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CNN – Quest Means Business
New Tariffs — Trade War
Robert Lawrence Kuhn, September 18, 2018
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HOST: Now from Beijing, Robert
Lawrence Kuhn is a long-time
advisor to China's leaders and the
author of “How China's Leaders
Think”. Thank you so much for
joining us. We appreciate it. Your
reaction to Jack Ma's prediction and
do you agree?
RLK: The public stance of China has
to be strong. The legitimacy of the
government and of the Communist
Party is based on two primary
factors. One is the economic
development.
RLK: China is celebrating this year
40 years of reform and opening up
really having created an economic
miracle, an astonishing 50 times
increase of GDP per capita. So that
has been terrific. The second area is
national pride and national
rejuvenation. And frankly, China as
almost every other country, if the
two come into conflict, the latter
has to prevail, especially in China
with a history of 100 years of
bullying, as they say, by foreign
powers, mostly Western, and then
of course Japan.
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RLK: This has caused a deep scar in
the Chinese psyche. So you have all
of these factors coming together —
but I can tell you the public stance
of the government, of Jack Ma we
just heard, is very strong and they
have to be.
RLK: If you look at what President
Trump said, that is not a public
posture for seeking solution. Not
just saying tariffs will go up to 25
percent in January will go up, but
then threatening if you retaliate at
all, we're going to levy tariffs on
everything else [$500+ billion
Chinese goods]. That's a very
aggressive stance and China really
has no choice.
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RLK: But behind the scenes, I
talked to economists, the leading
economists officials, every day.
Everybody wants a solution and
they want it a lot sooner than 20
years. But number one, they have
to have a government in
Washington that are people they
can talk to, that they will have
confidence that what they say will
be implemented. And the Chinese
want a solution because many of
the problems, if we look at the
problems, solutions are consonant
with what China needs itself,
opening up markets further is one
of them.
RLK: Economists tell me all the time
that China needs to open markets.
That more competitiveness within
China — that’s good for China, but
they can't look like they're
subservient or bowing to foreign
pressures. We can go through each
of the issues that are critical: China
has made progress in intellectual
property. Is it perfect? Of course
not, but they know they really need
to improve that. They will reduce
forced technology transfer.
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RLK: What they will not do is
change their industrial model,
which is government support for
future industries. So that's a
sticking point, but I believe that
they will open their markets further
and this is critical.
HOST: So how do you find
compromise when on the one hand,
as you've described, you've got a
country that wants to come across
as a superpower equal to that of
the United States, so any
concessions would make them look
weak. On the other hand, there's
not much love lost for China here.
HOST: In the United States, as you
know, Republicans and Democrats
alike, some that may not even
agree with most of President's
Trump's policies can't go out
necessarily and throw their arms
around China and support China
openly to the voters. So where do
you come up with a middle ground
to where both sides look like
they're walking away with
something?
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RLK: Certainly that's the objective.
You're absolutely right: There's no
issue in American politics that the
all sides of the spectrum agree
upon more than on China. In fact,
on every other issue, one could say
from the Bernie Sanders / Elizabeth
Warren, Democrats on the left, to
Donald Trump Republicans on the
far right, they disagree on virtually
everything we can say except on
China. So that's the reality we are
dealing with.
RLK: Nobody expects this to be
resolved before the midterm
elections. That's for sure. But if we
look at the details, if the people
who really know what's going on
look at the detail, we look at the
real issues, we have the trade
deficit, sure, but most people in the
U.S recognize that it's a simplistic
number.
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RLK: The trade deficit has a lot of
things in there that are not
accurate. You look at the iPhone,
China will get 6, 10 percent of
that, the rest are components that
go into China. Services are 40
billion dollars — what Chinese
tourists and students pay in the
US — not counted in the trade
deficit, which is a very
complicated number. It also
benefits the US because we have a
lot of good products at cheaper
prices.
RLK: But there are five real
reasons that are problematic to
the US with respect to China:
closed markets; intellectual
property protection; industrial
espionage, which includes cyber
theft; forced technology transfer
in JVs; and government support
for future industries. Those are
five real issues that the smart
people in America are focusing on.
And legitimately so.
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RLK: But there are five real
reasons that are problematic to
the US with respect to China:
closed markets; intellectual
property protection; industrial
espionage, which includes cyber
theft; forced technology transfer
in JVs; and government support
for future industries. Those are
five real issues that the smart
people in America are focusing on.
And legitimately so.
RLK: But these are, I believe,
solvable — because intellectual
property rights, China's
improving. Industrial espionage,
they're reducing and they have
reduced. It needs to be more.
Tech transfer, I think that will be
eliminated.
RLK: The two critical issues are
government support of nascent
industries in China and the
opening of markets. I think
ultimately those two can be
traded. The US can recognize that
China can do some of those things
with certain restrictions and really
open their markets more. I think
that's the ultimate trade.
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HOST: As you
mentioned, it's
a long-term
process, not
anything we're
going to see
resolved in the
next few
months or even
years. Though
many people
would say it
would be
easier from the
American
perspective if
the president
wasn't
approaching it
as I go it alone,
a type of
relationship
and getting out
of TPP. But
that's for
another
conversation.
Robert, we
appreciate you
joining us.
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