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hi I'm Jacques de Lille I'm professor of law and political science and deputy
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director of the Center for the Study of contemporary China here at Penn and I'm
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delighted to have with us today Charlene Bartowski ambassador of our chefs key has worn many hats including the one
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probably most familiar to those who watch the China issues was her role as the US Trade Representative during the
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Clinton administration when China entered the WTO so we're gonna be talking about some of that history and
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where we are now and how we get out of it perhaps in a bit of time we have today
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so we're 40 years past the opening to China really the normalization of relations which brought conditional
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most-favored nation or normal trade relations status between China and the US the u.s. granting that to China and
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of course in 2000 you finished a very long and painful negotiation that led to Congress passing permanent normal trade
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in relations which was a condition for China getting into the u.s. you didn't
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to the WTO or perhaps more precisely for the u.s. meeting the obligations it would then have to China and that was a
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very successful story right China becomes an even more major trading partner great opportunities for US
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exports lots of US firms getting in on the ground services sectors starting to open up all this sort of stuff and now
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here we are 2019 and suddenly the worm seems to have turned a bit we're on the
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brink of or some would say deeply into a trade war where we've got 250 billion
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with perhaps another amount of that 250 260 billion more Chinese goods possibly subject to tariffs from the US China's
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retaliated with 110 billion u.s. goods being subject to tariffs we've had these
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trade negotiations which keep not quite reaching a result a lot going on so what
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happened how did we get from the rosy days of 2002 the current really much much less happy a state of us-china
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trade relations well I mean first of all the days weren't necessarily rosy in
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2000 and I'll come to that in a minute but of course China's reform and opening
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started with dumb chopping so really started in 1978 as you say it's been 40
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years and starting with dong chopping with sort of tentative steps toward reform continuing on through the 1990s
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and into the first half of the tooth thousands you saw China not only affecting internal economic reform on
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its own but also through WTO accession expanding and deepening that reform very significantly let's keep in mind that
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china is the world's second largest importer second largest importer and that would not have happened without a
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WTO entry but what happened is while China had been on a convergent course or near a more convergent course with
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Western market economics and therefore the WTO what we saw around 2005-2006 was that China's internal reform and opening
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began to sputter and then it stopped and rather than continuing on a converging course China began to diverge course an
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undersea Jinping that divergent course a statist approach has accelerated significantly so that China's internal
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economy while robust and so on and it's external trade relationships are really
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no longer in sync with where its largest trading partners tend to be why did this
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happen it's hard to know what fully the motives were except that China turned
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from more market oriented systems toward a resurgence of state-led enterprises toward the creation of champion
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companies Huawei being one but not the only one toward heavy subsidization of favored sectors in the mid 2000s those
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were called strategic emerging industries now they're all routinely referred to as made in China 2025 and
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for China in China's view this seemed to be a better course in that the state
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became the dominant after an undersea Jinping of course the party is even more dominant still
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so now we see the US and China in conflict China is also in conflict with its other major trading partners with
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Europe Australia and others because of its economic practices principally on the technology side but not exclusively
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on the technology side and so that's one threat second threat and the current
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tensions is the u.s. financial meltdown in 2008-2009 which continues to reverberate today but China saw an
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opening to make its own path the u.s. did relatively little to stop it at that point third strand in this story is I
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think a failure on the part of the u.s. to adequately enforce the commitments China made there were many specific
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commitments made that applied only to China including for example a prohibition on forced technology
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transfer remarkably the US has never sued China on that basis so a somewhat lacks enforcement regime I think also
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contributed and finally I think a to slow realization of China's u-turn and so letting it get ahead of where
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policymakers then later discovered it was and I think all of these strands have come together to create a very
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difficult situation between the US and China not to mention job loss in the US on the
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manufacturing side that some economists have attributed to China so you've stressed the change in China in the u.s.
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reaction to it let me throw out a couple of other factors that are sometimes in the discussion and see if you think they
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mattered once one argument was that there was going to be a honeymoon period that when China first entered in 2000
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had been such a long tough slog to get the deal done and China really made some pretty big concessions it didn't try to
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take advantage of developing country exceptions to the rules under the WTO it didn't try to take the socialist
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transitional economy thing that had agreed to things like a very short trigger for essentially surges of
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exports so it took a pretty tough deal and although many reforms had been as you've pointed out and although the
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story that's often told that would she would know better than just about anybody is that then Chinese premier
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Jerome G saw the WTO commitment as a way of forcing through reform at home so how
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much foot was okay we're gonna give you some amount of time we're gonna give me
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some number of years and by the middle 2000s and a bit later that starts to wear out and it's worn out even more now
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do you buy that part of the story another one is that as China's moved up the value chain they're starting to
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compete in industries that really matter to the US we've lost textiles we've lost
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a lot of low end electronics already but when we're getting into the IP intensive
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industries it's now kind of hitting us where we live do you think that's part
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of the story absolutely so the composition of China's trade with the US has changed as you said in the earlier
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years they were exporting low value goods we were exporting high-value goods now we're competing increasingly on sort
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of mid-level technologies and technological goods but we are becoming fast competitors on higher-end
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technology in part a function of theft by China and forced technology transfer requirements in China and in part a
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function of China being an extremely inventive and innovative society quite on its own so there's no question that
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has led to the tension and indeed when people talk about the trade war I think of it as a technology war rather more
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than a trade war and with respect to the honeymoon period I think that in the beginning China implemented its WTO
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commitments actually rather well and that implementation period went better than many thought it would go I think it
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was by that time of course the Clinton ministration was long since over but I think that George W Bush administration
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watched that pretty carefully but then I think as things began to lapse as promises were made and not kept by China
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with respect to further reform and opening then I think you saw a rather a bit of a lackadaisical view part of that
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was the US financial crisis in inward turning by the us the importance of stabilizing the US economy and
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China's importance at that time as being one of the few sources of demand for a
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world in which there was a dearth too little demand able to pull countries back out of what was becoming a very
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steep recessionary spiral so part of it was that part of it was u.s. involvement
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Middle East Wars further diverting its attention from China and part of it as I say may have been that some of China's
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actions which were clearer which were clear to people on the ground were less clear to policymakers and there was
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simply a sort of a failure of a meeting of the minds sufficiently early in this process of divergence to bring total
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right the ship one of the other developments in that period you're talking about of course was complaints
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about China being slow to open service sectors financial services insurance areas where they're heavily regulated so
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it's maybe a little harder to pick up exactly where we're crossing the line
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from legitimate regulation into protectionism so you've mentioned that the u.s. being a little slow to push
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back now the u.s. did use WTO mechanisms the US and China have been since China's
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entry about the most frequent WTO litigants out there and many of them involve complaints about Chinese
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practices so it's either a US complaint about a Chinese practice or a Chinese
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complaint about the u.s. imposing an anti dumping duties or a countervailing duty which ultimately is about a Chinese
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practice but you think we didn't do that all that much I'm gathering and and so
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what could we have done more either under the WTO general rules or under the specific provisions that China committed
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to in its protocol of accession some of which of course are now lapsed right so I think on the issue of specific WTO
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cases the US was certainly right to pursue the cases that have pursued no quarrel with that
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win-loss record is very good in favor of the United States and all of that is positive I think that the protocol of
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accession which prohibited forced transfer should have been the subject of the case it wasn't I suspect
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because of some difficulty in gathering evidence companies are reluctant to come
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forward they also don't want to admit technology was stolen which is the same
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actually in the United States as well second of all the disciplines imposed on state enterprise and state enterprise
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activities could have been the basis for an additional suit and last of course and most important the agreement as you
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noted prohibited surges of imports of Chinese goods into the United States if they cost market disruption in the US
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market disruption is a very low legal standard and if China were found to be creating market disruption in any sector
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the president United States would have been authorized to undertake any action he or she deemed warranted quotas
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tariffs prohibitions bans so on and so forth that should have been done and should
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have been utilized it was a provision that was utilized only once in 12 years that was by Barack Obama but in addition
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under the general WTO agreement there is something called nullification and impairment it's sort of the nuclear
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option but I think quite justified in this case and that is it's a provision
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that allows a party let's say the United States to essentially sue another party
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let's say China on the basis that the benefits the United States thought it would get from China's WTO accession
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have not fully occurred and that China and that's because China has reverted to
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a kind of state-led approach to its economy heavy discrimination against foreign companies heavy subsidization of
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homegrown companies that these practices and many others have nullified or impaired the benefits we the United
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States thought we would get other countries clearly would have joined that suit because many have exactly the same
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complaints and what is the remedy if you were to win which is not easy to do but
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what's the remedy if you were to win you could forego MFN which is very nuclear the point of the
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case would have been to bring China to the table in a serious way that would have been the point of the case and as
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you point out MFN has been there it wasn't obligatory until the legislation in 2000 but even in the wake of
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Tiananmen which is the closest we came to yanking MFN ultimately we did and ultimately we didn't exactly so what do
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you think of the critique that says although many of the points you make that is Chinese behavior that is not
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consistent with WTO commitments or obligations we could have done more with that but there's a critique that says
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some of the things that are problematic in China's economic behavior are hard to
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police with WTO rules nobody police's intellectual-property perfectly how much
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is enough maybe you can police flat-out state subsidization but what do you do about companies that maybe get the
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nudge-nudge wink-wink that they don't have to worry about the bottom line fully or they pursue a more politicized
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strategies where's the line between that and legitimate industrial policy there's
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a bunch of gray there is this a systemic problem where the WTO does a good job of
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catching trade law violations by countries that operate the way the u.s. does but a less good job at allowing us
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to police that kind of behavior I think it's very difficult to police the kind
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of behavior you've said even in the context of countries that abide by WTO rules so there are many intellectual
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property cases the US has brought against Canada against Europe clearly these are market economies rule of law
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countries similar to the United States and yet you'll see cases on that European state-owned enterprises were a
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big issue for the United States during the 1970s 1980s very difficult to police there's no question China system is
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difficult to police in what we would call these gray areas as they are for other countries that also operate in
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these kinds of gray areas to me the best use of US time would have been to begin
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to remake the WTO and thereby push China in the action of either reform sustainably
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durably or be completely disadvantaged commercially and the way the US should have done that is to stay in TPP the
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trans-pacific partnership which created a very high standard agreement covering many of these areas that are in this
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gray zone it should then have taken that agreement to Europe then you have 60% of
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global GDP on a system different from the WTO system by different I mean much more rigorous much tougher on countries
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much better dispute settlement system then China can choose does it wanna have the economic opportunity of 260 percent
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of the global economy or does it want to be disadvantaged and at a minimum it would have strengths in the United
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States and the u.s. Alliance structure quite apart from whatever trying to decided to do and it would have in
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effect rewritten the rules of the WTO because it's hard to ignore 60% of global GDP so to my mind this would have
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been a more constructive way of proceeding a more durable way of proceeding one that didn't hurt the US
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economy as tariffs do since tariffs or taxes on consumers and one that reinforced the United States Alliance
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structure with its closest partners and I think that is an aspect that is not often discussed but is one of the most
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critical features of what TPP would have done it would have cemented the u.s. position in Asia which China does not
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want to see would have strengthened our allies in Asia which China would rather not see and would have led to better
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balance in Asia no one picking sides but a balance of power in Asia which will slowly erode over time without
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agreements of this sort for the United States so you're telling a compelling
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story about some constant themes that run through the nearly 20 years and really
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before that when we first started talking really at the dawn of the WTO about China's possible accession but the
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sort of political atmospherics of this have been a little more ragged in a sense we started with what were perhaps
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inflated expectations and there were reasons to do this in domestic politics but to say that engaging China and the
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WTO would lead to all sorts of great changes in China and those haven't fully
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panned out for reasons you've talked about and maybe they were a little exaggerated because of the need to sell
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Congress or a little optimistic perhaps then we went through the phase with the TPP when Obama said again perhaps not
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the best external politics but understandable internal politics that the TPP was part of a contest between
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the US and China about who would write the rules of the international economy for the 21st century and now we're in a
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rather different moment and some of the things you have said are China I was China's problems problems with China in
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the relationship with the US and the broader engagement with the international order some of your list is
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a bit like the list one would hear from the Trump administration coerced intellectual property transfer outright
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intellectual property theft problems with market access problems with selective application be it
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anti-monopoly law or regulation these are things you've spoken about in our conversation and in other contexts
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that's a pretty familiar list but I'm guessing that somehow if I were to have
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Robert light hyzer rather than Sharlene our chefs key of that chair we might get
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a slightly different discussion about how one should pursue dealing with those problems so what's the Trump
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administration doing wrong and what are they doing right in your opinion well the list of problems with China has been
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well known and they were the subject of much of the engagement and WTO enforcement actions taken during the
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eight years of the Obama administration there's nothing new in the list a little
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more evidence here a little less evidence there so on and so forth but the list has been well known the process
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of engagement that had been undertaken I think by Obama which combined negotiation with China with TPP
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that is to say negotiation with China's other trading partners for a different
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arrangement coupled with WTO enforcement actions I always thought was basically about right in terms of
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position but not right in terms of Moxie and in terms of real push against China
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and these dialogues that were held during the Obama years became more way for China to manage the United States
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than the u.s. managing China so this I think helps spawn the kind of Trump administration approach which is take a
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two-by-four whack the head with a two-by-four and if the patient hasn't died see what you can extract and the
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real question there is how durable is that whatever will be announced we already know will be the best the
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biggest president has used the word himself the most epic trade agreement ever done here it's been 20 years post
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WTO and we've come to this point where will we be in 20 years following the two-by-four approach the internal
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reforms that are asked of China our reforms long known to China and the international community if it wants to
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propel itself forward so these are reforms outlined in many reports including in the China 2030 strategy
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done by the World Bank many years ago those reforms if they had been installed over these many years would have made
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China stronger would have made its economy rather more stable than it is today and would have ameliorated some of
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the problems we see in China's financial sector in particular and therefore would
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have put China on a firmer footing than it is now so these reforms have to be undertaken by China if it's going to
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propel itself forward on the basis of real data not made-up numbers and if it wants to escape the middle income trap
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so on and so forth and so we'll have to see I did whatever comes out of the administration we already know how it
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will be announced and it will take a number of years before we see the outcome will be in the interim to my
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mind the single most important thing the u.s. can do is get its own house in order it doesn't matter
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what China does how fast or how slow it goes if our infrastructure is crumbling if we don't provide R&D funding to our
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major research institutions if we don't have budgetary capacity to do the things
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in the United States we need to be doing analyst is well known on education and other fronts it is a strengthening of
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the United States that is a single most important thing we can do if we're on an
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economically stronger footing if we're better educated if we're funding are
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indeed the way we used to fund R&D we're still riding on the coattails of R&D
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funding from the 1950s if we funded it the way we did then if we strengthened our alliance structure as we did then
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which is the way the u.s. projects power it we would be in a far better position
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to address China in other words we can't control what China does at the end of
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the day it's one it's a it's a fifth of the world's population the world's
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second biggest economy and soon the world's biggest oil the world's biggest
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economy on a purchase power parity basis just about coming very close to the US now on that basis but we can completely
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control what we do within the United States and that has to be a principal part of any program with respect to
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China and there of course China is throwing immense resources that some of these undertakings R&D of its own
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requiring R&D shops to be open to by foreign investors and all that there's
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some question about how efficient it is but it's certainly a large number so I
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certainly take the point that on both sides strength begins at home with the domestic economy and all that that makes
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possible militarily and otherwise but we still do have a bilateral relationship which I think most people accurately
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describe as the world's most important bilateral relationship and the broader
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atmospherics beyond the trade and investment disputes you've been talking about or not so good right now it wasn't
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too long ago that there seemed to be a pro and agent consensus in the US and now it has
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turned almost 180 degrees at least in policy-relevant circles and I'm wondering what you see
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as the things that have contributed to that and whether we can manage our way out of it I mean some things have
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changed since the negotiations you were doing back in the run-up to 2000 the business community in the US was then
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very supportive of China getting in the WTO now it's a much less happy group
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with his experiences on the ground in China and the Republican Party which has often been relatively free trade at
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least part of the time is now very much in line with taking a tougher line toward China and we have a national
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security set of issues in the mix this has come up with Huawei has come up with ZTE so that's a pretty long list of
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things that make the relationship a lot tougher do you think those were intractable can they be managed how
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should they weigh in to our considerations because as you know one of the big critiques of the Trump
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administration has been a tendency to mix national security concerns with trade concerns so that's a big a big
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question we're almost out of time so I throw it all idealize right exactly but
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I would say this there has to be a way to manage the relationship or it's war
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which is unthinkable on almost every basis one could consider so we have to say well first of all let's set aside
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ideology they have a particular political system we won't change that we have a particular political system they
00:25:54
won't change that and put that aside a moment we have some common concerns whether it is or was climate change or
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whether it is global pandemics whatever it might be global terrorism there are some common concerns China contributes
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less than as advertised and that has s has been advertised by the United States but even with that you
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obviously want to cooperate if it's in your interest to cooperate it won't
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always be in your interest to cooperate that's for sure but where it is you can't put yourself in an adversarial
00:26:34
position such that you can never cooperate because again then the only thing you have left is something that is
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potentially exceedingly dangerous with no stop to it then with respect to those issues that are the difficult
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issues I think the United States has to continue to not only work toward moving China in the right direction working
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with its allies working through other agreements that leave China out putting greater economic pressure on China and
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taking counter measures if we need to in other words if China persists in the direction it's going in I think the
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United States will simply have to take its own measures as Trump has done but Trump has done it without having tested
00:27:28
the proposition whether he had to do it this way and my own view is he never had
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to do it this way and it will affect the durability of whatever is agreed to but
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last I would say the engagement strategy never died what are negotiations if not
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engagement during the Obama years these meetings were negotiations they weren't
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pointed enough they weren't narrow enough they weren't focused enough there
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were too many things on the table that got lost but engagement is negotiation that's what's happening now engagement
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with the calls between bush and cg and pea between Trump and si Jinping these used to be conversations between si
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Jinping and Obama and before si Jinping between who Jintao and Obama so these elements of engagement persist and will
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have to persist because we have to manage this relationship in such a way that the pieces can fit okay together
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not great but okay but in the meantime the United States has to strengthen itself I can't emphasize enough the
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importance it is so fundamental it's fundamental to our future and the way in
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which we can continue to play the leadership role we've played which is very important because it does
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matter who writes the rules and it does matter who's in the position to enforce
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the rules the US by dint of its economic size and the attractiveness of our market was almost always in a position
00:29:11
to enforce the rules through formal and informal means we have to remain in a position to do that we won't be the only
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country who can do it any longer but we have to remain in a position where we can still do that well thank
00:29:26
you very much for sharing your expertise your long experience in this field I think it's an extremely useful reminder
00:29:32
of all the subtle work that's done through policymakers and through diplomats that all too often gets
00:29:37
drowned out by the rhetoric and the swings over broad policies whether they be decoupling or or as you say taking
00:29:44
the two-by-four and I just hope that message gets through to to everyone out there who's listening to this and
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hopefully have some role in getting us through the current difficult period thank you so much ambassador of our
00:29:54
chefs q my pleasure thank you for more insight from knowledge at Wharton please visit knowledge Wharton UPenn edu
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