US China Workshop

SYNOPSIS
U.S.-China Workshop: Prudent or Protectionist?
Analyzing Trump’s Trade Policy with China
Richard Nixon Presidential Library and Museum
September 17, 2018

Program Transcript •  Video

Overview

This report is based on the views expressed during a workshop on September 17, 2018 organized by the Richard Nixon Foundation as part of its mission to create and contribute to actionable information for use by policy makers across the globe.

Offered as a means to support ongoing discussion, the report does not constitute an analytical document, nor does it represent any formal position of the organizations involved.

Participants

Hal Brands is the Henry A. Kissinger Distinguished Professor of Global Affairs at the Johns Hopkins School of Advanced International Studies (SAIS) and a Senior Fellow at the Center for Strategic and Budgetary Assessments (CSBA). He is the author and editor of several books, including “Making the Unipolar Moment: U.S. Foreign Policy and the Rise of the Post-Cold War Order”, “What Good is Grand Strategy?” “Power and Purpose in American Statecraft from Harry S. Truman to George W. Bush”, “Latin America’s Cold War,” “From Berlin to Baghdad: America’s Search for Purpose in the Post-Cold War World”, and “The Power of the Past: History and Statecraft”.

In 2016, Brands served as special assistant to the secretary of defense for strategic planning, and has been a Council on Foreign Relations international affairs fellow. He has also consulted with a range of government offices and agencies in the intelligence and national security communities. He blogs for Shadow Government at ForeignPolicy.com and is a frequent contributor to Bloomberg View.

Brands received his B.A. from Stanford University and his Ph.D. from Yale University. He previously worked as an assistant and associate professor at Duke University’s Sanford School of Public Policy, and as a researcher at the Institute for Defense Analyses. He lives in Maryland with his wife and two children.

Frank Lavin is the CEO and founder of Export Now, a U.S. firm that operates e-commerce stores in China for international brands. Established in 2010, Export Now is the largest off-shore operator of China e-commerce stores, helping brands from around the world in strategy and operations. In government, Lavin served as under secretary for international trade at the U.S. Department of Commerce from 2005-2007. In that capacity, Lavin served as lead trade negotiator for both China and India and was the senior policy official in the department responsible for commercial policy, export promotion, and trade negotiations across the globe. Lavin was U.S. Ambassador to the Republic of Singapore from 2001-05, where his duties included helping negotiate the U.S.-Singapore Free Trade Agreement. Previously, Lavin served in the George H.W. Bush and Reagan administrations, working in the Department of Commerce, Department of State, National Security Council, and White House. Lavin served as director of the White House Office of Political Affairs from 1987-89. In the private sector, Lavin served in senior finance and management positions in Hong Kong and Singapore with Edelman, Bank of America and Citibank.

He is a columnist for Forbes.com and has been published in The New York Times, The Washington Post, The Wall Street Journal, Foreign Affairs, Foreign Policy, and other periodicals. Lavin is the co-author of “Export Now: Five Keys to Entering New Markets.” He also authored a World War II history book, “Home Front to Battlefront.”

Lavin earned a B.S. from the Georgetown School of Foreign Service; an M.S. in Chinese Language and History from Georgetown; an M.A. in International Relations and International Economics from the Johns Hopkins School of Advanced International Studies; and an M.B.A. in Finance at the University of Pennsylvania Wharton School.

Noel Murray (moderator) is director of the Walter Schmid Center for International Business and associate professor of marketing at Chapman University. His areas of expertise include international marketing, cross-cultural issues in marketing communications and advertising strategy.

His research has been widely published in leading academic journals including, Journal of Personality & Social Psychology, Academy of Management Journal, Journal of Advertising and Journal of Public Policy & Marketing. His research on advertising disclosure has been profiled in The Los Angeles Times and in Media Life Magazine.

Murray plays an active role in the Academy of Marketing Science and has recently served as congress co-chair at the World Marketing Congress in Malta. His business affiliation experience includes Digital Computer, Inc., Irish State Merchant Bank, Apple Computer and Bank of Ireland.

Murray earned is B.A. in Business Administration from the University of Limerick, M.B.A. from the University of Bridgeport, and Ph.D from Pennsylvania State University.

Issues Discussed

In December 2017, the Trump administration — echoing the President’s public statements — issued its National Security Strategy, taking a strong stance on America’s trade deficit. “Unfair trade practices had weakened our economy and exported our jobs overseas,” the 55 page document reads.

In 2017, the U.S. trade deficit with China hit a record level of $375 billion. President Trump has placed tariffs on U.S. steel and aluminum imports, and another $34 billion on other Chinese goods. China has responded by imposing the equivalent on U.S. goods.

Are the United States and China headed toward a trade war? Do the Trump administration’s actions help or hurt the economy and national security of the United States?

Background and Key Definitions of Historical Importance

Since the end of World War II, there has been a high-level consensus — often called the post-war tradition — in U.S. foreign policy about what it wanted to achieve in the world.

U.S. policy makers came to the agreement that the world was fundamentally interdependent, and the United States could not be prosperous in a world ravaged by economic depressions, dominated by dictators, and destabilized by war.

The U.S. subsequently sought to forge an international system that would conform to its interests — through alliances, forward military deployment, free trade, the spread of democracy, and human rights.

The United States had also undergone significant economic liberalization. In 1947, it signed on to the General Agreement on Tariffs and Trade (GATT is the predecessor of the World Trade Organization established in 1994), with the objective of eliminating all trade barriers.

Over a seventy year period, U.S. tariffs rates decreased from 48 percent to 4 percent. The United States had also entered into at least 23 free trade agreements.

While the debate about rationalism and nationalism has always been part of the public debate about the economy, American leadership has always trended toward free market policies even if this process had been interrupted or incremental.

Since President Nixon’s historic trip to China in 1972, and continuing rapidly after the end of the Cold War, United States’ policy toward China has been one characterized by the portmanteau “congagement.” That is, the U.S. aimed to engage and integrate China into the international economic system, while containing China’s military ambitions by maintaining a favorable balance of power through security arrangements with allies in the Pacific.

China remains the United States’ top trading partner. In 2017, total trade with China totaled $634 billion; with the U.S. running a deficit of $375 billion.

In 2015, President Obama signed on to the Trans Pacific Partnership (TPP) — an agreement that would have created an economic free trade zone between 12 Pacific rim countries..

The 2016 election cycle reflected a political climate of trade skepticism. Democratic candidate Bernie Sanders and Republican nominee Donald Trump protested against it, as did eventual Democratic nominee Hillary Clinton, who was one of the agreement’s originators as Secretary of State.

In 2017, the Trump administration pulled the United States out of TPP on the grounds that it would create greater trade imbalances, and hurt the standing of the American worker.

In July 2018, the Trump administration levied $34 billion in tariffs against Chinese goods (China reciprocated in an equal amount of tariffs), and in September another $200 billion.

Key Conclusions

— President Trump is more concerned with economic issues with China than he is with geopolitical issues, save for denuclearization of North Korea of which he has sought China’s help.

— Free trade has expanded U.S. economic growth exponentially. To pick winners and losers would be disruptive and counterproductive as it would misallocate resources, and not allow the U.S. economy to operate at its most efficient.

— The United States should remain open to free trade. Societies that turn inward stagnate. For example, Japan’s economy hasn’t grown in thirty years. Open societies flourish in ideas, trade, and investment.

— The United States’ trade deficit with China isn’t always an accurate economic indicator, as the dynamics of the U.S. economy have evolved over time. For example, the U.S. currently runs a trade surplus with China on services, exporting at least four times as much.

— China holding U.S. debt isn’t necessarily always a problem. In their debt holding, China subsidizes the United States as a global military power.

— U.S. policy makers shouldn’t focus on how they can stop China, but rather how they can make America the most commercial and investment friendly environment. For example, President Trump was right to reduce tax rates.

— While President Trump has legitimate gripes against China’s trade practices, it’s counterproductive to strain relationships with allies and trade partners. Trump should be building constructive relationships, and a united front with countries to get China to comply with international trade standards.

— President Trump is right to put the spotlight on China’s complicity in intellectual property theft. Nonetheless, U.S. businesses have to do a better job securing their intellectual property.

— President Xi Jinping is making the calculation that he can withstand tens of billions in tariffs by the United States because of China’s positive balance of payments, and his authoritarian system doesn’t have the same pressures as American democracy.

— In trade negotiations, especially with China, it’s best to convince the opposite side of the table that the deal is beneficial for them as well. Conversely, by constantly telling China they are wrong, the United States is only painting itself into a corner, and thus no end game is achieved. The Chinese need some leeway to be able to declare victory to their domestic constituency.

— Despite China’s lack of democracy, military adventurism, and unfair trade practices, the United States should continue to engage China. During President Nixon’s historic trip to China in 1972, China’s political and economic system resembled today’s North Korea. Though social and political changes haven’t manifested themselves quickly enough, China has progressively improved since 50 years ago.

— The United States has enormous cultural “soft power” throughout the world, especially among the Chinese people. It should not allow this strength to atrophy.

— The United States shouldn’t close off educational opportunities to Chinese students. It should allow the best and the brightest to attain a pathway to citizenship, thus increasing the United States’ intellectual capital.

– The Committee on Foreign Investment in the United States (CFIUS) is an important government body, that helps distinguish business investment, from those that are legitimate national security concerns.

Photo (left to right): Noel Murray, Frank Lavin, and Hal Brands participate in a U.S.-China workshop on trade policy, September 17, 2018 (Richard Nixon Foundation).