Wang Huiyao in Dialogue with Fred Bergsten

September 30 , 2022





Wang Huiyao: Welcome to CCG China and World Dialogue Series. My name is Henry Wang Huiyao, Founder and President of the Center for China and Globalization, and host of CCG Global Dialogue series. Following our last conversations with Larry Summers, Henry Paulson and Niall Ferguson at CCG’s 8th China and Globalization Forum, we are incredibly happy now to invite another world-renowned economist, the founder of the Peterson Institute for International Economics (PIIE), and author of The United States vs. China: The Quest for Global Economic Leadership, C Fred Bergsten.

Dr. Bergsten is a prominent economist and expert in trade and economics. He served as assistant secretary for international affairs of the US Treasury throughout the late ‘70s and early ‘80s, functioned as a undersecretary for monetary affairs from 1980 to 1981, and was the assistant for international economic affairs to Henry Kissinger at the National Security Council from 1969 to 1971. He was appointed by President Obama to the President’s Advisory Committee on Trade Policy and Negotiations in 2010 and 2014 and re-appointed by President Trump in 2018. Dr. Bergsten had tremendous impacts on politics that shaped US’s trade relations with the world. He was chairman of the Competitiveness Policy Council, created by US Congress from 1991 to 1995. He was also chairman of the APEC Eminent Persons Group from 1993 to 1995. Also, he wrote three reports that later became part of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Dr. Bergsten is also a prolific writer. He is the author, co-author and editor of nearly 50 books on a wide range of international economic issues, particularly those on the US-China economic relation. He also published widely on economic groups and trade negotiations and were currently implemented in many multilateral trade agreements between US and other countries. I just had a small talk before our event with Dr. Bergsten. You are the founder of the PIIE so that was quite a while ago and perhaps you can give a little update for audience. When and why you founded one of those top think tanks in the world. Why don’t you have your opening remarks, please.

C. Fred Bergsten: Thank you for the very nice introduction, it’s great to be with you tonight and I appreciate the invitation. It turned out that the United States was a little late among countries in getting integrated into the world economy, but it really happened in the 1970s with the oil shocks and the dollar devaluations, the Nixon shock and all that. And one of the major US foundations discovered that the US had no think tank, no research institution devoted to global economic issues. They asked me if I would start, create, develop and run such an institution. It was a huge challenge, but I took it on in 1981. I built it from scratch. As you said, it has now become one of the leading think tanks in the world on any topic, along with yours  and many others in China. So, it’s been a fantastic 40 years since I started the institute, which has now become world known, world famous, and I think quite influential on a number of policy issues. I’m hoping we can help restore a stronger and more fruitful relationship between China and the United States, and through that, strengthen the global economic system, which has been so important to all of us, and particularly to our own two countries.

Wang Huiyao: Thank you, Fred. I had the pleasure of joining an exchange hosted by Adam Posen and Alan Wolff at Peterson Institute early in July actually, so it’s great to see you also coming to dialogue with CCG, because I had a dialogue with Adam Posen and Alan Wolff  before. We had a great respect for Peterson which has been really the forefront of globalization and the global trading system. So today, we are actually very interested to have this dialogue again with you. We have your new book, The United States vs. China: The Quest for Global Economic Leadership. You have brought your unique experience as an active participant in and continued observer of the evolution of global economic leadership for almost 60 years. Again, you mentioned your think tank started in 1981, that’s almost at the same time as China opened up in 1979 and with all those enormous changes. So I’m wondering that maybe you can give a very quick summary of the book and then we can go into some details. Why are you writing this book and it’s newly published just about a year ago, but it’s really a great timing, great angle and great emphasize on global economic leadership. What prompted you to write this book?

The effort for a cooperative leadership

C. Fred Bergsten: I wrote the book because I think the single most important issue facing the world economy over the next several decades is whether we can work together to find a cooperative leadership role between China and the United States. I say that because I think the global economic system has been a tremendous success over the last 75 years. It has brought an unprecedented period of prosperity and stability to the world economy. It has enabled countries like China, and, most notably, China, to have economic development miracles that are greater than any other in human history. It has brought major benefits to the United States. Our study showed the US is $2 trillion per year richer as a result of the globalization of the last 75 years. But that international economic system has rested to an important extent on the leadership of the United States. Back in the 1930s, when Great Britain was the previous leader, but lost the ability to continue to lead. The United States was the rising power and was not very cooperative, in fact, help turned the world’s recessions in the 1930s into the Great Depression, which led on to the second World World. After the second World World of course, the world decided to create the Bretton Woods System, the whole network of rules and institutions which have underpinned the dramatically successful global economic order of this period. But the United States, which has been the leading country, though with a lot of help from others, United States can no longer provide that leadership on its own. And the reason is simple. For the first time in the 100 years since the US became the world’s leading economy, it now has a roughly equal power that is challenging it for global economic leadership, and that, of course, is China. Major point number one in my book is that China is now roughly equivalent to the United States in terms of capability to lead the world economy and provide the kind of leadership that is needed. And if that’s true, then the question is whether the main countries involved, China and the United States, but the rest of the world as well, can find ways in which the two leading countries, the two economic superpowers, can cooperatively, jointly, in parallel, lead a continued, open, and successful world economic system.

At the moment, things do not look too good. As we know, relations between China and the United States are fraught with many difficulties. They are headed, according to some people in both our countries, even toward a new Cold War, and a confrontation which would not only be incredibly dangerous for global security and political relationships but would also threaten to destroy the world economic system. Back in the 1930s, when Britain could no longer lead, and US the rising power at the time was unwilling to lead, the global economy spiraled into depression and led to World War. We must avoid any similar development today, and that places responsibility foremost on the shoulders of our two countries, China and the United States. What I propose in my book is a new system of what I call “functional decoupling”. We know that China and the United States will disagree on a lot of political, security, values issues. And I think that’s unfortunate but I’m afraid it’s inevitable, at least for some time. By proposal is that despite those disagreements on other issues, we recognize that our cooperation is essential if the world economic system is to prevail and to continue to support a stable and prosperous world economy and contribute to a more peaceful world in the broader sense as well.

My whole set of proposal is based on finding ways between our two countries to take that kind of cooperative lead. I think there are some recent signs that are quite positive. Just earlier this summer, China and the United States got together at the ministerial conference of the World Trade Organization, worked out a deal on the very important issue of exceptions to the intellectual property rules to permit developing countries to start producing a COVID vaccine. China and the United States came to the agreement that save the WTO ministerial and I would argue, maintain the ability of the WTO, which is very important, to help lead the world trading system. Just a couple of weeks ago, our two countries reached an agreement on the financial markets, on the continued listing and trading of securities of a number of Chinese companies on the New York Stock Exchange in the US markets, which is very important for continuing the desired flows of foreign capital and investment into China that had been threatened by disagreements between our countries over the provision of data so that the US regulators could know what the Chinese companies were doing, make them more transparent to investors in our country and abroad. That issue had been festering for several years, and it now seems to be on the way to reconciliation. From that, I take good news that despite the continued tensions between our countries, which are very real and very important, and were highlighted by Speaker Pelosi’s visit to Taiwan recently, our two countries have seen a pragmatic way to resolve serious economic issues and provide joint leadership to the world economy. It’s a fact that China and the United States are the two economic superpowers only if they agree can major global economic issues be resolved effectively and satisfactorily. Global warming is a case in point, whereas recently as 2015, our two countries got together, took the lead at the Paris Conference, and enabled the biggest step forward so far in international efforts to deal with climate change. It’s unfortunate that that’s in a few bumps lately, and I think that needs to get back together.

People talk about the Thucydides trap: the risks of China and the United States could spiral into real conflict. In my book, I argue that there is an economic Thucydides trap, that the rising power China does challenge the incumbent power of the United States. And we can see already there is a trade war as you mentioned between our two countries. It’s still out there. It’s still outstanding. The Biden administration replaced Trump but has not resolved the trade war. So that seems to me to be very high on the agenda that our two countries need to get together to resolve the trade conflict between us, signal that we are ready to cooperate when economic issues both in the interest of strengthening and improving our bilateral relationship, but in a way even more important, providing the kind of joint leadership that would permit the global economic system to continue to be successful. We’ve now got a world economy that is threatened by high inflation in a lot of countries, including the United States, by the risk of a significant recession in a number of countries. China’s own growth is slowed down a lot. We need desperately to have effective global economic leadership, restore the system, keep the economies moving in the right direction. And that’s going to require a new vision, new cooperation, new policy initiatives between China and the United States. I’m delighted to be here to talk with you about that today and look forward to our conversation.

Wang Huiyao: Thank you Fred, excellent summary and highlight of your book. It’s really a very timely book. In this opening remark you outlined and talked about the fact that we are in a world of deglobalization, you mentioned Thucydides trap, you also mentioned Kindleberger trap, and the things you mentioned about functional decoupling. Economically, rather than decoupling, we should strengthen our relationship while probably maintaining the differences and trying to accept each other as time goes on. Look at the current crises: we have an almost three-year pandemic which has greatly damaged the world economy, including China. We also have the Ukraine-Russian conflict which is still escalating. The world is in a situation that we are  coming to a  possible World War, and we have a new Bretton Woods moment now. If we want to emerge out of this pandemic or the war, what are the new global systems we can strengthen? You mentioned WTO and we absolutely need most strengthening on that. And Peterson is always a great institute doing a lot of research on global trading. We also have RCEP, which China is really getting active. And CPTPP, which I think our think tank  has done a lot of work in the past to promote to join. TPP is also a great scheme that you are personally involved in. What about DEPA, a digital partnership which China also trying to join and launched by New Zealand, Singapore and Chile. In terms of global economic leadership, where can we start how can we move things forward? Now we had made some progress in resolving the delisting issues of Chinese companies in the US, we have also some achiethementsat  WTO’s 12th Ministerial Conference (MC12). In your opinions, what are the things we need to strengthen if we want to uphold the global economic leadership. Going forward, how can we solve the crises and for global economic leadership to prevail?

Solutions to crises and looking into the future

C. Fred Bergsten: As you said, there are many opportunities and possibilities for getting together, for the US and China to get together to provide the global economic leadership. The United States made a huge mistake in dropping out of the original Trans-Pacific Partnership (TPP). That was a massive error by President Trump, supported by some Democrats in the Congress. It was a great credit to the other Asian countries that went ahead with the TPP on their own, converted into the CPTPP. And now I am very pleased that China has applied to join the CPTPP. I think the United States should come back in to the CPTPP, it’s not a popular thing in Washington these days, but neither was it very popular with President Obama before he saw the need to come in to support Asian regional development and engage the US institutionally in the economic process in Asia. One possibility, which I think would be very desirable, would be for both China and the United States to enter the CPTPP. In fact, we could negotiate some of our bilateral economic differences within that regional context, and I think maybe that would be a less politically difficult way to do so. We mentioned the WTO, it needs reform in any event because it’s lost a lot of its global role, but the WTO has been extremely helpful in dealing with some China-US trade differences in the past. China has taken the US to the WTO, and the US has taken China to the WTO. Both our countries have mainly complied with rulings against them, and it’s a good way to try to settle our disputes. The WTO rules are not adequate to cover some of the trade problems of today. But China and the US together need to sit down and work out new rules on things like subsidies, intellectual property rights, technology transfer. All those things need new and updated rules, because the rules are now pretty old, pretty out of date. And we need together, together, I stress, to work out new rules and norms. Let me mention one other area, international finance. One of the big disparities in global economic leadership today is the International Monetary Fund. China’s economy, as I said before, is for all practical purposes, roughly equivalent to the United States. It’s bigger than the US on some metrics, it’s still a bit smaller on others, but it will catch up within the next decade. So, for all practical purposes, China and the US are roughly equivalent. China is a bigger trader, has more for exchange reserves, has bigger flows of direct investment in both directions. But China’s quota and voting rights in the International Monetary Fund are only one third that of the United States, and even smaller ratio to that of the Europeans when you take them together. This is ridiculous. China’s share in the IMF needs to be dramatically increased. And what I propose in my book is that over time, over the next several “appearances” as they call it in the IMF, we aim to equalize the quotas in the IMF between China and the United States, and the Europeans taken as a group, if they could get their act together and take a single seat. That would recognize China’s rough equivalents with the US. It would recognize China’s ability to provide leadership in the international financial area. Incidentally, I argue in my book that China has, in fact, provided very constructive, very effective leadership in the international financial area on a number of occasions, going all the way back to the Asian crisis in the late 1990s, the Global Financial Crisis in 2008. China had the fastest and biggest stimulus program to save the world from a deep depression. So, China has clearly taken a very effective leadership. On the other hand, China has also deviated from the important rules, in some cases. China’s currency manipulation 10 to 20 years ago was an important deviation from the basic IMF rule which stressed not too competitively devaluing your currency. And that’s one of the reasons that other countries, including the United States, have complained about Chinese economic policies, and have raised problems, raised threats, raised reactions to China, and why political support for globalization in the United States has declined over the last 20 or so years. That trend has to be reversed if the US is to restore its share, its participation in global economic leadership. I think an important message for China is that some of its own policies have caused important negative reactions and backlashes in other countries, like the trade war for the United States. Nor that the US is blameless, the US sometimes violates the rules too. But China, now as a leading, perhaps the leading economic superpower, has a huge impact on the rest of the world when its own policies deviate from international norms and rules. Now, China will frequently say, ‘but we didn’t write those rules, we were involved with that’. And that’s why I say the WTO needs reform, the IMF needs reform, in which China and the United States and the Europeans and some others, sit down and work out revised global rules and norms under which we can all live successfully and restore a cooperative and effectively functioning international economic order.

Wang Huiyao: That’s really an enormous message. I think you’ve been really thinking globally and particularly about the global system reform. I am particularly impressed with what you said on IMF. You’re right. During the Asian financial crisis, China has actually not devalued RMB, put all the stimulus packages. Even now during pandemic, in the last two years, China’s trade has been at the old time high. Last year it was a 20% increase, so (China is) still trying to stabilize the global economy. I think that would be a really great idea if we can get China a rightful place in IMF and similar organizations, so that we can really harness and maximize the contribution that China can make and to the global governance and economic governance and multilateral system. I actually talked to Larry Summers some time ago on development banks work together. Also, in the development banks arena, of course, China has launched AIIB (Asian Infrastructure Investment Bank) and Larry Summers used to work at the World Bank. So, what do you think about in the development bank field? We recently see a trend now, people are doing on different blocks and are doing on their own now, and there’s a capitalization of different schemes that are not really working together, rather, they are separated from each other. For example, China launched its Belt and Road Initiative (BRI) 9 years ago, but recently we see President Biden launched the B3W, and G7 talked about the infrastructure plan, and the EU the Global Gateway. All the government realizes, after climate changes, infrastructure probably is the biggest denominator of all the countries at helping global South and things like that. I also talked to the former World Bank president; we were thinking if we can really work together on the infrastructure. So, what do you think if there’s a possibility, like AIIB is led by China, the World Bank is led by the US, the ADB is led by Japan, European banks and Latin American banks etc, can the development banks really work together, or upgrade AIIB to a global infrastructure bank, where US, China, EU and many other countries can have something to work on to really reconstruct the world? Also, after the Ukraine crisis, we can reconstruct on Ukraine as well.

Decoupling—a disastrous decision for the US

C. Fred Bergsten: Absolutely right. China has, of course, become the world’s largest development lender by a large margin, and so development finance is a natural area for China to take the leading role in coordinating world efforts and putting together the needed assistance to the developing world and promote global growth in that way. Another huge mistake that the United States made, and this was under Obama, was to reject China’s invitation to join the Asian Infrastructure Investment Bank right at the start. Larry Summers and I fully agree, it was a huge mistake for the US not to join. It was an even bigger mistake that the US to lobby its traditional allies not to join. They of course rejected the US effort, and almost all of them did join and the AIIB is a big success including through its cooperation with the World Bank, the Asian Development Bank and other multilateral institutions. In my view, and I say this strongly in my book, the United States should now come back in and come to its friends in Beijing and say, well, we’ve thought about this again, we want to join the AIIB, become a non-regional member, like we are in other development banks, and contribute positively to the outcome. The AIIB I think has an impeccable record so far, in terms of conforming with international rules, international norms. It’s quickly scaled up and become a significant lender. I agree with you, it’s been keeping with what I said before on trade and monetary affairs. Instead of having separate China path, US path and Europe path, we need to get them together. A competition is good in some senses and may be the AIIB and the World Bank stimulate each other to do better, but both of them have seen the merit already of co-financing lots of projects, and I think in the future more of that is needed. That relates to the Belt and Road Initiative. There have been some suspicions, as you know, that the Belt and Road Initiative is aimed at promoting some of China’s military, security, or political, foreign policy objectives, also maybe building up excessive debts in some of the borrowing countries, and some of that is now starting to show up. So, I would think it would be better for both the BRI itself and for the US and other non-participants at the moment to get together and try to strengthen those kinds of results. What I argue in my book is that China must play a lead role in managing the global economy, and that requires the global economy to except some changes in the rules and norms that China would prefer. Some of those would be uncomfortable for the US and other countries, some might be unacceptable. But the issue is to get together, negotiate on those, talk about them, and try in a spirit of cooperation   and the need to get together satisfactorily, if we’re going to get any success. You mentioned something that I wanted to pick up on. One thing, in terms of US policy, we know will not work, is containment. Trump tried containment, try to restrain China, resisted almost any Chinese initiative, resisted anything that seemed to provide some benefits for China, even if they provided benefits for the United States too, like trade between our countries. As you said, China continued to grow right through the whole Covid crisis. China was the only major country that kept growing through the Covid crisis. That’s slowed down a bit now, but right through the two years of pandemic, China kept growing. China’s share of world trade, world investment, everything else kept growing during that period despite the trade war with the United States. China-US trade dropped sharply (in 2019), but China’s overall trade boom enormously as you indicated. So, containment clearly does not work. China is too big, China is too dynamic. And even if the United States tried to do it, no other countries would join the United States in that effort, and that’s been proven. No other countries joined Trumps trade war against China. Where I would start in trying to restore the kind of relationship we need is to eliminate the trade war. That could be done on a totally reciprocal basis. There’s no need for the United States to be seen as giving anything to China to get rid of the trade war. I’m quite confident if the US was willing to get rid of its tariffs on Chinese products, China would reciprocate by getting rid of the tariffs that it reciprocally put on US goods as the trade war build up. It would be a dramatic step if our two countries could get together, roll back those tariffs, end the trade war, restore a much larger level of trade between our countries, and do in that way restore a huge amount of confidence in the world trading system, the World Trade Organization, and the whole rule-based system. That would be hugely in our interests, particularly at this time of global economic difficulty. Now, there would still be some trade conflicts between our countries. We would pass through the same negotiation, go back to the drawing board, try to work on those, see if we could come up with some new rules, hopefully multilateral rules that could be implemented in the WTO and maybe the CPTPP and elsewhere in the regional as well as most multilateral organizations. But I think unless our two countries are prepared to continue the current drift toward Cold War, and unless the US foolishly thinks that it could really conduct a successful policy of containment toward China, the only alternative is really to seek a new cooperative mode. So that’s what I’m urging my own country.

A piece of good news that I’ll add before I stop talking here is that the Biden policy does permit the kind of functional decoupling I’m talking about. I am against national decoupling. A lot of people talk about decoupling the US and China in an overall sense. That would be a disaster in my view, and it could not work, and it should not even be tried. Functional decoupling says, recognize we will have some problems on the security side, on the political side, but we must cooperate pragmatically on the economic side and we can do that, as these recent events show, even while we are disagreeing on topics in other domains. I think that approach is what we need to be pursuing now. The Biden construct permits for that, even before he was in office, President Biden was writing articles, Jake Sullivan and other top people in the administration were writing articles, and they’ve said it since they’ve been in office. They see US-China relations as proceeding in different baskets. Some baskets of issues will produce confrontation. Some will produce competition, some will produce confrontation, and some will produce, they hope, cooperation, and they cite global warming and pandemic response. And I would then put economic issues into that cooperation basket.

I think that’s the crucial point now that in addition to global warming, hopefully pandemic responses, we need to get agreement at the highest levels of our governments to put economic issues in this cooperative basket. Functional decoupling, I think it’s demonstrated that it can work, it’s been working in other areas, to work with other countries. I think it’s even working in the Ukraine crisis. And I believe that’s the vision. That’s the path that our two countries must pursue, or else the drift in a negative direction toward a new Cold War. I’m afraid we’ll continue.

Conditional competitive cooperation

Wang Huiyao: Yes. In fact, you’re absolutely right. I think that we are seeing a trend of drifting apart very quickly. We need to build up mechanism to talk. I’m really pleased to hear that you recommend US to come back to CPTPP and also to join AIIB. That would be really great initiatives too. I think now because of these geopolitical tensions and deglobalization, all those negative sentiments and narratives, I agree with you. We do see some changes from Trump’s administration to Biden’s administration, but still, even Trump administration is evolving, there used to be competition and cooperation and confront they have to. So now it becomes invest, align, and compete. So maybe if it’s investment in the US, (the two will say) okay, let us boost the US. But if it’s an ally, let’s have more economic alliance, rather than security alliance, when China is doing all the economic alliances, the BRI, RCEP, CPTPP and China African Cooperation. The US is having more AUKUS, QUAD, Five Eyes, and things like that. It’s not really good that if we can do more economic corporation.

But I really think that your idea of this “functional decoupling” — can we reach that kind of advantage that we really put economic development–the livelihood of the global population of the mankind–ahead of geopolitical differences. That really seems hard to do. But what do you think where the fundamental problems are? For example, we see the polarized the US, we’re having an election season coming up. the mid-term (election) is just a few weeks away, the polarization in opinions on both sides of the US. But there are very unified (opinions) on China because the middle class in the US is not really getting much richer. For example, in the last several decades, the wealth of the Wall Street representing 1% of the national population is really equal 40 or 50% of a mass population, and that China often seems to be blamed on. So, what do you think about this global corporate minimum tax? Let’s address some of those root problems. Maybe multinational should benefit (from) more of the domestic economy, rather than put their money elsewhere, or China often gets blamed for stealing jobs and things like that.

C. Fred Bergsten: Yeah, the US has a lot of problems we know, economic problems, social problems, political dysfunction problems. So, the United States has a lot of work to do to pull up its own socks. And some of the dissatisfaction in the US does spill over to opposition against globalization, despite its great benefits for the US. And some of that in turn spills over to China. Since China is really the first real economic challenger to the United States in a hundred years. It’s natural, I think, that some concerns are pointed towards China. Particularly when some of China’s policies, as I said before, do create problems with the international rules and the international norms. I mentioned the currency manipulation of 10 to 20 years ago. That’s in the past, but that was a big factor in hurting jobs in the US, leading China to a massive trade surpluses, which for a time exacerbated unemployment and other difficulties in the States.

So, what I’m proposing is what I call in my book, conditional competitive cooperation. It’s got three parts. We’ve already talked about competition and cooperation, but I also say conditional because now that China is roughly equivalent with the United States in most economic metrics. And China, in addition to achieving a leadership position in the global economy, has to contribute, of course, to that. Moving forward together has to be done on a reciprocal basis. I mentioned getting rid of the trade war. That’s an easy one, because China put on its tariffs to retaliate against the US’s tariffs. As the US takes off its tariffs, I would hope it would be natural for China to eliminate its tariffs at the same time. So there’s a default reciprocity. And if President Biden were inclined to do it, nobody could charge him with being soft on China, or giving it away, or being soft hearted. That’s the kind of thing I have in mind.

Likewise, in the IMF, I talk about China achieving equality, equal quotas and votes in the US and Europe. I think that is highly desirable. At the same time, China would then have to agree, seriously, to conform to the rules of the IMF, which include avoiding competitive devaluation. Now that’s easy for China. It has not done any competitive evaluation now for over ten years. In fact, it’s, as we all know, (China is) facing a weakening currency now and it’s trying to keep the currency from getting weaker. So it’s intervening in the other direction that try to strengthen the currency, which is fine, and (the intervention) needs simply to be enshrined in the rules in a more explicit way.

There are many areas, including the trade rules as I mentioned, rules governing subsidies, technology transfers, intellectual property rights–all those rules need to be updated through cooperative negotiation, including China and the United States and the other key trading countries. It needs to be done on a reciprocal basis, fairly balanced, but taking full account of China’s new role, China’s leadership potential, China’s leadership responsibilities, as well as those of the United States and its traditional allies in Europe, Canada, and elsewhere.

So that’s the whole package that I see it. I want to be clear with you and other Chinese friends. This would have to be done in a way that was reciprocal and was done in a fair and balanced way between two essential equals, the two superpowers. I’ve talked in the past, as you probably know, of G2, where the US and China would actually be the inner core of the leadership group, not that they would exclude anybody else far from it. Many other countries need to continue playing a central role, the Europeans, Canada, Japan, Korea, Australia, others who have played a very constructive role during the US China trade war incidentally to keep the global economic system moving ahead positively. But the G2, with the US and China very informally working together at the center of a series of concentric circles, the next circle might be a G3 or G4, bringing in Europe, maybe Japan, then the G7, maybe with China, then the G20. There are lots of groups. But we know from history that the global economic system only functions successfully and effectively if it has effective leadership. The US, because it was the dominant economy, did provide that for a long time, as I said at the start, it could no longer do so by itself or even with its traditional allies. China must now be part of that. And that’s the simple, pragmatic factor that led me to say at the start. This is the most important underlying issue facing the world economy, and maybe world politics as well, for the next several decades: finding a way to translate the new power equilibrium into a governance equilibrium where China can take its rightful and justified role in the leadership system, providing the kind of leadership that’s necessary for the world moving somewhere in the direction of its own preferences but also making some changes in its own policies that will enable the world in a whole to move forward.

Wang Huiyao:

Thank you, Fr. That’s quite a strong argument. I agree that we really have to enhance the global economic leadership and particularly US and China should work together. We have this “Rivals within reason”, as Graham Allison mentioned, and “Rivalry partnership” that Joseph Nye mentioned. We hope this competitive cooperation can work. But what do you think about G3 considering what what we were getting from G0, G1, G2? I mean, EU now still seems to be a very large, economic bloc. And given that US and China often have some conflict and differences, is EU better situated in the middle that maybe can help mediate?

The European Union, a mediator?

C. Fred Bergsten: Yes, I agree with that, and I said in my book that a G3 would be ideal. The problem, of course, is that the European Union does not speak with a single voice on most issues. It does on trade, it does on a few other issues, but it does not on monetary affairs. It does not on macroeconomics. In fact, they even have big debates within Europe on a lot of those issues. If they would become a true economic union, as I think they want to and they probably will over the next 20 or 30 years, then a G3 would be possible.

In the meanwhile, I agree that Europe can play a big role. As I said a minute ago, they have been quite constructive during this period of US China trade warfare, keeping the multilateral system going. For example, in the WTO, they put in place a dispute settlement mechanism to substitute for the one that the Trump administration destroyed. That’s been very constructive, and a lot of countries, including China, have agreed to participate in that. Europeans, to be sure, can play a very important role and we need to always work with them at all times. I know China always wants to be part of a multilateral approach to deal with these issues. I think with Europe kind of intermediating in the way you suggested, I think is quite possible.

I want to say one other thing to the comment you made before. You talked about the consensus in the United States about China and (you’re) kind of worried that is a factor in putting us on the path toward confrontation or a new Cold War. There is widespread agreement in the United States that China is a true competitor to the United States, is a true rival in many ways, and the first real one in a hundred years. There is a consensus on that. However, there is no consensus in the United States on how to respond to that. Trump tried containment, as I say it failed. Biden has continued some of Trump’s policies, but his tone has been very different. He’s tried to work with China, for example, on climate change, on the pandemic responses, on these several economic issues that I mentioned before, which has been quite successful. I think it is still too soon to say how Biden will come out on these topics. There is some good news. As I said, the US has to get its own act together in many ways. And just in the last few months, the Congress passed the biggest infrastructure investment legislation in the United States in over 60 years. We’re beginning to deal with our problems of inadequate infrastructure. Just in the last few weeks, the Congress passed major legislation to increase US research and development spending and US’s efforts in the semiconductor industry, which of course is the forefront of global technology. Part of the response to the China challenge that we’re already seeing in the United States is actually constructive, domestic steps to try and improve America’s performance. Now, we still got a long way to go on fiscal policy, on our political system, our protection system, our race relations. We still have a long way to go. But there is good news, and sometimes lost in all the bad news, is the fact that we have had two major pieces of new legislation this year, strengthening the US domestic economy, the US social structure. I think we’re going to see more of that in the coming years because there is bipartisan agreement that the US does face a China challenge, and that the fundamental response to that is domestic. We need to prove our own performance, get our own act together to regain the confidence of China and the rest of the world as well as for our own purposes. But in addition, we of course need to strengthen our relationship with China directly, and that’s what I emphasized in my book and in my remarks tonight.

Wang Huiyao: Thank you. This is a really strong argument. I read your book. It’s a marvellous book. I recommend to the Chinese readers to read that as well, and hopefully can be translated into Chinese too. We are probably coming to the last 5 or 10 minutes about ending of the dialogue. You emphasized so much that the necessity for China and the US to work together, and we strongly felt the same. Even though, as you said, China is rising. It has its own logic. It has a five-thousand-year history and uninterrupted civilization and a great tradition of Confucianism. And with the modern economic globalization, that generates tremendous developing capacities. That needs to be harnessed for global peace and prosperity. China never colonized any places or trying to send troops anywhere. So how can we really put more emphasis on those common benefits? There’s still enormous US companies investment operation in China. Tesla is the largest clean automobile producer in the world and largest manufacturer of Tesla is in China and they export a lot of that, which is a good example. But we worry about this Taiwan thing. Recently the Congress is putting on the Taiwan Policy Act and we know that recently it has been diluted a bit than it used to be. They want to elevate the Taipei office to Taiwan office as a “requirement”, and now it’s a “recommendation” that the US administration may take it or may not. Also they said they want to have the representative to Taipei ratified by the Congress. Now they dropped that. So we see some watering down on those acts. What do you think can we really use in China? What’s your therapy, or what’s your recommendation? How we can get along even with this complexity and tension going on?

How to get along under complexity and tension

C. Fred Bergsten: Taiwan is the issue that dramatizes most clearly what I’m talking about. I’m afraid we probably will continue to disagree on Taiwan. I think we can do it within the context of the three communiques, I think we can avoid the hostile conflict over, but I suspect we’re going to continue to disagree to some extent on that issue. And there are other issues on which we will continue to disagree. That’s where I call for us to do the functional decoupling to set aside those issues where we do disagree to work together pragmatically on the economic topics. I think that’s quite possible. I think the United States would agree to do that. I don’t know if China would agree. Taiwan is obviously a core interest for China. But in my reading, and I say this in my book, an open world economic system is also a core interest of China, and steps that create backlash, that threaten the continuation of that open economic system, are also very detrimental for China. So that’s a cardinal test. We’re about to get past the Party Congress in China. We’re about to get past the midterm elections in the United States. That maybe gives us a window of a year or two where we may be able to start some new initiatives. And if the leadership in both countries recognize that we must step back from this continued drift toward confrontation, doing it in the way I suggest I think would be the most natural. Get rid of the trade war, fully reciprocal, in economic interests of both countries, by getting rid of that needless conflict. And it would give an enormous boost to both our bilateral relationship and to confidence in the world economy at a time when the world economy is shaky and need such a boost. I think something down that path, after we both get by our upcoming the political watersheds, might be the way to go.

Wang Huiyao: Yes. That’s really a great message. China has a 20th Party Congress coming up and US has a midterm coming up, we have G20 and APEC Summit coming up. We’re getting a political busy political season. But you’re right, after all we need to really emphasize a global multilateralism, global governance to be strengthening, and China, US, the EU, and the global South to really work together to really sustain and enhance our global system, so that we can avoid those big distraction on the geopolitical front. This is really a great dialogue we had with you, Fred. We really enjoyed so much talking to you. You have a lot of wisdom. You have a lot of experience. And we’re going to thank all our audience, thank all our people, participants, scholars, and fellows, and also the media that that can transmit this. We appreciate all the other contribution made.

We are coming to the end. Your book is a very stimulating book. And you emphasize China-US global leadership and together with others. But also, you really have this big vision of getting China more actively into the international system, like the IMF, World Bank, global infrastructure, WTO, and other issues. Those are great messages that we really appreciate. So maybe last word, Fred, before we leave, you have anything to conclude?

C. Fred Bergsten: Just to thank you very much for hosting me. I share your hope that the book might be translated and into Chinese and be published in China. I would very much welcome wide readership in China and reactions from your Chinese colleagues, as you have done in this interview, to tell me what they think of it, how it can be improved, how it can be implemented, and how we could both move together. I’ll just end with what with where I started, which was to say why I wrote the book, because I really do think finding a way for the US and China, the only two economic superpowers, to work together effectively, is absolutely essential if the global economic system is to continue to be successful, prosperous, stable, and if it’s to contribute to world peace and security. I think that’s the biggest challenge that our countries face in the years and probably decades ahead, and I simply hope to make a modest contribution to moving in that direction. And I appreciate your kind words and support for some of my ideas. Thanks very much.

Wang Huiyao: Thank you, Fred. And absolutely, I think China and the US must work together for the sake of mankind and for the sake of the world. I really appreciate you taking time talking to me,  and I hope that we’ll have your book be introduced to the Chinese readers. Thank you so much. We hope to see you and welcome you come to CCG next time when you’re in China. And I hope to visit Peterson Institute again, too. Thank you.

Note: The above text is the output of transcribing from an audio recording. It is posted as a reference for the discussion.