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CNN – CNN Today
New Tariffs — Trade War
Robert Lawrence Kuhn, September 18, 2018
HOST: Robert Lawrence Kuhn
joining us via skype from Beijing.
He's the author of How China's
Leaders Think and a longtime
advisor to Chinese leaders and
corporations. Robert, we appreciate
you joining us. First off, you know it
seems like Trump's strategy here is
to force China into concessions with
these tariffs. What's China's view
on that?
RLK: China's view is that the
economic ties between China and
the rest of the world, the United
States in particular, is very
important for the peace and
prosperity of the world.
RLK: And indeed for the entire
economic relationships and
standards of living of all people.
There are real issues and I think we
need to discuss them. But right
now, China is sending signals by
what it's doing, that it wants to
ratchet down the trade war. It
recognizes that it cannot be
unresponsive.
RLK: In China, the legitimacy of the
government and indeed of the
Communist Party is based upon two
cardinal factors. One is the
economy. This is the 40th year of
China's reform and opening up —
truly an economic miracle, an
astonishing increase in standards of
living.
RLK: The GDP per capita has gone
up more than 50 times in these 40
years. And so that's number one.
But number two is national
rejuvenation, national pride. This is
what the government and the Party
has brought to China in terms of its
position in the world. So it cannot
back down and look weak in terms
of these tariff attacks. But given
that, given that environment, the
Chinese response is very carefully
calibrated.
RLK: China levying tariffs on $60
billion is not dollar for dollar, the
way the first $50 billion was. But
what it is, in fact, is in proportion —
because $60 billion is roughly 40
percent of the roughly $150 billion
of the total US exports to China,
just as $200 billion is roughly 40
percent of the little over $500
billion of the total China exports to
the US.
RLK: So it's a
proportional
response.
The rhetoric
in the press
is also
milder. US
has not been
called so
much of
bullying
anymore.
Also some of
China’s
tariffs are 5
percent as
well as 10
percent,
whereas the
US tariffs are
all 10
percent
[going up to
25 percent].
So China is
sending a
signal that it
wants to
ratchet this
down.
HOST: So, if China is sending these
signals then, Robert, is there a
chance that China would actually
come to the table and continue to
have these trade talks as they've
been scheduled for the coming
days?
RLK: Unlikely that the top trade
negotiator would come under these
circumstances, because then it
looks like they're coming under the
threat of a gun to their head, an
analogy that has been used.
Possibly that a lower level
delegation would come. It's
unlikely though that we'll see any
real movement before the midterm
elections.
RLK: I think there has to be some
backchannel working. To put the
real situation on the table, there are
five major issues that the US is
concerned about in addition to the
trade deficit. The trade deficit is
actually complicated because there
are services of $40 billion dollars
that Chinese tourists and students
pay. It's not excluding the transfer
pricing of components that are
shipped into China. So the trade
deficit, which benefits a lot of
American consumers with cheaper
products at a good quality is not as
relevant as popular opinion would
suggest.
RLK: Most experts do not really
focus on the trade deficit. American
experts focus on five things: the
lack of open Chinese markets;
intellectual property protection,
industrial espionage, including
cyber theft; tech transfer being
forced (in joint ventures);, and
Chinese government subsidies for
critical technologies or industries.
RLK: If we look at these, China's
making real progress in intellectual
property, reducing cyber theft —
more needs to be done. Not
requiring tech transfer. The big one,
which they won't change, is
government subsidy for nascent
technologies of the future. Such
government-industry cooperation is
part of the Chinese system — that's
beyond their red line.
RLK: But China should be able to
open their markets — and we
should be able to have a trade
between seriously open markets,
which even Chinese economists say
is good for the Chinese economy
and very good for the world and
American companies — and some
sort of a recognition that China will
continue to subsidize industries.
That's where it will happen, we
hope soon.
HOST: Yeah. So then if there is
room for a trade deal from an
expert like you, that there's room
for both sides to agree to a deal
that would benefit both the United
States and China. How would you
advise President Trump in terms of
his tactic and how he should
approach China?
RLK: You know, I am not going to
be an expert in advising President
Trump on tactics. I'm not sure he's
amenable to advice and he has his
own style.
RLK: And many people in the US —
let’s put it on the table — who
disagree with Trump on virtually
every other policy — support
Trump either overtly or quietly on
his approach to China. And that's
because there's general recognition
in the US — from Bernie Sanders
Democrats all the way on the left to
the rightwing Republicans all the
way on the right who favor Trump
— that something needs to be done
to alter the US trade relationships,
and the US’ overall relationships,
with China.
RLK: So Trump recognizes that and
he is getting political credit for that
— whether people like it or not.
There's unlikely to be anything
before the midterms, but if
President Trump is doing what he's
doing, he needs to recognize that
these issues that I articulated are
really the critical issues. And China
will be willing to make changes on
them. They've already made
changes on many of them, like on
intellectual property rights, as I
said
RLK: . But if Trump can recognize
what is really needed and what
China will do, then Trump can get a
huge win out of this, which is
actually at the same time beneficial
to China. That's a small needle hole
at this point though which to look.
But I think, ultimately, that's what
will happen.
HOST: Robert Lawrence Kuhn,
thank you very much for your
expertise. I appreciate it.