Engage and compete with China to boost Washington’s economic recovery

By Wen Liu, Read the original article here

Frosty and fiery did not just describe the atmosphere of the top U.S.-China diplomatic meeting in Alaska over a week ago, they may also do the same of a new, or post-Alaska, phase of the bilateral relations.

At the end of the meeting, China’s foreign affairs chief Director Yang said, “This strategic exchange was frank, constructive and helpful,” but “of course, there are major disputes between us.” Secretary of State Blinken said, “We expected to have tough and direct talks on a wide range of issues, and that’s exactly what we had.”

On Iran, North Korea, Afghanistan, climate, the two sides’ interests intersected, Blinken said, while on economics, trade, technology, “…we told our counterparts that we are reviewing these issues with close consultation with Congress, with our allies and partners. And we will move forward on – in a way that fully protects and advances the interests of workers and our businesses.”

For a leading exporter to China like Washington state, also with an all-round and historical relationship with China, what did the Alaska meeting, with those “major disputes,” “tough and direct talks,” mean? To best answer the question, we have here today none other than Norwell Coquillard, executive director of the Washington State China Relations Council.

Q1: We all watched the confrontational exchanges at the U.S.-China meeting in Alaska, but the tit for tat didn’t end there. On March 22, the U.S. along with the EU, the UK and Canada imposed new sanctions on top Chinese officials for human rights violations in Xinjiang. On March 24, China’s State Council issued “The Report on Human Rights Violations in the United States in 2020,” with chapters on “Incompetent pandemic containment,” “American democracy disorder,” “Racial discrimination,” etc. With such testy actions and reactions, how do you see U.S.-China relations, with and after Alaska?

Coquillard: U.S.- China Relations are certainly strained these days and the meeting in Alaska, outwardly, did not appear to improve them. Certainly, the public statements from Yang Jiechi and Secretary Blinken left observers with little to feel good about. Reports are, however, that after the acerbic opening speeches, speeches that appeared to be aimed at both parties’ respective domestic audiences, that the diplomats settled down and entered into serious discussions.

My take is that the U.S. will base its interactions with China on three legs; China as a business competitor, China as a strategic adversary and China as a collaboration partner to address global issues such as climate change and the pandemic. I have heard little from the Alaska meeting regarding business competition between China and the U.S. In fact, I understand there was little discussion about the U.S-China Trade Agreement. Regarding China as an adversary this is where the issue of human rights is raised. The U.S. has its world view on human rights that is in direct contrast with China, and I do not see any comprise – on both sides – on this issue any time soon.

Regarding collaboration I believe this is where the U.S and China need to focus their efforts on the short term. Per above I do not see areas for compromise in business nor on the issue of human rights – so the parties should agree to disagree and move forward where there are issues of common interest. Small steps to repair the damaged relationship could be taken in visas, restoring closed consulates, subnational exchanges and coordinated actions to address climate change and the pandemic.

Q2: Secretary of State Blinken hasn’t said much about the topic of U.S.-China trade in the Alaska talks. But earlier in the year, the Biden administration said they were reviewing the U.S.-China Phase 1 trade deal reached under Trump. As for those tariffs, Katherine Tai, the new USTR, said they were a “legitimate tool” to counter China’s state-driven economic model and called for revamping global trade rules and eliminating the “gray areas” exploited by China. What are your views on those tariffs, the counter tariffs, and the “gray area” in doing business with China, especially with your many years of experience as a business and non-profit leader in China?

Coquillard: I am not in favor of tariffs and I think we should all recognize that the costs of the tariffs are borne by the citizens of the United States, not China. I also think the tariffs, which were in many cases were matched by China hurt U.S. companies that want to do business with China. Washington state apple and cherry farmers have lost market share in China due to the tariffs – and it may be very difficult to win that business back in the future even if tariffs are removed.

I do have a real problem with China’s state sponsored capitalism which can provide tremendous resources to support specific companies who are then able to dominate markets because of their size and access to cheap funding. There are huge subsidies available for Chinese companies that focus on the Made in China 2025 program, for example, subsidies which easily violate WTO rules. However, between the ineffectiveness of the WTO and China’s strong-armed tactics against objectors these programs continue. I was in China when it acceded to the WTO and I was and continued to be extremely disappointed to see how China has twisted WTO rules to keep its markets closed.

So, although I am not a fan of the tariffs, I believe that the current administration will want some concessions from China before they are eliminated.

Q3: Washington state has been a leader in trade with China for many years, especially if considered on a per capita basis. In 2014, Washington state was number one. That year, its exports to China reached $10 billion. With the fierce tariff war followed by a protracted coronavirus pandemic, what is Washington state’s trade with China like now, and maybe even in the next four years from your vantage point?

Coquillard: No state is more strategically positioned or impacted by developments within U.S.-China relations than Washington. In many respects, Washington state offers a microcosm of the U.S.-China economic relationship.

For many years the largest exporter to China among U.S. states, Washington’s world-leading, innovative advanced industries including aerospace, information technology, and life sciences have benefited from new and growing opportunities in China’s market. China is one of the most important global destinations for Washington’s agricultural exports, which support diverse communities and local economies across every region of the state. The rapid increase of Chinese students and researchers at Washington’s higher education institutions has contributed to developing even stronger foundations for the state’s future technology-driven economic prosperity. About a third of all inbound containers handled at Washington’s ports originate in China. The handling of this cargo directly and indirectly supports thousands of jobs across the state, including at marine terminals, warehouses, and intermodal operations.

The recent erosion in U.S.-China relations has adversely impacted Washington’s economy. In 2020, Washington state goods exports summed to just $3.5 billion, down from $14.6 billion (inflation-adjusted dollars) in 2018. Non-aerospace exports fell more than 27% in real terms in 2019 before rebounding 15% in 2020, despite the ongoing pandemic and disruptions to global supply chains and consumer demand. Notable increases included ultrasound equipment, wheat, and hay.

However, aircraft, which constitute the major share of Washington state exports, saw another year of decline, falling to $1.1 billion in 2020, compared with $11.7 billion in 2018 and an average of $11.1 billion between 2014 and 2018 (inflation-adjusted dollars). While Boeing aircraft were not included in China’s retaliatory tariff list during the height of the trade war, there were no new orders from China in 2018 and 2019, and just two in 2020 (though there remains a sizeable order backlog of 143 as of December 2020). Over the past ten years, China has been the source of 8% of all Boeing aircraft orders. The prolonged grounding of the 737 MAX also likely contributed to this decline in sales.

In short Washington’s economy has been badly damaged by the trade war. The quickest route to recovery would be an increase of sales and deliveries of aircraft. The harder job will be to recapture market share lost in agricultural exports and other products. At this point in time, with the tariffs in place and no serious economic talks between the U.S. and China it is difficult to predict when Washington’s exports to China will approach the levels seen in years like 2016 and 2017.

Q4: The Washington State China Relations Council has gone through several phases over its forty-some-year history, from building new relations from scratch to promoting China’s Most Favored Nation trade status, from expanding ties with China’s accession into the WTO to diversifying memberships, etc. Where is the Council now, or what is new with the Council, and where is the Council going, especially with the current bipartisan consensus in the Congress, and among Americans, on getting tough with China?

Coquillard: I commend you on your understanding of the history of the Council. We are now in our 41st year and still working to improve relations between Washington State and China. Our biggest challenge today is to ensure that there is balance and nuance in the discourse about China. We want to ensure that residents of Washington understand that China, especially doing business with China, impacts our lives. As mentioned earlier, there are many areas of disagreement between the U.S. and China but there also many areas where we do business together and can collaborate to solve global problems.

At the Council we are very active in producing educational events, like webinars, which focus on China issues that impact Washingtonians. Our webinars explore issues such as the success of Washington companies in China, how Chinese foreign investment affects our state, how various trade agreements impact our companies, and other issues. We also are active producing articles for our regional media which present our views on how Washington works with China. On the government side we are active providing information to our congressional delegations regarding the importance of trade with China to our local economy. We also consult the state and local governments in their dealings with China.

We hope to be perceived as a trusted resource providing accurate, timely information about relations between Washington and China. We also help make connections. For example, we are active in developing and maintaining relations with Chinese organizations such as municipal and provincial governments.

In 2020 we created a sister organization, The Washington State China Relations Fund, which is a charitable organization. We used this entity last year to import PPE to fight the pandemic and to raise funds to support those, especially in the Asian community, who were disadvantaged by the pandemic. Going forward we plan to use this new entity to create educational programs of interest beyond those of our immediate members and to become more involved with our local community.