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Talking Policy: Ann Lee on US-China Relations

China was front and center throughout President Trump’s campaign. In the first presidential debate, Trump accused the East Asian country of stealing manufacturing jobs, devaluing its currency, dumping steel, sponsoring cyber hacking, and using the U.S. as a “piggy bank.” Before he was even sworn in, Trump seemingly challenged the One China policy by accepting a phone call from president of Taiwan. World Policy Journal spoke with Ann Lee, a leading authority on China’s economic relations and author of What the U.S. Can Learn from China, about the future of U.S.-China relations.

WORLD POLICY JOURNAL: When President Trump was first elected, you expressed worry about the future of U.S.-China relations. Now that he's been in office for a few weeks, how do you think this tension will play out?

ANN LEE: Well, I don't think I've changed my mind about this after seeing what has transpired with other nations. I don't think that it's necessarily going to go much more smoothly with China.

WPJ: What do you think the worst-case scenario would be?

AL: I think the worst-case scenario is that the U.S. and China fight a real war where you have a series of provocations that somehow end up becoming World War III.

WPJ: How likely do you think that is?

AL: That's hard to say. I think that based on some of his closest advisors like Peter Navarro and Steve Bannon, it's more likely than not if he chooses to listen to whatever advice they give him. Let's hope that's not the case, but it almost feels like there are certain people in his administration that want a war—are planning for one—and there are obviously media reports that they seem to want one based on past interviews or statements.

WPJ: We do not hear a lot of Chinese perspectives in the Western media. What has been the Chinese government’s general reaction to the proposals of the Trump administration?

AL: I think the Chinese are just as concerned as anybody else in the world. A lot of folks there have been disturbed by Trump's actions in his first days in office—clearly the phone call he took from Taiwan sort of set the precedent. And I think the Chinese are under no illusions that it's going to be an easy road dealing with the Trump administration. I am sure they are ready and bracing for a very tumultuous, rocky road in this relationship. Hopefully they can avoid a situation where the two nations do go to battle because certainly if that happens it would be the end of civilization as we know it.

WPJ: There is a common narrative in the U.S. that China is stealing jobs from the country, which was clearly present throughout President Trump’s campaign. What are the origins and dynamics behind this narrative?

AL: I really believe that narrative came about when some folks in Washington started to worry that the U.S. was going to be eclipsed by China as a world power. Clearly the U.S. knew that these changes were going to happen when they allow China to join WTO and sign other agreements. These agreements obviously would encourage jobs to leave the U.S. and go to other countries. They were under no illusions when they entered these deals. So it suddenly became a problem when people they changed their minds about where this process was headed. They probably were surprised how quickly China grew economically and how quickly it massed so much economic power and influence. This made them uncomfortable, so they needed a reason to stop this trend from continuing. They needed to create some sort of excuse to make it sound like this was China's fault and that the U.S. had little to do with it, when in fact it had everything to do with it.

I think this narrative also allows the American public to create a convenient scapegoat so they don't have to admit their own errors and can point to an outside force as the source of anger within the American population for losing jobs and other changes.

But mostly I think policymakers needed a convenient excuse to take a series of negative actions against China and justify why they were doing it. China clearly was not wrong, acting very much out of character, or violating anything. If there were issues that a nation had trouble with, it could go to the WTO—as the U.S. did many times. But the U.S. had other reasons to create a very negative narrative.

WPJ: The Trump administration is leaving the Trans-Pacific Partnership. What effect do you think this will have on China’s activities in the Asia-Pacific region?

AL: Certainly without the U.S. involved in TPP, these nations are not necessarily going to be pulled away from China. China was already becoming the vortex of economic power in Asia. In fact, before the TPP came along, China already was the strongest economic power, situated in the center of a lot of regional supply chain networks. TPP was just the U.S. response to try to slow down China's economic influence in the region, but the train had already left the station.

The fact that the U.S. is not signing TPP isn't necessarily changing the dynamics drastically in the Asia Pacific region. It's just conceding that the U.S. is not going to play this game because, in a way, we already lost. This just gives China free rein to continue pushing its own free trade agreement. Sure, the other nations in TPP could sign it without the U.S., but it seems like the whole agreement has lost momentum and these nations are probably not going to pass it.

Basically, these nations will continue to see U.S. and China in very bipolar ways in that they will still cater to China as the true economic power in the region and then to the U.S. as the true security power. They have these two different masks, so to speak, as for the last couple decades they've been able to make agreements with both sides to try to appease them both. But each side had a different strength—China’s being economic and the U.S.’s being military. The U.S. was trying to offset its military might by also bringing in the economic piece, but with Trump tearing up TPP, the administration is basically saying we're not going to go ahead with the economic component. We're just going to stick with security.

WPJ: How do the surrounding nations feel about this decision?

AL: I think it just depends on the nation. Certainly India, for instance, is actually relieved that TPP is over because they were really worried a lot of business they were getting from the U.S.—say in textiles—was going to be diverted to nations that were in the TPP, such as Vietnam.  

Most of the nations [that were in TPP] are probably relieved that they're not forced to choose between U.S. and China on the economic front. I think they were already defaulting to China, and now that they're not forced to choose, it's actually just as well and they don't have to be stuck between a rock and a hard place.

WPJ: China has become a manufacturing powerhouse over the last few decades. How do you think Trump’s proposals to bring manufacturing jobs back to the U.S. will affect China’s economy?

AL: I don't think it's going to affect it much. And the reason is this: China is part of a vast supply chain network and has not only innovated in its own way in terms of trying to invent new products, but it has also really been innovative from a process manufacturing standpoint. So yes, they've been the big manufacturing powerhouse and they've really learned how to innovate the process so that they can derive the most efficiency as fast as they could, as cheap as they could. If the U.S. wants to bring back certain manufacturing to the U.S., that's fine because, frankly, the U.S. consumers are the ones who are going to get hurt. U.S. consumers tend to be the ones who will pay for the more expensive products made in the U.S. as opposed to China. And those companies are not going to be able to compete with China in the global market because they won't have developed the same efficiency in manufacturing that China's been developing over the past two decades. They're not close to the supply chain networks, they would have to start from scratch, and they would just not be competitive with what China already has built. So if they pull their manufacturing out it's going to hurt the U.S. more than China.

While people say the U.S. has so much leverage because China depends on the U.S. for all these exports due to the U.S. trade deficit with China, if you look at the numbers, China's export numbers have dropped significantly from around 50 percent of the GDP down to about 20 percent. And the U.S. only accounts for about 18 percent of that 20 percent. So the total amount that China exports to the U.S. would only affect China from a GDP percentage standpoint. While this can hurt on the margin, it is really not going to devastate their economy. On the other hand, the U.S., which depends so much on importing everything from the whole world—especially from China—is going to experience much higher inflation as a result of having to slap on tariffs or cut off manufacturing from China. To build manufacturing in the U.S. isn't something you can just snap your fingers and create overnight. It is going to take years to build the capacity to handle it. And on top of that, the process will not be as cheap and efficient. It's going to end up hurting the poorest consumers in the U.S. who probably still won't get those manufacturing jobs because they are going probably going to be staffed with robots, not people. So not only will they not have the jobs, but everything will also be much more expensive—and providing inexpensive goods was where China as actually helping the U.S. by allowing consumers to have purchasing power. I don't understand the advantage of having the kind of trade war Trump is talking about, because the numbers just don't bear out.

WPJ: China has been making efforts to invest in Africa and Latin America and move its manufacturing offshore. In the coming years, how will China approach building economic and political influence outside its borders?

AL: China's going to continue to try to create new markets elsewhere because it knows it can't depend on the U.S. and Europe alone, given that these are mature markets and they've been saturated. China wants to continue growing its exports, so it needs to create more markets. Africa, Latin America—these are low-hanging fruit. I expect China to continue to move manufacturing offshore so that it can serve these local markets. If the U.S. wants to rip up NAFTA and bring all those jobs from Mexico back to the U.S., China will more than gladly set up manufacturing in Mexico to serve its exports to Latin America. It doesn't seem to make any sense why it would pull back in that way. There will be lots of opportunities everywhere because there's untapped demand from people who would like to purchase more goods but just don't have the opportunity or don't have the jobs. And if China can create them, then certainly they will grow the pie.

It was a natural thing for China to do this because they saw that it worked in their own economy. And so they're thinking it would be easy to duplicate this because they have their own experience and they know exactly what works. That's what they've been doing around the world, and it's working.

WPJ: Your book, What the U.S. Can Learn from China, was released in 2012. Now that a few years have passed, how would you evaluate the U.S.’ direction?

AL: Listening to his inauguration speech, it sounded like Trump was going to follow China's model by saying that America is going to be a model for the world, we're not going to impose our values, and we're just going to be great so other people will want to copy us. That would be following China's model because China is really non-interventionist. China doesn't want to create regime change and tell people how they should run their governments.

If Trump follows that doctrine, then it would make sense. But right now it's unclear if he's going to do that. So far he seems to be making good on some promises and backing down on others. For instance, he said he’d get tough on Wall Street and bring more opportunity to Americans, but that's not happening—he's going to totally deregulate Wall Street and satisfy all the Wall Street cronies so that they can continue their gangster-speculator culture. That in itself is causing jobs to disappear because the lack of protective measures takes away any real incentive for individual effort. It sounds like Trump is just turning back the clock and he's not really trying to restore what made America great. The rise of Wall Street and disappearance of manufacturing completely coincided with the Nixon shock, when the administration decided to go off the gold standard and allow banks to print money like crazy, allowing Wall Street to become such a giant part of U.S. GDP. So I don't see, in that sense, how U.S. has learned anything from China.      

WPJ: Anything else you'd like to add?

AL: I would say it's truly troubling right now what I've seen so far. I think a lot of people are troubled by the way Trump has chosen to handle foreign relations because it seems a bit jarring. And it seems to me that he is making singular overtures to Russia, and all this talk about NATO being obsolete has gotten everyone worried about how Trump wants to negotiate deals. It sounds like he wants to dismantle NATO so he can cut a deal with Russia by trading away former Soviet Union countries to Russia, in order to break the close cooperation between Russia and Iran and Russia and China. Whenever a leader wants to use countries as bargaining chips, I think that's playing a very dangerous game. He's worried the Europeans, and he’s clearly worried the Chinese by making it sound like Taiwan or the South China Sea are bargaining chips. He's really playing with fire. And this is why when you ask me about a worst-case scenario, I think it could be World War III. Because these are not economic issues. They become security issues—existential issues in a way—for a lot of these countries.

The Independent reported that Steven Bannon said he just wants to create chaos and upend everything that's been in the establishment. On the one hand, it could be good to upend certain things that have been destructive to jobs and so forth. But disrupting the existing world order could be extremely destabilizing and of course it could create a lot of miscommunication and miscalculation that could be a slippery slope to war. 

*****

*****

This interview has been edited and condensed for clarity.

Visit the Talking Policy archive page for more World Policy interviews!

[Interview conducted by Yasmin Merchant]

[Photo courtesy of U.S. Department of State]

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