The Honorable Barbara Hackman Franklin
The Honorable Barbara Hackman Franklin
Keynote Speech for Event: "U.S.-China Relations in Transition: The Trump Administration and the 19th Party Congress"
The Brookings Institute
Washington, DC January 24, 2017
Remarks As Delivered
This promises to be a year of momentous challenge and possible change in the relationship between the US and China. Today I’m particularly talking about the economic relationship, a bilateral relationship that is the most consequential in the world.
On the US side, the change is the election of President Donald J. Trump. On the Chinese side, it is the changes that will likely emerge from the 19th Party Congress in the fall. Cheng Li will undoubtedly tell us about that.
The Sino-US economic relationship has grown exponentially since 1979, through both Democratic and Republican Administrations. From a modest beginning, two-way trade is well over $500 billion. I’m proud to have played a role in this when President George H. W. Bush sent me to Beijing in December of 1992, after he had lost the election, to reconvene the US-China Joint Commission on Commerce and Trade (JCCT) with my counterpart, Minister Li Lanqing. The JCCT had not met since 1989 because of one of the sanctions – a ban on high level government to government contact -- that the US had placed on China following the events at Tiananmen Square. My mission removed that sanction, restarted JCCT and its working groups, and we brought back $1billion in signed contracts between US and Chinese companies. Most importantly, it gave a green light to US companies wanting to explore business opportunities in China but holding back because they were not sure of the posture of the US government. Many US companies did go to China, and trade and investment grew dramatically.
China is the 3rd largest market for US products and services – a $400 billion market which many think should be larger. And according to a new study prepared for the US-China Business Council USCBC by Oxford Economics, this trade relationship supports roughly 2.6 million jobs.
During the presidential election campaign, President Trump said a lot of things about China. He pointed to the trade deficit – it is more than $300 billion in China’s favor -- as a drag on US GDP growth. He believes the US has lost millions of jobs to China. He believes China engages in unfair trade practices and currency manipulation and he has threatened new tariffs on Chinese imports – 45% is one figure mentioned in some of his speeches. He is calling for a rebalance of this relationship.
Concurrently, I am fascinated and encouraged by President Xi Jinping’s recent speech at the World Economic Forum in Davos where he lauded “economic globalization”, free trade and investment. He waxed poetic in some of his quotes. My particular favorite: “Pursuing protectionism is just like locking oneself in a dark room. While wind and rain may be kept outside, so are light and air”.
The US business community applauded President Xi’s comprehensive agenda for economic reform that was put forth at the 18th Communist Party Congress in 2013. Yet, so far, we do not see much specific progress.
A key question: Do both leaders mean what they say?
I do not pretend to read the mind of either one. However, I am going to comment about President Trump, based on his actions and what I’m seeing and hearing.
One thing I know from decades of participation in the political process here is that campaign rhetoric often dies down and disappears once the reality of being in office sets in. But I sense that this one is different.
As a candidate, President Trump gave voice to the frustration and anger felt by millions of Americans who believed the ruling political establishments of both parties had let them down. They elected President Trump because, I think, they were convinced that he is serious about make the changes he advocated. And his Inaugural Address last week underscored what he had been saying in the campaign. I note that he said forcefully, “I will not let you down.”
So, what is different this time is the sheer determination with which President Trump, his Cabinet, and advisors will pursue the changes he has promised. Change in trade relationships and trade agreements is one of the big issues campaigned about. And that includes a rebalance with China.
Further evidence to support this determination is in the appointments he has made and the views these individuals have voiced. Commerce Secretary Wilbur Ross, for one, who is to have a big role in trade policy, had a great deal to say about China’s unfair trade practices at his confirmation hearing. Bob Lighthizer, nominee for US Trade Representative, also has strong feelings. Peter Navarro, who heads the National Trade Council in the White House, has written extensively over the years about China. The National Trade Council is a new entity created by the Trump Administration. The White Paper that Ross and Navarro authored during the campaign lays out an agenda for what they are aiming to do.
In addition, Pres. Trump in his own words and by all accounts, is a master negotiator.
It may be possible that what Pres. Trump said during the campaign and what he might do subsequently is the opening round of a negotiation with Pres. Xi Jinping about changes the US desires to see in this relationship.
In any case, I believe everyone should take quite seriously President’s Trump’s determination.
There are some things that China could do to start the rebalancing.
n First, market access. The US market is wide open to Chinese imports. The US has been welcoming investment from China, and that has skyrocketed in the past few years. Yet the Chinese market has some 100 sectors which are closed or have restrictions on foreign investment. Opening those sectors could make a good start at the rebalance. So, could finishing the negotiation of the Bilateral Investment Treaty (BIT).
n Secondly, China’s variety of tariff and nontariff barriers to trade. China could and should work to lower these.
n Third, China’s overcapacity problem in some industries, notably steel and aluminum. That has caused the “dumping’ of those products at below market prices into various countries, including the US. The US has been working on the steel problem for years. And just a few days ago, the outgoing Trade Representative filed a complaint with the WTO alleging that China is illegally subsidizing aluminum and requesting that the overcapacity problem be corrected. China could work harder to remedy the overcapacity situation.
n The State Owned Enterprises. Chinese companies, particularly the State-Owned Enterprises, often receive benefits that give them a competitive advantage over foreign companies. The US supports the achievement of the SOE reforms that have been put forth.
Given this situation and its many “moving parts” it is essential that the two sides regularly engage with each other just as they have been doing these past years. There are a multitude of governmental bilateral summits and dialogues, such as the Strategic & Economic Dialogue, JCCT, and others. These or something similar should be continued even if the new administration wants to restructure them on the US side. Probably the S&E D has grown too large and too cumbersome and that one ought to be rethought. I would like to separate them so that the economic dialogue stands on its own again, as it did initially.
The point is these dialogues provide a regular and serious way for those who lead the two largest economies in the world to communicate and work to overcome troubling issues and disagreements.
But – and there is a big but --there must be leadership from the top.
The tone and priorities for these dialogues must come from the two leaders. Therefore, a great deal is riding on the relationship that will develop between President Trump and President Xi. I am hopeful that the two presidents will meet and talk regularly and often and will establish a personal relationship. They have had an introductory phone call which, from all reports, was cordial, with both expressing the desire to work together. I am hopeful that they can and will look for ways and issues on which they can work together for the good of both countries and the global economy. And where there are disagreements – we are bound to have them – I am hopeful that they would have the desire to look for common ground.
A trade war, such as some are predicting, harms both countries, creates uncertainty for many other countries, and is an activity that does not belong anywhere in the interconnected global world of the 21st century. So, I think this will be averted. Instead, I must believe that these two presidents are pragmatic, understand the stakes, and the need to continue a stable relationship. So, they should and I hope they will start a communication and negotiation process that is a win for both countries.
A final thought. It’s true that the magnitude of change that we may see going forward always brings with it opportunities for new understanding, innovation, for progress – if, and I emphasize if, the will is there to seize the opportunity. Stay tuned!
We in this room have an interest in seeing this relationship continue, and evolve in a positive, constructive manner.
All of us room have friends, colleagues, connections, on both sides. Here in the US and in China. Now is the time to motivate ourselves and our networks to do everything we can to help keep this relationship going forward in a constructive manner.
Thank you.