China and the United States just can’t seem to bridge their differences on trade, even though the US seems to be making major headway with Europe and its North American neighbors, Canada and Mexico. Currently, there are no official talks underway between the two sides, but scholars and analysts from both sides are communicating and collaborating in research efforts. How will their research influence policy-making? And exactly where are we in this trade war? CGTN’s Zuo Yue talked to Michael Pillsbury, senior fellow and director of Chinese Strategy at the Hudson Institute, and Wang Huiyao, founder of the Center for China and Globalization, the largest independent global think tank in China. The following is the full conversation.
ZOU YUE: Let me start with you, Mr. Pillsbury, because last time, when we were talking to you, you aired your opinions on China-US relations. You said China-US ties will definitely get better under the Trump administration. Is it better?
MICHAEL PILLSBURY: Yes, it’s better.
ZOU YUE: In what way?
MICHAEL PILLSBURY: The cooperation on North Korea is very impressive. This has not happened with any previous Chinese president and American president. That’s the main thing. Secondly, President Trump has not taken any moves on Taiwan. He has not sold a big package of weapons to Taiwan. There are no more telephone calls to Tsai Ing-wen. President Trump has not received the Dalai Lama in the White House. President Trump has not done any really aggressive freedom of navigation operations in the South China Sea. So if you look at all the main issues, President Trump has avoided creating trouble in US-China relations, and he has many channels to President Xi Jinping. According to one friend of mine, President Xi Jinping and President Trump have enjoyed more than 30 phone calls to each other. Sometimes as long as one hour. They’ve met in person several times.
ZOU YUE: But you seem to forget one big trouble that is looming large-the trade war. Could that undermine everything that we’ve seen over the past two years?
MICHAEL PILLSBURY: Well, yes. If it’s a major trade war in which both sides place 10% tariffs on all products, this would slow down the growth rate of both sides, and it will affect global economic growth. So a major trade war obviously would be a disaster. We are moving in that direction, but I don’t think the major trade war has begun yet. So if there is a gigantic trade war, you can call me in Washington DC, and I will admit to you I was wrong. Relations did not improve between President Trump and President Xi. But I’m still very optimistic we can avoid a major trade war. That’s one reason why think tanks have to do research on the causes of the situation. As we say, how we got here may have a lot to do with how we can untie the knot.
ZOU YUE: And Mr. Wang, do you share Mr. Pillbury’s optimism that [there] wouldn’t be a major full-blown trade war?
WANG HUIYAO: Personally, I agree with Mr. Pillsbury, that since President Trump came to office, there were quite a few positive things-North Korea and quite a few positive things obvious. But of course, this trade friction or trade war that is currently happening is also causing a lot of alarm, as Mike mentioned. The key is also that probably we need better communication or need a better dialogue. That’s why CCG, Center for China Globalization, and Hudson Institute are trying to work together, trying to have this joint research project to really review the 40 years of US-China relations since they built up diplomatic ties. It’s also the 40-year anniversary of China opening up. So I think there is a lot of common progress that both countries have made, and all previous leaders. Now we are getting to the next 40 years, and I think at this critical juncture, it is good to look at all those pros and cons and the progress made, where are the lessons, and how can we improve that. And also how we can do the research and then generate recommendations.
ZOU YUE: According to your research, why are China and the US now facing the danger of a trade war at this particular moment. What is the crux?
WANG HUIYAO: Basically I think there are quite a few areas. First of all, there are structural reasons. I mean the US economy has been developing over the last 100 years. And coming to that stage, a lot of manufacturing has been shifted to China. That’s because of the productivity, shift-a lot of major, old-fashioned manufacturing has actually come to China. That’s one reason. Another reason is having US dollars be very strong. It’s a world currency, and that actually helps the US to buy a lot of products from China. And also, thirdly, US trade has a surplus with China. But also it cut the surplus with other countries, other Asian countries, other partners. So China replaced many other parts of the world to contribute to the US in that kind of deficit problem situation. And the other reason is the calculation. The services trade-the tourism, the student movement, and those kinds of services trade were not calculated into this trade deficit. So there are many reasons. I think for China too. When they do the transition, we probably need to diversify. We shouldn’t really just be working in one country maybe. Maybe we should have more markets. So there are a lot of reasons to examine, to find out. That’s why we want to do more research on this subject.
ZOU YUE: Mr. Pillsbury, you also think the trade deficit, which is huge between China and the US, is the biggest problem. That’s why we have trade friction?
MICHAEL PILLSBURY: I think President Trump has said that several times, that the enormous trade deficit is the biggest problem. It’s the biggest trade deficit in the world, and as Henry says, we have to find out the origins. This didn’t just happen in one year. We didn’t go from zero, now let’s trade, to a 500 billion deficit. It happened very slowly, and it’s not clear to me if it was decided by state-owned enterprises. They want to buy European products for some reason. Or if it was decided by the government. But that problem has probably 20 years of background. But it’s not the only major problem. Technology theft is a big one. Here, President Xi Jinping has said several times he opposes intellectual property theft. He has increased the number of courts, intellectual property courts inside China, increased the number of judges, taken it seriously. But the White House has released these two very long reports, with hundreds of examples, of either intellectual property theft or what we call forcible technology transfer. And so far, there’s no satisfactory answer from Chinese media or Chinese scholars about all these allegations. There’s a third area, which is investment. China has a so-called Negative List that does not accept foreign investment in many, many sectors. This is being reduced as China opens up, but China’s speed or rate of opening up really affects the trade with the US. Also Chinese investment in the US has had many problems that have been documented in these reports. So it’s not just one problem. President Trump summarizes it all in one word. I don’t know if you’ve heard this before: reciprocity.
ZOU YUE: Reciprocity? OK. Let’s talk about those three problems one by one. First of all, the loss of jobs and the trade deficit. According to many Chinese economists, the trade deficit is a structural problem. Basically, is America not saving enough? Basically, it’s the structural change of the world economy, and also they have different math. The Chinese say we actually buy a lot of services from you, but you don’t count that. We also buy a lot of stuff from Hong Kong and Macau, but you don’t count that. The natural deficit is not that huge. It can be solved by us buying more. But it seems the Americans are in no mood to talk about that. Is that correctly understood?
MICHAEL PILLSBURY: It’s basically correct. Most economists tend to play down the importance of the deficit. As you said, they think it’s some sort of structural problem based on the savings rate. However, these economists are not the President of the United States.
ZOU YUE: And they don’t have the ears of President Trump.
MICHAEL PILLSBURY: So President Trump does have an economist with a Harvard PhD in economics, advising him that the trade deficit is extremely important. President Trump himself… ZOU YUE: You’re saying Peter Navarro…
MICHAEL PILLSBURY: Yes, and President Trump himself didn’t get this idea from Peter Navarro. He wrote a book about it almost 20 years ago. He had a long chapter about how our biggest challenge in the future will be China, and the biggest problem will be the trade deficit. So President Trump’s idea of reciprocity is to measure products that are being sold. But Henry makes a very good point. If you count services and investment, things like tourism…
ZOU YUE: Which the United States is good at…
MICHAEL PILLSBURY: We don’t count it now, when we talk about trade deficit. It means merchandise products trade deficit. But one possibility in our CCG-Hudson joint research we are going to take a look at is how do you define a trade deficit. Other countries include services like tourism and investment returns, so we are trying to take a new look at the trade relationship between the US and China. And not just look back at 40 years, but also look ahead, to 10 or 20 years, with several scenarios, one could be a super trade war scenario.
ZOU YUE: You mentioned Peter Navarro. I know that you invited Peter Navarro to Hudson Institute after your trip in Beijing.
MICHAEL PILLSBURY: Yes.
ZOU YUE: Have you talked to him about this structural problem? It is not just a trade deficit. There is a reason why there is a trade deficit. And it is not necessarily against America’s interests.
MICHAEL PILLSBURY: Yes. I have talked to him, and I have read-he wrote three books about China. He doesn’t agree. He thinks the trade deficit is extremely damaging to American workers. In fact, he was not a China expert for most of his life. So, people ask him why did you take an interest in China only in the last few years. He said my students could not get jobs. They are all unable to join the workforce, because China stole all these American jobs. This is his personal observation. But Peter Navarro also has written a lot about intellectual property theft, forcible transfer, and especially the treatment of American companies inside China. So, you see how big this problem is. And lots of other people agree with Peter Navarro. He’s not all by himself.
ZOU YUE: Do you think President Trump should listen to both sides of the argument? It seems after Gary Cohn and McMaster left the White House, the White House is full of hawkish voices rather than moderates. That’s why those aggressive trade policies have been put forward, which is dangerous.
MICHAEL PILLSBURY: I don’t agree. As I mentioned, President Trump had this idea himself in his book published in the year 2000. Number two, he does have many voices. In the White House, he calls people on the outside. He is known to invite Henry Kissinger to get his views.
ZOU YUE: But only to those who are with him on his ideas?
MICHAEL PILLSBURY: No. I would say some American billionaires oppose trade deficit problems, and President Trump talked to them. So, he is very open, seeking advice. The only thing is, he has already believed this for almost 20 years.
WANG HUIYAO: Also recently, you have many senators actually voting against the tariff increase, and you also have some congressmen who wrote a letter to President Trump, talking about resuming talks with China. So he has other people in the Congress against him as well.
ZOU YUE: And the problem is, those voices-will they get loud enough from Congress, from business circles, and that will force President Trump to think twice about whether he should double down on those aggressive tariff policies?
WANG HUIYAO: I think, you know, first of all, there is a calculation problem. I think the deficit problem is a little overstated, exaggerated. But I think the key is now to really have this dialogue. I think governments should have dialogue. Think tanks should have dialogue, to explain the situation. And then the media, also the public arena, we should really talk about these trade issues and also the benefits. I also think there’s more to talk about. China and the US make contributions of 40-50% of the growth of the economy of the world. If China and the US get into the trade war, it is going to impact not only China and the US, but also the world. So it’s extremely important to avoid that. And also, furthermore, the multinationals are not happy about this. They actually air their concerns. It also impacts the employment back in the United States and also here in China. So, I think there are many multifaceted issues that both countries, particularly think tanks, can get together about and then find solutions and recommendations, and that’s where CCG and Hudson are trying to work on those issues.
ZOU YUE: But it seems a lot of signals are pointing to the other direction, because the news is that the Americans and the Europeans have struck a deal on zero tariffs on each side, although that is not confirmed yet. They still agree to talk later on about whether to lift tariffs on all products, including agricultural products, which is very important for Europeans. Is this President Trump’s tactic? To divide and conquer, so that he can concentrate on China?
MICHAEL PILLSBURY: I would say it’s possible that a trade war will begin. And then the scholars and think tanks will have to find an exit to stop it. The reason I say the trade war likely will begin is because in China there is too much of what I call conspiracy thinking. That somehow the US is trying to choke China’s development, or there is something behind all these trade issues. But actually it’s not true. The contents of these reports are what it’s all about. So, if the Chinese side would make some meaningful research on this American case, a lot of it are things President Xi Jinping would not approve of. He wants further opening up, he wants more reform. Many of these American complaints would be solved or at least reduced if there was further opening up.
ZOU YUE: I think suspicion exists on both sides. America also has doubts about China’s stealing technologies. You also doubt that China wants to play a one-hundred-year marathon to overtake the US as the superpower. Isn’t that the case?
MICHAEL PILLSBURY: Well, I’m only quoting from Chairman Mao in 1955. Actually the marathon has already been going on for more than 70 years, and China is at least the number two country in the world. By some statistics, the Chinese economy already is the number one. So I would say that the marathon is correct and is almost a success for China.
ZOU YUE: But I wonder whether that marathon has only two players-that China wants to take over the US and become a world leader. Many people here in China don’t think so.
MICHAEL PILLSBURY: I know in the Chinese point of view, there is a very bad word called ‘Ba’ or ‘Baquan’-hegemony. So Chinese like to say America is a ‘Baquan’ because it’s the number one military and economic power. But also Chinese like to say, ‘We Chinese will never do this.’
ZOU YUE: But you don’t believe it. You don’t take it at face value.
MICHAEL PILLSBURY: I think it’s a definition of ‘Ba.’ ‘Ba’ actually is a tyrant or someone who does not have any ‘Daode’ (virtue), and the Chinese belief seems to be: yes, we will be the number one power in the world, but unlike the Americans, we will have virtue; we will have consensus. There is a good example today in China Daily. China’s ambassador in London wrote a long op-ed piece. It’s very good, about the joint common destiny of the whole world. So this is how China sees the future, not like a ‘Baquan’ like America, but more virtuous…
ZOU YUE: My question is, do you believe in the benevolence of a growing power like China or do many Americans believe that?
MICHAEL PILLSBURY: I think Americans, like me at least, we see cooperation as the future. We like to not see a zero-sum game, but I’m not in the majority. A lot of Americans now see China as a threat. A lot of Chinese see America as a threat to China. So if you want to think about a really bad nightmare, it’s a trade war from which there is no exit combined with nationalistic thinking in the military area and political area. I want to avoid this nightmare. But it may not be possible.
ZOU YUE: What can be done to avoid this kind of a nightmare? The likelihood of which is increasing, we have to agree, Mr. Wang.
WANG HUIYAO: I think that it would really be a disaster if both countries really go deep into the trade war. And I think China has actually, for its own interest, pledged to continue to open. That’s really very significant. I think President Xi mentioned at the Boao Forum that China is going to have a high-level opening up, and China has also recently done many actions as well. You know they reduced the auto import tariff by half, and also they have reduced many tariffs on many products as well. And also China has relaxed on ownership control of the financial institutions and many other sectors as well. So I think it’s for China’s interest to open up and to continue to reform. I think it’s in the world’s interest as well. The same for the US. So, the misunderstanding and the mistrust existing now, which is also increasing, is really very bad. So I think we have to solve this misunderstanding and mistrust. You know, if you talk about opening, if you talk about respecting intellectual property, if you talk about deepening reform, if you talk about reducing tariffs, if you talk about globalization, like if President Trump likes global trade alliance now with EU, with Mexico, and Canada, so why can’t China and the US work together on these global trade issues? And I think that we can avoid this kind of trade war. I think that think tanks are really needed now and also the think tank community of China-US should work together and solve this kind of misunderstanding and mistrust.
ZOU YUE: I want to get one important aspect of this message to the Americans, probably they haven’t wrapped their minds around it, but China will be the biggest market in the world. We will probably have 600 million in the middle class next year. And China’s consumption is already 70% of its own GDP. China will buy a lot, and a lot more from America, from Europe. Have Americans forgotten that?
MICHAEL PILLSBURY: No. In fact, there is a solution to the possibility of a trade war. You know President Xi Jinping has had a very successful campaign against corruption for the last five years, including corruption in the state-owned enterprises, and inside the Communist Party. The list of bad behavior in these two reports, President Xi could say, I agree, I don’t want this bad behavior to be carried out by Chinese enterprises or Party members. And I think President Xi would be immediately respected and obeyed. So my hope is these documents are really written only for one person, Xi Jinping himself.
ZOU YUE: But when you look at the ten demands from the US delegations, when they come to Beijing, when we go to Washington, it sounds like they’re asking China to capitulate, to kowtow to the US’ demands. You have to drop a hundred billion dollars of tariffs in the first year and then another hundred billion dollars the next year. You have to restructure your economy. No national subsidies. You have to stop Made in China 2025. All these demands sound like China has to capitulate.
MICHAEL PILLSBURY: That’s what your media said. Actually, it’s eight.
ZOU YUE: You’re saying these are not the demands.
MICHAEL PILLSBURY: They were not demands. They’re called the eight points. And your side leaked them to the media.
ZOU YUE: I don’t know who leaked…
MICHAEL PILLSBURY: And then somebody leaked them to Bloomberg. So everybody can read these eight points. They are descriptions of problems. They’re not negotiating demands. But I think the Chinese side was not willing to make any kind of offer, you know, on the eight points. That’s why today we have no negotiations.
ZOU YUE: What is the offer that will satisfy Americans? Your several-reduce the trade deficit, stop Made in China 2025?
MICHAEL PILLSBURY: There’s only one American to satisfy, President Trump.
ZOU YUE: But who?
MICHAEL PILLSBURY: This is his personal leadership.
ZOU YUE: What are the exact terms that President Trump will accept, as a truce?
MICHAEL PILLSBURY: So far, President Trump has only done two things. He released the eight points that are a general description of what should be US-China trade relations. And number two, he issued these White House reports based on testimony, internal Chinese documents, like the subsidies for 2025. There’s a long description of internal Chinese documents about how that would be done. One of the eight points said please don’t have illegal subsidies of the 2025 plan. So I hope there will be actual negotiations, but so far, I think it’s just exchanging kind of long-term thinking about both sides’ hope.
ZOU YUE: I want to talk a little bit about the second point, which is the transfer of technology. It is in relation to Made in China 2025. What kind of concessions can China make? Can China stop Made in China 2025? China doesn’t accept that we steal technology in a massive scale from America. What is China’s argument?
MICHAEL PILLSBURY: It’s the subsidies. Not the program.
WANG HUIYAO: Well, I think that China actually is accustomed to plans. There’s always a plan. There is a four modernization plan. There’s a five-year plan. There is a ten-year talent plan, and 2025 manufacturing plan. So I think this is probably characteristic of China, and they are accustomed to working with these kinds of plan. I think this plan is a little overexaggerated because this is still at a ministry level, and I think State Council has transmitted that document, but it was not really a hard-printed plan already. So I think there are still discussions. It’s really important for China to have a plan. I mean China wants to develop. But I think we seem to have a misunderstanding problem with that. And we probably could have more dialogue, should have more discussion, should have more communication.
ZOU YUE: I think what Americans have a problem with is not that Chinese have plans, but the national government’s role in those plans. They say the state is basically subsidizing all the industries they cherry-picked. What’s the problem with that?
WANG HUIYAO: For that, I think the world has got to realize that China of course was for the last 70, you know, even the last 40 years, the government does play a very important role, and that’s why you see the efficiency, the effectiveness. The tallest building outside this window we can build in a year and a half, which is probably world speed. The government has put a lot of effort in that.
ZOU YUE: So Mr. Pillsbury we have our system. You have your system. Our system works this way. What’s wrong?
MICHAEL PILLSBURY: What’s wrong is the Chinese government promised when you joined the WTO that you would move toward a free market country.
ZOU YUE: But free market doesn’t necessary mean government has no role at all.
MICHAEL PILLSBURY: That’s right. All governments play a role in all economies. The question is the degree. And so many countries as you know last fall voted against China being given free market status. This is a correct decision. The role of state-owned enterprises, the role of these national plans is in violation of China’s agreement to join the WTO back in 2001. At that time, China could have said we will keep our state-controlled system forever, we are never going to have a free market.
ZOU YUE: I think nobody could say that.
MICHAEL PILLSBURY: But China promised to go toward a free market.
ZOU YUE: You don’t think China has kept the promise?
MICHAEL PILLSBURY: No. Not just me, the vote in the WTO was overwhelming against China.
ZOU YUE: Yes, China is reforming its state-owned enterprises, but on its own agenda with its own pace. Is that the problem? With the speed of reform or about the direction?
MICHAEL PILLSBURY: I think it’s neither the speed nor direction. I think it’s the illegal conduct. When you joined the WTO, your companies have to be free market companies that make their own decisions according to profit for the company. They’re not supposed to be agents of the central government trying to obtain minerals or oil or do things for the central government. Our companies don’t do this, but that’s what China was doing. That’s what’s in these reports. So if you want to pull out of the WTO, then you are free to do this.
ZOU YUE: Yes, I know, but you have to show proof of which enterprise decided on which director from the state government to make which kind of decisions. And you don’t have it.
MICHAEL PILLSBURY: That’s what’s in these reports. There is evidence, but I don’t know if it’s perfect evidence. But even in the past week, another round of hearings has begun in Washington with 80 more witnesses coming to talk about these violations. So all I’m saying is the Chinese side should not ignore the evidence in our joint research. I think we are going to take a look at the quality of evidence in these White House reports, and in the new one, and then try to make some recommendations. Could China in fact make progress in China’s own national interest to stop this kind of bad conduct?
ZOU YUE: I think it is in China’s own interest to reform those state-owned enterprises and maybe correct some of their behaviors, which are not in the interest of their companies and not in the interest of this nation. What needs to happen?
WANG HUIYAO: I think China has realized that. I mean President Xi has actually emphasized China is continuing to open and the reform is continuing. Premier Li has actually had state council meetings, and Vice Premier Liu He has had recent meetings with state asset administrations as well. That’s China’s progress. At the Third Plenum of the 18th Party Congress, there were 60 reform measures. China has realized that. So I think now it’s important to analyze, to show the evidence, how to reform. Of course if we don’t have done enough, if that has been a problem, we can check that. We can see if that has happened. But the key is to respond, to communicate, and to do research and also to really address that issue.
ZOU YUE: And that finally comes down to whether we have faith in each other’s intentions.
MICHAEL PILLSBURY: Yes, that’s true.
ZOU YUE: Strategic trust. Whether we believe it is a partner, not opponent, let us say enemy. Do you think we can have that faith in each other?
MICHAEL PILLSBURY: I do. So far, we’ve never said enemy. We don’t say adversary. President Trump’s National Security Strategy used the word ‘competitor.’ He didn’t say enemy. References to rivalry. But even Liu Mingfu in his hundred-year marathon, he says to me one time, that the marathon is not killing people, it’s running. So I am still optimistic about the two countries being able to cooperate and not getting into a war. But, I don’t want to be complacent. Some Chinese officials have told me they are not going to read this evidence. They think it’s completely false, and they deny everything without even reading what the White House has released.
ZOU YUE: I believe many people in the Commerce Ministry are reading the report.
MICHAEL PILLSBURY: Really? That’s very good news for me.
ZOU YUE: And another thing many analysts here in China worry about is that actually President Trump is connecting many things. He is playing a big game against China. He is connecting trade issues, with North Korea issues, with Taiwan, or even the South China Sea. He is juggling all these things as leverages. Is that what Trump is doing?
MICHAEL PILLSBURY: He says he has a visionary approach to the future. So I think if he is only looking at each issue in isolation by itself, this would not be the brilliant genius Trump that I know.
ZOU YUE: And Mr. Wang?
WANG HUIYAO: Well, I think you are right. It’s all connected. But I think President Trump has made progress on North Korea because of China’s support. So that actually shows that China and the US can work together on some issues. So I think now President Trump is a businessman, and he knows business, so we hope that now given that China and the US are the two biggest economies in the world, that China and the US should find a way to work out those issues. And now I’m even noticing more that President Trump is a free trader, and he is getting an agreement in the EU of zero tariffs, so it means he is now turning around, and he is having something on TTIP, even bigger. So then, if he comes back for free trade, then China and the US can talk about it-we can talk about free trade and we can talk about BIT.
ZOU YUE: But what worries many people, at least here in China, is that if President Trump doesn’t get what he wants on trade, he will use the Taiwan card, the South China Sea card, to force China to make concessions on those issues.
WANG HUIYAO: I think that China has many other cards, too. So that’s not...
ZOU YUE: But do you think he will play that card?
WANG HUIYAO: No, I think still the economy is the bedrock. I mean it’s really the cornerstone of Sino-US relations. It’s so important, and then, let’s solve that, and let’s make a dialogue, communicate, and negotiate on that. And it’s in China’s own interest to open up further. China never says it’s going to close the door. America seems to be closing the door, but now I can see it is opening the door to Europe. So if they can open the door to Europe, why can’t they open the door to China? We can have a dialogue. We can solve these problems peacefully. So we don’t have to play the other cards. I think the economy is still the most important glue for these two countries.
ZOU YUE: Let’s hope so. But also look at the scenarios that make…
MICHAEL PILLSBURY: To your point, President Trump already tweeted that if President Xi helps him on North Korea, he will have an easier approach on trade. So President Trump himself acknowledges linking different issues together.
ZOU YUE: But let’s look at the likelihood of where this trade dispute will go. Do you think Trump will place 10% tariffs on all Chinese imports? Because there are no talks right now about what kind of terms, what kind of agreements we can have.
MICHAEL PILLSBURY: I think it’s possible. It’s one reason I volunteered to join Henry, to try to do this joint research by the think tanks. In addition to think tanks on the Chinese side, some other American think tanks are trying to understand the origins of the trade issues and then some solutions. But to measure the consequences quantitatively is also needed. It’s not clear, to me at least, the effect of 100% tariffs on both sides-10%. Some people play this down. They say it won’t have too much effect. Others say, no, it’s already influencing decisions. For example, Chinese investors have already cancelled a lot of deals in the US.
ZOU YUE: And Americans don’t know whether to double down on their investment, recruit more people, or should be on hold. Uncertainty is what businessmen hate.
MICHAEL PILLSBURY: That’s right. Uncertainty is the enemy of economic growth. So that’s why, I am sorry to repeat it, but that’s why the Chinese side is taking a look at this specific American evidence of wrongdoing, and then thinking constructively. Could we stop this? Is it in our own national interest to stop this bad practice? If that happens, then there is no fear of a trade war.
ZOU YUE: Is it possible to really have correct quantitative analysis of the impact, or probably the consequences will be unimaginably bad for both sides that we can’t cope with it at last?
MICHAEL PILLSBURY: I don’t know if you know that American joke about economists and quantitative predictions. We often say economists say on the one hand, on the other hand, sometimes they even have a third hand. So economists debate the quantitative measurements of economic activities. It is kind of a grey area. I personally hope we don’t go into this grey area.
ZOU YUE: Is China doing the same math as Americans? What will be the consequences?
WANG HUIYAO: I think it is useful to go through some calculations, like CCG does calculate the services trade. Actually, the US has enjoyed a big surplus. So that kind of message should be brought out as well. Also I agree with the sentiment that confidence is so important to avoid uncertainty, extremely important. Now we have in China situations like these. We have Tesla that opened a new factory in Shanghai. We have a lot of new, still opening measures to other countries and companies as well. So I think it’s in business communities’ huge interests to have these two largest markets in the world unaffected so that we can solve this peacefully, and so that we can have a continued next 40 years of prosperity and peace and cooperation.
ZOU YUE: Because Trump has been enjoying popular support because of his economic policies, for example, tax cuts, deregulations.
MICHAEL PILLSBURY: And 4% growth.
ZOU YUE: But the trade tariffs will probably cancel out all those gains these policies have produced. Steve Mnuchin said that the American economy can enjoy 3% growth for three years at least, and those trade policies could derail everything.
MICHAEL PILLSBURY: I brought you a copy of the report so you can pay attention to the words that are used in the title. China’s economic aggression. So some advisors to President Trump use very strong language. Steve Mnuchin, apparently, is in a different camp, has a different point of view. But I think that economic aggression by China appearing in a White House document-this is online. This is very important. I have never seen such a deterioration of our relationship in 40 years.
ZOU YUE: But do you think economic aggression is the correct description of what is happening between China and the US economically?
MICHAEL PILLSBURY: It’s very scary.
ZOU YUE: Yes, I know it is scary, but is it correct?
MICHAEL PILLSBURY: Some of these activities I didn’t know about. There is a chart in here with more than 50 examples of violations of WTO, international norms, violations of China’s own rules and statements. So it looks a little bit like Chinese economic aggression is not conducted by President Xi Jinping or the Politburo. Somehow, it is happening below that level, and President Trump seems to maintain excellent relations in these phone calls with President Xi.
ZOU YUE: That is why I said President Trump should listen to moderate voices. It is not the whole picture. China also helped to keep the inflation in America low. China also invited a lot of companies to make money in China. This is not the whole picture.
MICHAEL PILLSBURY: Very true.
WANG HUIYAO: So that is exactly why I think that the communication, the research, and also the analysis of those Chinese voices should also be heard in the US. The White House has a report, but I think we from China, scholars in particular, think tanks, should have more analysis and also more accurate reflection, and also discussions with the US counterpart to solve those issues.
MICHAEL PILLSBURY: If our evidence is wrong, the Chinese side should point out this case is not accurate or this didn’t happen. That would be very constructive.
ZOU YUE: I think China has basically been reading this document and self soul-searching on what might be improved. But the problem is this shouldn’t be the whole picture. This has been framed as an economic aggression against the United States, and this is not something the Chinese can accept.
MICHAEL PILLSBURY: You have some Chinese officials who say there is absolutely nothing correct in these White House reports. This to me is very frightening.
ZOU YUE: You are pointing to only a bunch of people.
MICHAEL PILLSBURY: I don’t want to say their names. But, other Chinese officials take this seriously, and they realize if China improves reforms, improves opening up, implements President Xi’s promises over the last few years about technology, intellectual property theft, then this can have a good outcome. But you mentioned a kind of debate in the White House. Maybe there is. But it looks like there is also a debate in Beijing about this evidence.
ZOU YUE: Let’s talk about the debate, because it comes back to what China will do about its own economy. All those things China has been mentioning as its own national strategy. Whether we should reform state-owned enterprises, better protect intellectual property rights, what is the role of the government in the economy. But it seems the world is anxious about the speed of China’s reform and the deliverables.
WANG HUIYAO: I think China is speeding up. As a matter of fact, even talking about intellectual property. China has a big interest now. Like ZTE, like Huawei, like Xiaomi or Lenovo, when they go to foreign countries, they are facing the IPR issues also. So the services industry now in China’s GDP is soon going to be 60%, more than manufacturing now. So that means China has to protect its own interests. And then China is also doing the Belt and Road Initiative, and also going to different countries. It is important that China catch up on this issue as well. So if we turn this into a positive effect, I think it will strengthen China’s companies’ competitiveness, and also you increase the dialogue and communication with American counterparts. I also think American companies will feel much more, will be much more effective in China, making more money. The business community can really make the policy together, and then hopefully, we solve this issue. So it’s important that those things China is also doing are good things at work.
ZOU YUE: I have another question. Why are those complaints about transfer of technology and stealth of copyrights not coming from businesses, but coming from the government? Why GE, Microsoft, Apple, GM-they don’t complain to the Chinese government about those things, or at least they don’t apply their complaints in an open, in an official way?
MICHAEL PILLSBURY: I have asked that question to our business people. They have a very clear answer. They say if they approach China together like a united front, through the Chamber of Commerce or through the US government, then the chances to make progress are better. If they go only one company at time, they are afraid that company will stick out and be punished.
ZOU YUE: Either way, they haven’t been doing anything.
MICHAEL PILLSBURY: That’s one of our topics in the last 40 years. That’s a very good question. We are asking ourselves, Henry and me, why did this intellectual property technology transfer issue not get solved five years ago, ten years ago? Maybe one of the reasons is what you are referring to-the companies were too frightened or too timid to bring the violations forward.
ZOU YUE: I think businessmen are the smartest people in the world. If they think they been bullied, they can leave.
MICHAEL PILLSBURY: They lose market share, and they could be afraid of losing market share to other companies.
ZOU YUE: Then they are making money! Then they are running at a profit.
MICHAEL PILLSBURY: Another related issue is Belt and Road. Henry mentioned to you Belt and Road. President Trump did not go himself to the Belt and Road Summit last year. Fifty-nine heads of state. He only sent NSC staff person Matt Pottinger to be present. A concern about Belt and Road is that some of the misconduct and bad practices in these reports will be fostered and increased by the Belt and Road loan program. So we have some reservations. Doesn’t mean some day, the US might endorse Belt and Road and join it. But first, there is a kind of investigation going on: how is Belt and Road really going to operate in practice? So I think Henry agrees that there are at least 20 issues to look at in our joint research project with other think tanks. How to not only avoid a trade war but have even better US-China coordination and cooperation.
ZOU YUE: And so you still believe in joining hands between the two largest economies rather than parting ways?
MICHAEL PILLSBURY: Yes, it’s possible.
ZOU YUE: It’s more than possible.
WANG HUIYAO: Yes, absolutely. I think China and the US are really so intertwined, interconnected. If the number one and number two economy can’t get along well, it will be a disaster for the world. I think it may also put the world into a dangerous position, even a recession. So it’s absolutely important for the moral ground that the US and China work together. I think that is also to the benefit of mankind.
MICHAEL PILLSBURY: Yes, but how to get the attention of Xi Jinping himself to study all this evidence?
ZOU YUE: Yes, that’s a major problem, and I hope the decision makers have heard what we’ve been talking about. Thank you very much, Mr. Wang. Thank you, Mr. Pillsbury.