

1) Get the trade facts out to the public, so the public can judge based on fact, not fiction. Most Americans don’t know 80 percent of our trade is through global supply chains. Twenty years ago, East Asia had about two-thirds of our deficit. Today, China has become the major player in the East Asia supply chain. Sixty percent of U.S. imports are intermediate goods that make our exports globally competitive. For example, the state of Washington imports airplane parts; Washington state exports airplanes. Michigan imports car parts and exports cars. Idaho imports meat and exports processed meat. If we were to tax, our exports would be gravely diminished and competitiveness reduced. China is our third largest export destination! More than Japan and Germany combined.

2) Convene high level leadership meetings. The Strategic and Economic Dialogue is important, but we need both leaders to talk candidly about the solution to these issues. Dialogue has value. President Xi is coming to Florida in April to meet President Trump. We need dialogue to address problems and solutions. Big strategic dialogue allows leaders to get to know each other.

3) Take action to enforce established rules. If we ignore the rules, why should any other nation abide by them? If we tear up the WTO [World Trade Organization], we would be out in the jungle! The law of the jungle would preside. Our average tariffs are two percent. Some countries we trade with have 50 percent tariffs on U.S. products. If we did not have WTO rules to protect us, then they would retaliate, and we would counter, and we would be in a very bad situation with trade wars brewing, and the economy would be a mess.

4) Increase skill training of workforce. Take effective action to respond to Americans’ deep anxiety about job insecurity in manufacturing. Automation fuels this. The estimate is that 4 million job vacancies in U.S. today require skilled workers. Automation has improved output 40 percent. Jobs need skilled workers, and tech has advanced our economy but does not give solace to laid off workers. We need to also develop better social programs to assist displaced workers.

To keep America’s preeminence, we need these steps. Trade associations, businesses, universities, and trade councils can make a big difference.

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