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CDF Dialogue with Craig Allen | Bridges between China and the US needs continuous work and improvement

CDF Dialogue, with the purpose of "Dialogue with the world, seek common development", aiming to promote rational and equal communication between China and the world.

This time, the guest is Craig Allen, President of The US-China Business Council.

Fang Jin (Secretary General of CDF): Hello everyone, welcome to the CDF Conversation. I am Fang Jin, Secretary-General of the China Development Forum.

My guest speaker today is Mr. Craig Allen, Chairman of the U.S.-China Business Council. The U.S.-China Business Council was created in 1973 before the establishment of diplomatic relations between China and the United States, it actively promoted and contributed to the early economic and trade cooperation between China and the United States, and has now become an important link between the business circles and economic and trade circles of China and the United States. The U.S.-China Business Council has played an active and constructive role, although the relationship between China and the United States is currently in a very difficult situation.

Welcome, Craig, to CDF Dialogue. Believe it or not, you're actually the very first person appearing in our Dialogue in person.

You came to USCBC in 2018, in the same year, when the trade war between China and US broke out, a lot more changes happened since then. Have the priorities of USCBC changed as a result of these dramatic events?

Craig Allen (President of USCBC): The first thing I'd like to say is that the trade war is not because I came to USCBC, and indeed, I left a career in government because I thought that our trade policies were not helpful to the American economy and the American people. So I was delighted to come into this job at that time. And I have to say that times evolve in policies and focus points do change. And that while we have always tried to promote economic and commercial engagement, increase trade and investment going both ways that our focal points have shifted.

I think if one were to put this into sports terms, before, we would play a lot of offense. We would try to help companies enter into the market and expand their trade. Today, we're playing a little bit more defense, trying to encourage laws that allow companies to fully manifest their potential in each other's markets. So, while it's not so much fun to move from offense to defense, it's important in every game.

If I may shift metaphors for one moment, previously, we built a lot of bridges between China and the United States, but those bridges must be repaired and overhauled and maintained. A bridge needs continuous work and improvement. And so now we are trying to make sure that the bridges are strong and sturdy, and able to carry yet more traffic between our two great countries.

Fang: I appreciate your efforts in doing so. But speaking of trade war, I think since the beginning of this year, Many notable US business people including Maurice Greenberg, Howard Schultz, Ray Dalio advocated the improving relationship between our two countries, and also reduced or even removal of punitive action tariffs against Chinese products. On the other hand, The US trade representative Katherine Tai reiterate her position of knocking up the tariffs, Because of requests from hundreds of US companies.

So how to reconcile these differences in positions about US companies? And does that Wall Street or the business committee still have a big influence on US policymaking? And with the recent midterm elections, do you think there will be any significant impact on the US-China relationship?

Allen: Okay, that's a big question. The first thing that perhaps we could do is to look at the numbers. And I think that if you were an economist visiting the earth from outer space, and you looked at the trade numbers between the United States and China, you would say these countries must be the best friends, because trade is actually continuing and expanding and growing, even until today, despite the trade war. So, while this is a trade war, it's quite a different type of trade war where trade is growing and not contracting.

The other important context is that different industries are looking at this very, very differently. I would say that between 85 and 90 % of companies and trade between our two countries are carrying on pretty much as normal and that they are not affected by the high-technology disputes and tensions, particularly if you were to look at agriculture or energy, or consumer goods, consumer services, finance, industrials, much of life sciences, you'll see a very robust engagement between our two countries. Certainly, American importers are delighted with their relationships which have lasted for many years and have endured the trade wars. So it's a funny type of trade war when trade continues to grow. But that is where we are.

I think that you are 100 % correct to note that the tensions have made many uneasy and anxious about the overall relationship. And that is certainly true on both sides of the Pacific. And that unease has led to a call for a resumption of our dialogues on trade and economics, something that we would very strongly support. We do have problems. Let's discuss our problems. Let's put it on the table and address them in a constructive manner, as we have done for so many years in the past.

President Biden and President Xi just met very recently, and we applaud that and wish them to order their staff to engage on these important trade and economic issues, bilateral, as well as multilateral. I think that your suggestion that there has been tension within the United States is also correct. President Biden has publicly said that he wishes to be the most pro-union president, pro-trade union president in American history, and I think he's achieved that. It has an impact on not only U.S. domestic policy, but also U.S. trade policy. I know that ambassador Tai, who you mentioned, is consulting with the unions carefully. At least in my view, that is important to understand, as it informs our ability to move forward on market access negotiations.

So as we enter the second half of the Biden administration, I do expect shifts that historically has been the case after the midterm election. Let's talk again in a month or two and see where we are. I think that once the new Chinese government comes into place after the two sessions in March, I hope that we will have a robust dialogue underway.

Fang: Do you think the business community has a big influence on the U.S. decision-making process? What does the U.S. government now listen more to the MainStreet?

Allen: I think that around the world, there is a wave of populism. Populism suggests that one should listen to the people and to labor unions. Populism everywhere in the world is quite anti-global. So, in the United States, corporations are not held in the highest of esteem. Certainly, within the Biden administration, there has been a very difficult negotiation between corporations and the government on anti-trust, on competition policy, on energy policy, pensions, and many other subjects, including trade. And that is why since the start of the Biden administration, a little bit less than 2 years ago, there have been no major changes on trade policy. The tariffs are still in place. The relationship with Europe is better but still strained. The relationship with Canada and Mexico is better, but there are difficult issues that constrain us.

And I think that a common point, in those debates, is the role of the unions and the role of employment and labor. How are the benefits of trade distributed or perhaps more accurately? How are the costs of trade distributed? And how do we maximize employment in our own country while meeting our international trade commitments? These are difficult discussions. And I would say that the voice of labor unions is stronger than it has been in many years. And I suspect that will not change.

Fang: Speaking of US politics, it seems political polarization is very high in the US. But taking a hard line on China seems to be one of the very few cases that enjoy bipartisan support. Are there still any notable differences between republicans and democrats with regard to their china policies?

Allen: I think that if you look at public opinion polls that in China or the United States, you will find a remarkably similar phenomenon. Approximately 80 % of respondents in two public opinion polls have a negative view of the other country. And in our system that leads to legislation that is supported by a large number of the congressional members in our system. In our system, if you can get 51 %, that's pretty good. But if when you have such a high negative rating, then that leads to legislation that might not be in the overall best interest of the country. I think that the views towards China are remarkably bipartisan and remarkably bicameral. In other words, the House and the Senate, the executive branch, democrats, and republicans would have a general consensus. Also similar to China, I think that you would find quite different views at the provincial or the state level where there's a great deal of encouragement towards trade, which is another common trait between the two countries.

After the midterm election, the results in the House are not fully known. If the republicans are in the majority in the House, they can take control of the leadership. I do expect changes. They have indicated that will follow a tougher policy, which we will have to work with. Our organization is non-partisan. We don't support either party. We will work with all parties.

Fang: Let me now turn to a different question——economic decoupling. There are advocates of coupling on both sides, but perhaps more in the US. Because it seems to many Chinese that the US government is determined to restrict China from climbing up the technological ladder. So how far do you think the decoupling can go? And how will US companies cope with this new reality?

Allen: So, when Adam Smith wrote The Wealth of Nations in 1776, he taught the US that free trade is always the best option. If you wish to increase the overall level of prosperity on a bilateral or multilateral basis. and I think that we accept his teachings. However, he also noted that in case of a national security emergency that would override free trade ideology or free trade orientation. I think that both the Chinese government and the American government would both agree with that. That is the coda to the wealth of nations.

Then the question becomes, how do you define national security? I think that in the case of high technology, for example, semiconductors or semiconductor manufacturing equipment, there is a clear nexus with advanced, high-speed computing and semiconductors, with national security. And so, the US government has chosen to exercise its rights as stipulated by Adam Smith. And I think the WTO to control items that have direct national security implications. But I think that indeed, both of our governments, all governments need to be careful here not to allow protectionism to be implemented in the name of national security. I am concerned about that. I would look back at the Trump administration, and I think it was 2018 when national security controls were implemented over steel and aluminum. I think that said a bad precedent that unfortunately has been followed by others. So I think that all governments, including the Chinese government, need to be careful not to allow national security to become the excuse you could always use for a protectionist action that you otherwise wish to take.

And I would cite data and cross-border data flows as an area of growing concern. We find more and more examples of restrictions on data in the name of national security that are going to really hurt the corporate efficiency of Chinese companies working abroad, but also foreign companies working in China. And I think that, to the extent, if companies are not able to engage in the free flow of data across borders, then we're going to really lose efficiencies, lose productivity, and not be able to enjoy the benefits that our citizens deserve. This is an area that deserves continued scrutiny in the future. I assure you that when we see issues, we talk about them. We do not wish to see national security concerns being used as an excuse for protectionism.

I would cite the life sciences area as a cause of concern. Currently, a cancer researcher in China cannot send data on his patients or the genetics of a cancer treatment outside of China. And this inhibits global cancer research. That's only one example. I think that there are hundreds of, thousands of examples, where data and other national security concerns are limiting our ability to interact between scientists, engineers, technologists, innovators, entrepreneurs, and corporations. Then we want to remember that only when there's a real national security danger, should there be limits on free trade, freedom of expression, and the ability to communicate and invest where we see fit.

Fang: I agree. It’s a balancing act between national security and the promotion of trade, and economic development, especially with regard to data. I think we need mutual trust between the countries, governments, and so we can trust each other, and safely transmit data that are vital for both business development, but also for preserving life and health. But unfortunately, the trust between our two countries lacking at the moment, and we need to work this out. And you mentioned the two leaders met for the first time in a long time, in person, which I think, is very significant. And President Biden instructed Secretary Blinken to follow up on the agreement made between the two leaders. What would you suggest Secretary Blinken do when he speaks to his Chinese counterparts?

Allen: When President Xi and President Biden met in the past, they have instructed their officials to work on confidence-building measures in the diplomatic world. We call that CBMs (confidence-building measures). And I think that is wise. And there are many areas of that are mutually beneficial, and both sides benefit. And I think that both countries can take actions where both countries benefit, and neither country is hurt. And I would note that in the economic area that certainly would include tariffs and market access restrictions where we can make progress. But there are many other areas. I think that one of them would be to encourage visas, and cultural and people-to-people exchange. I think that joint action on climate change is absolutely essential. And that the Chinese, the Chinese businesses, American people, and American businesses, would completely support that type of activity. I think on the global pandemic that joining forces certainly makes sense, and scientific exchange would be very welcome.

Perhaps most important, I think that the two militaries, those men and women in uniform, should get to know each other and build a channel of communication that allows to manage crisis and avoid conflict. We must not live in an idealistic world where accidents don't happen, and miscommunications don't happen. We must anticipate that they will happen. And we must have the mechanisms in place to ensure that we're able to manage that. And right now, because there has been virtually no travel back and forth for 3 years. And there's been rotation within that time period are military leadership does not know each other. I think that if they meet each other, they will receive and have a much better appreciation for how to avoid conflict. And that is an essential requirement in this bilateral relationship.

Fang: Okay. My last question is on the future of globalization, which is unfortunately on the retreat. What should MNCs do when facing a more fragmented and nationalistic business environment? Do you think the so-called localization or "China + 1" of the supply chains are feasible? Will we ever reach the heydays of globalization of the 1990s and early 2000s again? If so, when?

Allen:So let me start out by saying that I very much applaud and appreciate the regional cooperation, economic, a very big step towards regional economic integration. I believe that the ASEAN secretariat really deserves our thanks and appreciation for their excellent work at bringing Japan, China, Korea, Australia, and New Zealand into a Free trade pact for the Asia Pacific. I think that's an excellent development. I congratulate all the parties to that. I think it's also important that. President Xi has indicated that China wishes to join the CPTPP and we wish good luck to the negotiators. As you consider the high higher standards of the CPTPP.

I think that, as you note, regionalization is really a trend. For US companies looking at Asia. This creates a little bit of a dilemma that. US companies to the extent the tariffs have already dropped. And that's a long process, but it will encourage them to invest behind the tariff walls. So as to be able to participate in Asia's rapid economic growth, that it will be more difficult to do that by exporting from the United States into China or into the rest of Asia. So I hope that this encourages the United States government also to restart economic negotiations and reconsider the comprehensive and progressive Trans-pacific partnership, which we were instrumental in negotiating and developing. I don't think that is currently feasible, but I do think that over time that is possible.

Let us also take one moment to thank the WTO for providing the global structure upon which different regions will interact. Regionalization is fine, no problem, but that global context is the skeleton upon which the regional muscles have to operate. And if the global norms, the WTO norms fall apart, then overall economic efficiencies and welfare for our people will deteriorate. So while we enjoy the benefits of regionalization, let us also strengthen the overall multilateral structure, and ensure that region to region, our communications is held at an optimal level, and that we don't suffer welfare declines because of an unsteady interaction between the different regions. So, this is a very urgent time to ensure that the multilateral structure is strengthened. And I really applaud your organization for being one of the leaders here globally. To do exactly that, you work very well with all the Breton woods institutions. And I know that they appreciate your leadership role. As do I.

Fang: That's all for today. Thank you, Craig, for coming here. And I really appreciate not only your being here, but also for the dedication and determination to try your best to improve the understanding and cooperation between our two sides. Thank you very much.

Allen: It is my pleasure. And I look forward to seeing you in March.