Latest / China Considered / The Negotiator’s Notebook: US-China Trade War with former USTR Susan Schwab

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The Negotiator’s Notebook: US-China Trade War with former USTR Susan Schwab · China Considered

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>> Elizabeth Economy: Foreign welcome to China Considered,
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a podcast that brings fresh insights and
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informed discussion to one of the most consequential issues of our time,
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how China's changing and changing the world.
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I'm Liz Economy Hargrove, senior Fellow and co Director of the Program on US China
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and the World at the Hoover Institution at Stanford University.
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Today, we're going to talk about tariffs, a word that President Trump
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has said is one of the most beautiful ones in the dictionary.
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And we're really, we're really lucky to have Ambassador Susan Schwab,
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who was the US Trade Representative during the term of President George W.
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Bush and currently a strategic advisor to the law firm Mayor Brown,
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to help us understand everything we need to know about this sometimes complicated,
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complex topic.
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Susan, I know you are in much demand these days.
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Your interviews are blanketing the airwaves.
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So thank you so much for taking the time to speak with us.
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>> Susan Schwab: Well, thank you, Liz, you know I'm a fan.
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>> Elizabeth Economy: So let's get to it.
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On April 2, President Trump announced Liberation Day.
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His administration placed 10% tariffs on all goods coming into
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the United States and
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then additional tariffs at varying rates on goods coming from dozens of countries.
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Then within a week, he started to give countries a reprieve.
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Let's start with why he did this.
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What is his strategy?
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>> Susan Schwab: So the first, as you said, April 2nd, Liberation Day,
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I think everyone was caught by surprise about the magnitude.
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So the reciprocal tariffs, sort of with a 10% baseline and
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then above that up to above 30, 40% depending on the country,
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they're called reciprocal tariffs.
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They aren't actually reciprocal tariffs.
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They are based on a formula that has to do with the size of
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the US Trade deficit with that country.
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And in countries where the US Has a trade surplus, and
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there are a few of them, they get just flat out 10%.
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So that was how it was constructed.
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It was a shock to everyone.
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Trading partners, and one has the sense watching the Rose Garden
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ceremonies are shocked to a lot of people in the Trump administration,
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certainly the business community and the markets reacted very badly, very badly.
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Stock market, bonds, the whole bit.
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And the president and his team discovered that, yes, in fact, there was
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a tipping point beyond which you can't go on tariffs which without significant
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disruption in the economy or risking a significant disruption in the economy.
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And so April 8 came the announcement that these tariffs
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were going to be suspended for every country except China.
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For. A 90 day period during which time
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bilateral negotiations were going to take place to address the challenges,
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the motivations, the objectives, the priorities that this
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administration has China, let's separate China for right now.
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So that list of countries, I mean that,
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that list of countries is very significant.
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It's over 60.
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The, the motivations, it's sort of interesting.
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It depends on who you're talking to on what day.
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Let's start with the president's assertion that everyone has.
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This is a PG13.
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Everyone has been unfair to the United States in terms of
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its treatment of our exports, treatment of our trade.
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They have treated us unfairly since forever and we need to get back at them.
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Motivation 1, 2 Motivation Reindustrialization,
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rebuilding an industrial base in the United States.
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The assertion that we don't make anything here anymore, which by the way,
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is not accurate, but we don't make anything anymore.
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Trying to use tariffs to increase investment in manufacturing in
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the United States and manufacturing employment in the United States.
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Changing behavior of trading partners in terms of their foreign barriers,
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the objective of raising revenues to help plug
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the rather significant gap in our federal budget.
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A variety of other objectives, some of which now show
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up in the template that the administration appears
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to be presenting to each of the trading partners.
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But that gets into both the issues that I addressed and
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some other issues having to do with how they, in some cases, how they treat China,
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how they treat US Exports, specific barriers that show up in
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the National Trade Estimate Report that the USTR puts out once a year.
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So you, you sort of take those major motivations and
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translate them into specific asks of specific trading partners.
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>> Elizabeth Economy: So you were.
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So a whole range of issues, a whole range of ostensible motivations, and
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maybe some of them coming different parts of the administration.
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And we can come back to sort of the views within the administration because they're
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not uniform, which makes.
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>> Susan Schwab: And they're not necessarily mutually consistent.
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>> Elizabeth Economy: Right, that's all, [LAUGH] Right.
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It's another problem.
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We'll come back to that in a minute.
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But you were ustr, is this,
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is President Trump really the first president to use tariffs in this way or
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have other presidents, you know, how did, how did George W.
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Bush use tariffs?
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What was the point during his tenure?
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How did he think about them?
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>> Susan Schwab: Well, I think it's safe to say that President Trump is the first
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president since, let's say, 1934, because one would argue,
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I would argue that US trade policy, contemporary US trade policy,
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really started after 1930, after the Smoot Hawley Tariff act of 1930,
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and really started with the Reciprocal Trade act of 1934.
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And since then, presidents have used tariffs both in terms of carrots and
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sticks, but more carrots than sticks.
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Right, reciprocal trade negotiations, negotiation of bilateral trade agreements,
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of multilateral, of sectoral trade agreements using tariffs as allure.
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We'll lower our tariffs in areas where, where you're competitive if you lower
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tariffs and non tariff barriers obviously in areas where we're competitive.
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So that kind of negotiation and then Obviously starting in 1947,
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the General Agreement on Tariffs and Trade and you bring in the concept of
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most favored nation treatment and non discrimination and so on.
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Now the use of tariffs as a negative motivator,
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the first major use of that I would argue is the first Trump administration.
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The Biden administration, as you know, didn't lower those tariffs, Right?
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And from time to time, yes,
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the United States has raised tariffs to force, persuade,
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encourage a change in behavior by other trading partners,
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particularly as it impacts U.S. exports, and
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that is generally through Section 301 of the Trade act of 1974.
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After an investigation as to whether there are.
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Are acts, policies and practices that are unreasonable,
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burdensome and a whole variety of other terms.
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But yeah, tariffs have been used that way, but they're sort of
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scalp alike rather than across the board and based on calculation,
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based on deficits, rather than based on the value of trade impacted,
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say by that trade barrier or by that unfair trade practice,
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which is we put up tariffs all the time related to dumped product,
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product that subsidized into this market and injuring US Producers.
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I mean, we use tariffs, but
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not quite the way they're being used under this administration.
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>> Elizabeth Economy: Arguably the Trump administration put these tariffs on as
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a form of leverage, given how quickly, right.
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Within the space of a week, as you mentioned,
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all of a sudden you're getting a reprieve, a 90 day reprieve.
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So this seems more like here's the threat of action.
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Of course it causes an enormous amount of tumult, as you also pointed out.
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And then we're giving you 90 days and
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we're going to negotiate with really no expectation.
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I don't believe that the tariffs are going to remain at the high level that they were
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for many countries.
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Is that fair that in essence these were just a threat and then, you know,
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the real negotiation begins and nobody expects that they're going to stay.
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>> Susan Schwab: It is a great question.
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I mean, the real question is what happens July 9, right.
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That's 90 days after the challenge.
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And this is speaking as a former negotiator,
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the challenge is they shot the hostage, right.
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And once you've shot the hostage, that kind of changes the negotiating dynamic.
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Now, you could argue they showed that they are capable of shooting the hostage,
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but they backed down.
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And they backed down for good reasons, by the way.
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I'm not arguing with that, but it does change the negotiating dynamics somewhat.
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And so that, and the fact that they're never going to be able to negotiate with
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all of those countries and do deals with all those countries before July 9th.
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So there's a question, and let's face it, the uncertainty that all of this creates,
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whether you're talking about domestic US Firms that are thinking about investing or
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foreign companies that are thinking about investing or
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companies that are making purchase decisions, all that's kind of up in
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the air because nobody knows what the tariff is going to be, Right.
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No one knows what they're going to be paying.
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And in some cases you're talking about tariffs that are, you know,
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twice the cost of the product in the first place or more.
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>> Elizabeth Economy: Right. And then for some, in some cases,
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I know for countries like Madagascar, right,
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where they have A surplus of cloves and vanilla, right?
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One of this countries on Earth.
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You're wondering, what is the point of this really.
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>> Susan Schwab: PG water or Lesotho?
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I mean, little, small, poor countries that.
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Small, poor countries that, you know,
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are trying to make it in a tough trading world.
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And, and, you know, we might have given them trade preferences.
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Trade preferences 10 years ago.
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And, and now the administration slaps a tariff on them and
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they don't know what hit them.
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And, by the way, the administration doesn't.
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Isn't going to have time to negotiate with them anytime soon.
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So they're facing the prospect of real chaos unless,
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you know, the pause is extended for them.
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It's not their fault they're not getting an audience with ustr.
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>> Elizabeth Economy: Right.
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And I guess that begs the question as well.
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I mean, you know, it does seem as though there are just some
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differences of opinion within this administration.
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Not everybody seems to be aligned.
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I think, Kevin Hassett, for example, has written for
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years about tariffs, not in a, not particularly favorably.
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So how do you sort of understand the dynamics of the administration?
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And do you think that has contributed to some of the chaos that we seem to have
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experienced in this process?
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>> Susan Schwab: Well, you know, each, each president runs their operation,
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runs their cabinet the way they choose to run it.
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I was very, you know, I was blessed by working for George W.
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Bush, who was a terrific boss, and you could tell he had been a CEO.
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You knew your red line.
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I felt very empowered as a negotiator.
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I knew my red lines.
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I would sit down with my, say, Chinese counterparts who had to phone home for
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every single decision that they had to make.
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Whereas we sat at the table and we could wheel and deal because we knew we
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could be innovative and creative in the structures we came up with.
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And we knew what the red lines were, we knew what our objectives were,
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we were empowered.
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And our marching orders generally were, get the best deal you can, and
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if it's a bad deal, you walk away.
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And I did both as ustr.
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I got some good deals and I walked away from bad deals.
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So the current team, there was only one decider, right.
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And that is the president, and he is delegating up to a point, but no further.
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And I think I have the sense that they're settling into a rhythm and
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they're settling into who has what responsibility, right?
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So you have Secretary Besant and
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Jameson Greer as the lead in the China talks at this point.
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You have Secretary Lutnick and Ambassador Greer on all the other negotiations.
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I think it's pretty safe to say that most of the work is being done at USTR and
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the interagency process, you know, experts at the Commerce Department,
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experts at the Agriculture Department, experts at the Treasury Department,
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and that's the way that interagency process has always worked.
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What they don't know is, and nobody knows at the end of the day,
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what is going to be satisfactory and what else the president's going to want.
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>> Elizabeth Economy: Right.
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And so we've seen the deal with the UK and now a big investment deal with
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Saudi Arabia, investment and trade deal with Saudi Arabia.
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How do you evaluate these deals?
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I mean, the president, of course, has called them successes, big successes.
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I mean, as a US Trade negotiator,
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do you see these as successes from where we started to what we got?
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Do they seem like successes to you?
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>> Susan Schwab: Well, if you're talking about I'm not familiar at all with
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the Saudi deal at this point, except that obviously the United States
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has always been or certainly has been in the, you know,
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the contemporary decades, a really good place to invest.
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And that has been evident by the amount of foreign direct investment,
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both in terms of stock and flows.
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And the key is not to screw that up.
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And I think the president wants to be a part of encouraging that or forcing that.
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And he declares victory.
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When he has done that, we'll see what how the, you know,
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press releases translate into action, actual investment.
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Some of that investment is gonna come in slowly.
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We know that it takes a long time to build, you know, factories or
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retool factories.
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It takes a long time to hire people,
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particularly when you've got skill deficits in the United States.
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But those are to be applauded if they come through in terms of some of the other.
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The other elements, there's the fact that they are negotiating agreements.
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I mean, I give them credit in terms of the UK deal.
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There is some substance there, there's a whole lot of work to be done.
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And I give both sides credit in terms of the UK deal for
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having got as far as they did.
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But the devil is always in the details and
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they're going to have to work those out and we'll see.
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You know, the, the, the last we've heard is that, is that, you know,
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Switzerland is, is up on the list.
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The EU is not so far up on the list.
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They are negotiating.
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I don't know what the latest count is, but, but
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with at least 20 countries where negotiating is, seems to be defined as
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the country has to not have retaliated, has to come in with a proposal.
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Then the US hands them the template with the specific asks and
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that may be remove these barriers again from the National Trade Estimate Report.
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Perhaps some purchases, purchase agreements,
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perhaps encouraging foreign direct investment
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actions to reduce the trade deficit.
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But that's hard to do, I mean, because governments can't, you know,
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commit to that.
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But if there are concerns about currency manipulation,
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commitments on currency manipulation, and
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in some cases it, it's quite clear concerns or, or
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actions to address concerns about Chinese overcapacity finding
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its way into third country markets and then coming to the US and
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those are going to be harder for some countries than others.
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But that seems to be one of the kinds of things that shows up or
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is being asked in these agreements.
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There are also some really interesting things on the digital front,
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some to be getting, some of which they, they aren't necessarily getting.
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That that was still a standoff in the UK case digital services tax,
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which we have a real problem with.
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But they've agreed to have a digital technology forum bylat and
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if they can come up with a deal there, that'd be terrific too.
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>> Elizabeth Economy: Yeah, I, I think that was one of the points that they said
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we're going to move forward right on trying to come up with some kind of
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digital trade agreement which would be, I think, terrific.
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That would represent a real step forward.
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And as for the Saudi deal, I would just say it's a lot of investment.
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The trade seems to be mostly in purchases of defense equipment,
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military equipment by the Saudis, but a lot of Saudi investment here and some
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investment by our tech companies there and you know, worth apparently $600 billion.
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Although again, to your point about what actually materializes,
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there's some that, you know, could take a long time and
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there's also some that's already underway that they've just kind of included,
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as we both know from working on these kinds of statements in the US Government,
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you try to take advantage of things that may also already be in the works.
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And it's clear there's some of that wrapped up in this as well.
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>> Susan Schwab: And the thing to remember about the UK Deal is the first Trump
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administration worked very hard on a bilateral trade agreement,
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I mean, like a full scale comprehensive trade agreement with the UK So
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they put in several years on that and they had that available to them as a template,
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a blueprint that they could draw on for this current negotiation and
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people on both sides who had been involved in those negotiations,
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namely Jameson Greer and Amanda Brooks on the UK side, among others.
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>> Elizabeth Economy: And they're back again, right?
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>> Susan Schwab: That's exactly right.
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>> Elizabeth Economy: Yeah. So they have the opportunity now to move
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things forward.
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So that is, I think, a very, you know, a positive sign.
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So let's spend a minute on China.
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You know, as you mentioned, USTR Greer,
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Ambassador Greer and Treasury Secretary Besant,
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they were in Switzerland with their Chinese counterparts.
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They came to some accord.
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They, you know, huge reduction in the tariff levels on both sides.
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So that now for the next 90 days, it's sort of 30%, I think,
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in terms of Chinese goods coming into the US and 10% on US goods going into China.
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And the Chinese removed all of the non tariff measures that they'd put,
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I think critically for us on the critical minerals, rare earth elements.
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But the narrative seems to be- >> Susan Schwab: Let me offer just one
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caveat.
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>> Elizabeth Economy: Sure, absolutely.
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>> Susan Schwab: It is, if you look at the press releases,
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it is the US and China dropping the tariffs
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that they imposed on April 2nd by 115%.
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>> Elizabeth Economy: Right.
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>> Susan Schwab: So it's not a 30% tariff.
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It is on the US side, 30%.
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10 plus the 20, the 10% baseline, the 20% fentanyl on the Chinese side,
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10% on top of what was in effect on April 1st.
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>> Elizabeth Economy: Thank you for that.
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>> Susan Schwab: Yeah. So,
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>> Elizabeth Economy: okay,
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>> Susan Schwab: so we're talking about
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tariffs that can go well in excess of 30%.
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>> Elizabeth Economy: Okay.
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>> Susan Schwab: And then there were some changes in de minimis that had again,
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we went from prohibitive, you know,
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they, as they refer to it as effectively an embargo.
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>> Elizabeth Economy: Right.
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>> Susan Schwab: To high but not prohibitive depending on the product.
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>> Elizabeth Economy: Right. >> Susan Schwab: Depending on the product,
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depending on the sector,
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there will be some resumption of some resumption of trade.
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>> Elizabeth Economy: So that's a very important distinction, thank you for that.
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So people are saying, or the media,
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I would say the general narrative has been that Somehow China won that Xi Jinping,
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standing tough, standing firm, that actually China came out ahead.
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Is that how you read this?
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>> Susan Schwab: Not really.
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I sort of read it as both of them finally came to their senses and
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sent some adults to Geneva to talk.
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>> Elizabeth Economy: Yeah.
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>> Susan Schwab: We were an absurd situation where the fact that neither one
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wanted to make the first call at the leader level was just utterly absurd,
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while both economies were feeling significantly negative impacts,
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for God's sake, just sit down and talk.
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And they finally sent some adults to do that.
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>> Elizabeth Economy: Right.
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Yeah. My sense was that both leaders recognized
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that the real hurt was about to hit and take action.
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Now, [CROSSTALK] serious problem, yeah.
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>> Susan Schwab: You're aware, more than, more than most, the extent to which so
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much of China, so many of China's exports to the US Are actually small,
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medium sized, >> Elizabeth Economy: Right.
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>> Susan Schwab: Enterprises that can't last that long.
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And there's a limit to how long people are gonna be able to hang out
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not producing things and not getting money and having contracts canceled.
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Because these tariffs are across the board, not just on.
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And are across the board, not just on critical items.
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>> Elizabeth Economy: Right. And I think the Trump administration, for
23:52
its pardon, to its credit, recognized that, you know, no matter that
23:56
the President says, you know, you can have two dolls instead of $30.
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Dolls this was going to affect a lot more than that in terms of consumer prices for
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American families and
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that this was going to have significant negative impact on the U.S economy.
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And we're already seeing in terms of the shipping and containers and
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just the whole supply chain really, I think was under threat.
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So many different parts of the US Economy would be hit,
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not even just the US Consumer.
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So I think, you know, for both sides coming together, I think it was a,
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you know, it was time.
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So, you know, what about the, if we're focusing on China, you know,
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what about the longer term benefits of what the president is trying to do or
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the longer term costs?
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I mean, if you were sitting, you know, with him or
24:48
sitting with Jamison at this point, what would you recommend moving forward now?
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What would you say?
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This is really how I would try to structure a deal or here's where I think
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there's room to actually get something useful from the Chinese.
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What do you see as the opportunity at this point?
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What do you see as the risk?
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>> Susan Schwab: So I guess I would say the Chinese have been decoupling for
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over a decade and we need to be more strategic about what we're doing.
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You can call it decoupling in strategic areas,
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you can call it de risking as the Europeans are.
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But the fact of the matter is the Chinese have been doing it and we have not.
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There were some effort is, you know, some effort in,
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under your tutelage under, under Secretary Raimondo and
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on a couple, in a couple of sectors, but not generally on the trade side.
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And it was interesting to hear Jameson Greer comment that there
25:49
were no bilateral conversations going on between USTR and
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their Chinese counterparts over the last several years.
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So not, >> Elizabeth Economy: I have to say,
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at the Commerce Department we had discussions going on on the US China
26:06
business relationship and treasury had those discussions, but
26:09
quite right that USTR really hadn't, really hadn't established any sort of
26:14
channel of communication with their counterparts.
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>> Susan Schwab: Right. And you need a whole of government
26:19
approach and you really need, I mean if you're going to do it right,
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you're going to need a whole of government approach.
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And so that's, you know, a second piece of advice which is you got
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to figure out what your priorities are and that's what you target.
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And dolls, I'm not sure dolls is it apparel, footwear,
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you got to figure out what, what is it that we can be trading with each other and
26:40
that's going to be in the tens and
26:42
hundreds of billions of dollars that I was going to say nobody cares about,
26:47
but a lot of people care about, they're good for both sides.
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Whereas those aspects of the trading relationship that by one definition or
27:00
another are sensitive in terms of security,
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whether on the import side or the export side.
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And those are the ones we need to be focused on.
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So that would be really my first piece of advice is figure out what matters and
27:17
what doesn't matter and just focus on that.
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The second piece of advice, so
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the first piece of advice might actually be taken seriously.
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The second piece of advice is we really need our allies on board on this.
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>> Elizabeth Economy: Yeah. >> Susan Schwab: And you know, you can't,
27:34
I'm not going to pretend you can dial back the clock, but
27:39
I would hope in the context of negotiations with other trading
27:45
partners as we try to address the existing tariffs or you know,
27:51
the situation we find ourselves in or they find themselves in with the,
27:57
the, the bilaterals that will be going forward,
28:02
that a premium is placed on how to address the China relationship both in terms of,
28:09
of how we and our trading partners behave, but
28:13
also how to reinforce the trading system, the wto,
28:18
the GATT rules, to make sure that it's not just the US alone or
28:24
not just the US and Japan or the EU alone, but
28:28
that there are a whole lot of countries out there that are really
28:34
unhappy with China and China's trading practices.
28:39
Whether it's the coercive side,
28:41
whether it's the fact that all they're doing is shipping raw materials to China.
28:44
Yeah, China is their biggest trading partner.
28:46
But, but it's because China is a market for their raw materials.
28:52
>> Elizabeth Economy: Right.
28:53
>> Susan Schwab: And they would rather be adding value and adding more skilled,
28:57
you know, skilled labor on their side.
29:01
So they don't want to be China's plantation.
29:05
And I think there's room for reinforcing rules that are agreed and
29:11
enforced multilaterally and plural, laterally, you know,
29:16
multi country agreements, agreements among the willing.
29:22
I would take us back to cptpp.
29:26
That's not gonna happen.
29:28
But something like that, where we have countries that had the same concerns
29:33
that we do, cooperating doesn't have to be a formal agreement, but
29:38
I would put that higher on the list, I think, than some of the terrorists per se.
29:45
And then third, the sooner you can get certainty into the markets,
29:50
the better because then the sooner businesses can do the kind of investing
29:55
that the administration would like.
29:58
And finally, visas, you know, work visas,
30:02
typically skilled, you know, H1B visas,
30:07
skilled labor visas, and that includes visas for
30:12
people in trades where we have not and
30:16
have not been able to and can't find the,
30:20
the bodies to, to do the welding or other trade.
30:25
So not displacing US Workers but finding workers to take on those jobs in
30:30
those factories where we've run out of US Workers.
30:35
So those would be, those would be my recommendations.
30:37
>> Elizabeth Economy: So let me, let me pick up on a couple of points.
30:40
I think on the sort of more proactive trade policy which has been I think
30:44
lacking over the past eight years has even just, it's not even something new.
30:50
I think we can agree.
30:54
Do you see that happening, a reform, a wholesale reform of the wto?
30:59
Do you see a way in which China is involved in a new or if not,
31:02
do you see a way that China is involved in any sort of new trading regime?
31:07
Or do you really think realistically that we can only have trade
31:11
agreements now among like minded democratic partners or you know,
31:16
countries that are at least operating with the same level of, you know,
31:21
labor standards and corporate governance and you know, market openness?
31:27
I mean, how is there a way that,
31:29
that China actually is in a global trading regime and we're in it at the same time?
31:35
>> Susan Schwab: So I think first of all that we've done a lousy job.
31:39
We over as you say, a decade of taking China to the WTO and
31:44
filing cases against China that are winnable cases.
31:49
Everyone focuses on the dispute settlement, you know, the appellate body.
31:55
And that's the wrong, that's, that's been a diversion.
31:58
As far as I'm concerned.
31:59
The GATT Pretty well before the WTO and before there was an appellate body.
32:03
And we need to be running up the, we need to be running up the, the score and
32:08
showing that China is, in fact,
32:10
violating a whole lot of things that China committed to do when they joined the wto.
32:15
I think we just need to be showing that over and over and over again because China
32:19
keeps saying they're the good guys and they're the multilateralists, and, and
32:23
they're, you know, they want partnerships and all that.
32:26
And, and then, I'm sorry, that's not how they behave in real life.
32:31
So that would be the first thing.
32:32
And I think WTO is very useful for that.
32:34
And I think negotiating through the wto, you can smoke out the Chinese.
32:41
>> Elizabeth Economy: Okay, that's, I think, a really important point because
32:44
I'm not sure that's the general sort of feeling in Washington these days.
32:49
I think, you know, the arguments.
32:50
I was just, you know, in D.C.
32:52
last week and at a meeting where there was a lot of trade discussion.
32:56
And I would say that overall it was about, you know, sectoral trade agreements or,
33:02
you know, a CPTPP type agreement, but a sort of throwing up the hands like,
33:07
forget about the wto, I think, was really the general sense of the room.
33:12
>> Susan Schwab: I think there is value to be placed in plurilateral sectoral
33:16
agreements.
33:17
I think there is value in regional agreements or, you know,
33:22
plurilateral agreements that are like CPTPP among willing countries,
33:28
but I don't think they're mutually exclusive.
33:32
You know, the, the WTO has, has particular benefits.
33:37
And you can do.
33:38
There's certain things that you cannot do bilaterally and
33:42
you cannot do with small agreements and you cannot necessarily do sectorally.
33:48
So things like protecting intellectual property.
33:52
And there are certain things that you can only do multilaterally that isn't
33:57
going to bother anybody if you do them well.
34:00
And having China and the US in the same agreement, the fisheries agreement,
34:04
trade facilitation agreements,
34:06
those are things that you really want to have multilaterally.
34:10
But it may be that if you're going to do a deal on, let's say, pharmaceuticals or
34:14
medical equipment, and you want to make sure you got supply chains that are going
34:19
to be there and operating and reliable sources of supply the next time you have
34:23
a pandemic, it may be that you're not going to have China as part of that group,
34:28
or maybe you are going to have China as part.
34:30
But you need to have the option.
34:32
So I think you can do sectorals in parallel.
34:35
You can do regional deals in parallel with the wto.
34:38
But I wouldn't abandon the wto.
34:40
We would have to reinvent it if it did.
34:43
>> Elizabeth Economy: I think that's a really important, important statement.
34:46
So maybe get, you need to get that out there a little, a little more.
34:50
I don't think.
34:51
Yeah, I just don't think that's the,
34:52
that's the tenor of the conversation right now.
34:54
But let me ask you one more question on the US China trade relationship,
34:58
just the bilateral relationship, because it seems to me that you're, you know,
35:02
you raised the point of, you know, where are we between de risking and decoupling.
35:06
We need to have a strategy for what it is that we want to do.
35:09
I mean, a big part of what President Trump has said that he wants to get done is to
35:14
sort of rebalance the, you know, $300 billion or
35:17
more trade deficit that we now have with China.
35:20
Treasury Secretary Bessen has said that's going to take a couple of years.
35:24
I mean, do you see that as even realistic,
35:27
given the current state of what we export to China, what China exports to us?
35:32
And in fact, if we are looking to strategically decouple,
35:36
that could end up taking, you know, many more US you know,
35:40
high tech products sort of off the table in terms of our exports to China.
35:44
So is that idea of rebalancing the trade deficit,
35:48
do you think it's realistic at this point?
35:53
>> Susan Schwab: Yes and no.
35:54
Yes, to the extent that the actions in the first Trump
35:58
administration started that process and companies said,
36:03
okay, the US doesn't want as much to import as much from China and
36:09
therefore companies move manufacturing and moved sourcing to
36:14
other countries, to Vietnam, to Malaysia, to Thailand.
36:19
And then the second Trump administration comes in and
36:22
is focused on bilateral trade deficits from every country.
36:27
And the companies that did what they thought they were being told
36:31
to do in the first Trump administration are discovering they're facing all
36:35
these big barriers, you know, these, these tariffs now.
36:38
So I think if you're really serious about addressing the US China trade challenge,
36:44
you've got to be looking, you got to be taking seriously French shoring,
36:49
you got to be taking seriously near shoring, which I would argue neither
36:54
the first Trump administration nor the Biden administration really did.
37:00
And >> Elizabeth Economy: we, I have to say,
37:02
we did try.
37:03
We built it into chips in science, actually.
37:06
So there were some efforts at near and friend shoring, but go ahead.
37:09
>> Susan Schwab: Okay.
37:12
And I think that has to be part of the strategy.
37:15
And you're right, absolutely right.
37:16
It takes an extended period of time.
37:19
We need to focus very heavily on Making sure that the US is
37:24
the place where companies want to invest and where the R and D and
37:30
the creativity and the innovation takes place organically.
37:37
Right.
37:38
That has to do with looking after university R D.
37:44
It has to do with looking after Nest.
37:45
It has to do with looking after a lot of things that draw individuals
37:51
from all over the world here to invest their time and effort and
37:57
make money and create companies and create wealth for
38:02
all Americans and quite frankly, others in the world as well.
38:08
So I, I think you would have to differentiate between
38:12
the China bilateral trade deficit and the rest of the world and
38:17
where you would prioritize how those countries interact with
38:23
China as opposed to the level of the bilateral trade deficit
38:28
between those countries in the U.S. >> Elizabeth Economy: right.
38:32
So China becomes the strategic objective.
38:35
Right. Dealing with China and that particular
38:38
economic challenge, trade challenge becomes the primary objective and
38:43
everything else you're arguing becomes in service of that to some extent.
38:48
>> Susan Schwab: Yeah.
38:49
And the ideal, and I'm not saying that this is necessarily realistic, the ideal
38:55
is that China starts getting nervous that this actually is going to work and
39:02
that they are going to have to stimulate more domestic demand and,
39:07
or play by the rules and they become a more responsible stakeholder.
39:14
>> Elizabeth Economy: Right, right.
39:15
Which, you know, I think to your earlier point about the fact that there are many
39:20
countries who are concerned about Chinese economic practices, including their
39:25
export of their okra overcapacity, it's not simply the United States and
39:29
Europe and Japan, but now it's a lot of middle income economies,
39:33
India and Brazil and Argentina and Mexico as well,
39:36
who don't want to see their nascent industries in areas like, you know,
39:40
EVs and batteries and medical devices and every other made in China 2025 technology.
39:46
They don't want to see them, you know,
39:48
sort of squashed before they are even given a chance to develop.
39:52
So I think you're right.
39:54
There's an opportunity, you know, if managed properly, to work with others and
39:58
to hold.
39:59
Hold China accountable and that these countries, in effect,
40:03
when China sees their pushback, it's a very different dynamic, I think,
40:09
frankly, from simply feeling as though it's the United States trying to contain
40:14
us when they've got other partners, countries they generally consider
40:19
to be their partners, saying these types of economic practices are not okay.
40:25
So maybe that is also another type of pressure that China is going to
40:29
feel that could cause it to change some of its behaviors.
40:34
>> Susan Schwab: Yep, precisely.
40:36
>> Elizabeth Economy: So I always finish with a couple of just quick questions to
40:39
get your thoughts.
40:41
You've been looking at China for many, many years.
40:45
What is it that you think we don't know enough about China?
40:51
When you're working on China, when you're thinking about it in the trade context or
40:55
more broadly, what do you wish somehow that you knew more about?
41:02
>> Susan Schwab: I wish that I knew more about and the US Government knew more
41:07
about or had a way to know more about the individuals,
41:13
the Chinese individuals who really would rather be here,
41:18
be educated here, be citizens here, who are not and
41:23
would never be a national security threat.
41:28
Similarly, the capital flight and the technology
41:33
flight generated by, you know, those individuals and
41:38
those companies that do not pose a national security risk.
41:43
And in our zealousness, and
41:46
I don't know if that's a word in our, you know,
41:51
well founded concern about national security,
41:56
I think we are losing a major bet in terms of Chinese citizens and
42:02
Chinese companies, private companies that would much rather be here than there.
42:11
And the Chinese are not missing that bet because they are doing everything they can
42:15
to keep those companies and those individuals from exiting.
42:18
And that should tell us something.
42:19
And I wish I knew more about how one could differentiate.
42:25
So that's, >> Elizabeth Economy: I'll
42:26
give a small plug to a project here at Hoover, actually,
42:30
that's being run by one of my colleagues, Glenn Tifford, on research security,
42:36
where they are looking at the sort of university and types of research that
42:41
many scholars are doing in the scientific fields in China and tracking them to see,
42:47
you know, which ones are not actually tied to military institutes or,
42:51
you know, or security or the security apparatus so
42:55
that you can have a degree of comfort with, you know, the majority of
43:00
Chinese scientists who would like to partner or would like to work here.
43:06
And I think this again speaks to the earlier point you made that we need
43:09
a sort of a holistic ecosystem if we're going to be able to compete with China.
43:14
We need to have the talent that we need, the innovation,
43:18
the industry, the manufacturing, etc.
43:21
And foreign talent, Chinese and otherwise, is gonna be a big part of that and
43:27
funding our research universities, and our labs, and
43:32
our institutes like NSF and health are critical to that.
43:37
So I think, you know, we have a small project underway and you can check it
43:43
out when it's a little bit further, further along because I think it's,
43:48
I think, and I'm hopeful that it will help to give peace of mind to scholars and
43:53
government officials about the fact that, you know,
43:57
most Chinese do not come here to study and learn and to, and spy at the same time.
44:03
Okay, book article.
44:05
What have you read recently or not so
44:07
recently that you think would be great for Americans to read about China?
44:14
>> Susan Schwab: So you may laugh at this, and it's not specifically about China,
44:19
but I think it would be very helpful if American policymakers, business people,
44:26
and even average Americans were to read a book that was written in 1991,
44:32
I think, by Peter Schwartz called Art of the Long View.
44:36
And it is a book I go back to periodically.
44:42
And it was sort of the origin of scenario planning.
44:46
I think Peter is now.
44:47
Peter now, I think, is affiliated with Salesforce.
44:51
He's a futurist, but makes you think about how you do scenario planning and
44:58
think about scenarios that you would never have thought of before.
45:04
And if there were ever a time for us to be doing that as, as individuals,
45:09
as businesses, as governments, this is it.
45:12
So I go back to the Art of the Long View and I recommend it a lot.
45:16
I don't even know if it's still in print.
45:17
I hope it is >> Elizabeth Economy: terrific.
45:18
I'm sure, I'm sure I can find it.
45:20
And I'm going to take, I'm going to take that recommendation.
45:22
It's not, I don't usually get, usually I get a China book or
45:24
article that I've already read and say, that's a good idea, but
45:27
now you've given me something, something new.
45:29
So thank you.
45:30
All right, last question.
45:31
We know that President Trump has someplace inside him a desire to
45:36
have a big deal with Xi Jinping.
45:38
He'd like to meet with Xi Jinping.
45:41
What are the odds that President Trump and
45:45
President Xi have a kind of Nixon Kissinger,
45:49
Mao Zhou Enlai moment and achieve some kind of breakthrough for
45:54
the US China relationship over the next three and a half years, one to ten?
46:01
>> Susan Schwab: I think the odds are pretty good.
46:05
I, you know, I look at, and I think that's good and bad, by the way.
46:10
I think the odds are pretty good.
46:12
I, I give President Trump a whole lot of credit for usmca.
46:18
You know, the, the Canada, Mexico, US Deal that, that no other president
46:23
could have done and no other president could have gotten through Congress.
46:28
And I hope they don't mess it up now because it was a really good deal and
46:31
there's some risk that they will mess it up.
46:34
In terms of the Kissinger, the Nixon goes to China moment,
46:39
I think that's something that would appeal to President Trump,
46:45
probably would appeal to Xi Jinping.
46:50
I just would hope it's not in the context of us selling out, yeah.
46:56
>> Elizabeth Economy: Okay.
46:57
So, Susan, thank you so much for your frankness, for your equanimity.
47:04
You know, I think kind of helping to steer us, give us a clear path forward,
47:09
I think is really useful at these times when, you know, we're constantly besieged
47:15
by what just seems to be, you know, it's one piece of news after another.
47:21
It's very difficult to make sense of it all, I think.
47:24
But you've really, I think, contributed, not just through this podcast,
47:29
but I think more broadly to helping people understand, you know,
47:33
what's going on and where this might all go.
47:36
So thank you again for your time, >> Susan Schwab: Liz.
47:39
Thank you very much.
47:41
And keep doing what you're doing because it really is teaching all of us things we
47:46
need to know.
47:48
>> Elizabeth Economy: So if you enjoyed this podcast and
47:49
want to hear more reasoned discourse and debate on China, I encourage you to
47:53
subscribe to China Considered via The Hoover Institution YouTube channel or
47:57
podcast platform of your choice.
47:59
Our next China podcast will feature Hoover Senior Fellow Sumit Ganguly on
48:04
the recent military conflict between Pakistan and India and how China and
48:08
the United States fit into this dangerous dynamic.