A panel of experts in United States-China trade relations broke down the challenges facing the future of trade between the regions during a discussion hosted by the Long Beach-Qingdao Association, an International Sister City affiliate, on July 21. The experts pointed to China’s role in relations with North Korea, progress on opening up the country to American businesses, and a major trade-driven, cross-continental infrastructure project as keys to how the relationship between the two economic powerhouse countries would play out in the coming years.
The San Pedro Bay ports represent the center of the relationship between the United States and China, according to Clayton Dube, executive director of the University of Southern California’s U.S.-China Institute. Pictured at left is the Port of Long Beach’s Middle Harbor Redevelopment Project for Long Beach Container Terminal, a division of Hong Kong-based Orient Overseas Carrier Line. At left, construction is underway on the replacement for the Gerald Desmond Bridge, which will allow larger ships to enter the harbor. (Photograph by the Business Journal’s Samantha Mehlinger)
Clayton Dube, executive director of the University of Southern California’s U.S.-China Institute, noted that trade tensions between the two countries have become more apparent in the wake of China’s perceived unwillingness to assist in reeling in North Korea’s nuclear proliferation.
“President Trump was perhaps the most China-obsessed candidate for president in American history,” Dube said. “And then he had this bromance with [China] President Xi Jinping. As recently as just a week ago, he described Xi Jinping as a friend, a great man doing great things for China. Like himself, he loves his country,” he recounted.
“Repeatedly, President Trump said, ‘We’re counting on China’. Counting on China for what?” Dube continued. “For North Korea. For Chinese help in trying to address nuclear proliferation on the Korean peninsula. And that didn’t amount to much.”
The Chinese do not believe it is in their best interest to intervene with North Korea, according to Dube. “And with that disappointment, what have we seen in the last couple of weeks? A ramping up of U.S. China trade tensions.”
Dube explained, “North Korea is entirely dependent on China for trade. Eighty-five percent of its international trade is with China. And so, China does hold those cards. But China doesn’t consider pushing North Korea to be in its interest.”
As a result, talk of a trade war with China is gaining traction, according to Dube. “I don’t think a war is likely. I am guardedly optimistic about all of the great things that already exist in the U.S.-China trade relationship,” he said. “I expect most of that to continue. I expect this to be a rocky relationship – for there to be discreet episodes of tension, be it over aluminum, steel, something like that. But we are quite literally married. And it’s not a relationship that you can walk away from.”
Dube noted that the U.S. made two policy decisions that were “unforced errors” (a phrase he borrowed from the sport of tennis) in dealing with China. The first was the Obama administration’s decision not to support the Asian Infrastructure Investment Bank, which the Chinese were pushing foreign governments to invest in because of its role in financing the One Belt One Road Initiative. (OBOR). That initiative involves billions of dollars in infrastructure projects to connect as many as 60 countries and stimulate trade and economic growth. As a later panelist explained, the idea is based upon the historic Silk Road.
The second error was the Trump administration’s decision to withdraw from the Trans-Pacific Partnership (TPP), a trade deal hashed out by the Obama administration that was meant to open up trade between Pacific Rim countries. “The United States would have been a big beneficiary with TPP. And TPP would have represented something for the Chinese to aspire to,” Dube said.
Malcolm McNeil, a partner in the Los Angeles law firm Arent Fox and the co-chair of the American Bar Association’s China Committee Section on International Law, said he did not believe a trade war would erupt between the United States and China, despite political tensions. “Both countries have the best interest in mind that they don’t do anything that destabilizes the relationship for trade. So that is going to govern policy,” he said.
While the U.S. wants China to assist with North Korea, McNeil said China also desires something from the Americans – reducing its “aggravation over currency manipulation.” The International Monetary Fund has found that China manipulates its currency, which the American government has taken issue with, he explained.
As a lawyer specializing in business, litigation and transactional matters on an international level, McNeil said a major issue for clients has been difficulties accessing Chinese markets. “I have had clients that have wanted to go in with franchising agreements and into retail operations, and [they] have been rebuffed and stopped in China,” he said. “And they have not been able to get real estate agreements, leasing agreements.”
But McNeil said President Xi Jinping appears willing to “put the best foot forward for China overseas.” A treaty between mainland China and Hong Kong was signed in June, which is a step forward, according to McNeil. “What it is meant to do is, to make things easier for trade and resolution of issues, and it is meant to try and take care of some of the administrative difficulties we have had,” he said.
“I have flown to China to meet with people and to work out administrative snafus or mysterious things that seem to be holding up a business going forward,” McNeil said. “And this agreement makes it very clear that those things should not happen.”
Dennis Lee, an accountant and executive vice president of the Hong Kong Association of Southern California, argued that while China’s investment in the OBOR could present challenges to the U.S., overall, he viewed the initiative as a good thing. He noted that American companies have billions of dollars in contracts for the project to provide equipment to create new infrastructure, as well as to provide energy such as liquefied natural gas.
“By 2050, this is a projection, the Belt and Road region aims to contribute 80% of the global GDP growth and advance three billion more people into the middle class,” Lee said. “China is very open to really having different countries to be part of it,” he added, noting that China’s goals in the project are “financial integration, trade investment and cultural exchange.”
Still, the expansion of economic power that the project would bring to Asia does present a challenge to the United States. “I would say that this is definitely a challenge that we can manage. We cannot ignore the fact that China’s size and trading status is really quickly shaping the economies and the general politics of Asia,” Lee said. “Washington must really be engaged in the world as well. We cannot really afford to take a backseat on that front. We have to work with China.”
Taylor Shields, director of the International Trade Administration’s office of China and Mongolia, acknowledged that China is gaining on the U.S. “You know on the side mirrors they say, ‘Objects in mirror are closer than they appear?’ In a way, that reminds me of how I see China,” he said.
“When you look at the economic statistics of China, it is truly amazing. You have the second largest economy in the world, which is larger than the U.K., Germany and Japan put together,” Shields said. “It now has the largest middle class in the world. It has the largest number of cars being sold in the world. It has more billionaires than the United States. It is the largest market for e-commerce and will soon be the largest market for Hollywood films and aviation,” he explained. “So, it is truly amazing how much it has grown in the last few years and what its trajectory is.”
China is happy with the status quo in its relationship with the United States, according to Shields. “China is very happy with the status quo. They have a huge bank account thanks to a large trade surplus,” he said.
“The president has been very clear, and Secretary [of Commerce] Wilbur Ross has been very clear, that the trade balance is unsustainable. Unsupportable. And it is massive,” Shields said. “How do we get reciprocity? How do we get more access to the Chinese market in order to reduce that balance?”
There are two options, according to Shields: blocking Chinese imports, or increasing America’s market access in China. There has already been some progress on the latter front, he noted. “American beef is now flowing into China. Liquefied natural gas is now open in those markets,” he said. Considering that the president has only been in office for a matter of months, “that’s pretty amazing progress on things that normally take years to work through,” he said.
“It’s still early days. . . . the president is still getting his team in place, he is still working with Congress. That is a challenge by itself. But give it time,” Shields said. “Let’s see if we can actually get the leverage we are looking for in order to get the market access that we need and get more companies selling into China, which has been the goal all along. Reduce the trade deficit in a positive way, instead of in a negative way through trade war or barriers.”