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History as a Mirror

January 3, 2019 – From the Beijing Review:

January 1, 2019 marked the 40th anniversary of the establishment of diplomatic relations between China and the United States. Looking back, former U.S. President Jimmy Carter once told Li Qiangmin, Chinese Consul General in Houston, that the most correct thing he had done during his presidential tenure from 1977 to 1981 was normalizing U.S.-China relations. The decision changed China, the United States, and the world, Carter said.

It has not only changed, but also benefited, the two countries and the world, Li replied.

“It is an appropriate time to analyze and reflect upon the state of U.S.-China relations,” Carter wrote in a congratulatory letter to a forum co-hosted by the RUC (Renmin University of China) North America Alumni Association and the China Program of the Carter Center in Atlanta on December 15, 2018. The forum commemorated the issuance of the Joint Communiqué on the Establishment of Diplomatic Relations Between China and the United States.

Amid uncertainties clouding the ties, a review of the past could lead to rethinking and new solutions, according to the participants.

Robert Kapp, former President of the U.S.-China Business Council, acknowledged that this is a difficult and challenging period for the two countries. “We have to keep thinking about how our relations with China create positive opportunities, not just at the level of national interests in a very general sense,” he said at the forum, stressing that a large number of Chinese are living in the United States and individual Americans are making their way to China and building a life there.

Li pointed out in his keynote speech that cooperation is the best choice for both countries. “We should act in the fundamental interests of our two peoples. A good relationship benefits the two sides. Confrontation does harm,” he said.

Productive years

For China, Li said the normalization of relations with the United States facilitated the implementation of the reform and opening-up policy. It helped China get technology to support its modernization. Subsequently, China’s GDP ranking rose from ninth in the world in 1978 to second currently. As for the United States, U.S. companies made a lot of profit from China, which is now the second largest market in the world.

Chinese exports to the United States, high-quality but low-priced, have helped keep the U.S. inflation rate stable, Li said, adding that a pair of jeans from China still costs the same in the United States as in the 1990s. While the U.S. dollar has devalued, consumer product prices have still been kept at a very low level.

Trade between China and the United States was worth about $2.45 billion in 1979. In 2017, it surged 237 times to $580 billion. The number of people-to-people exchanges was less than 10,000 in 1979. Today, the number has exceeded 6 million. There were no nonstop flights across the Pacific Ocean in 1979, but now, every 17 minutes, there’s one flight taking off from each side.

Deloitte Managing Director Patricia Buckley stressed that travel produces the third largest Chinese export to the United States. When Chinese citizens come, that’s an export because Chinese money is spent in the United States, she said.

A third of the travel is related to education. That’s a huge gain for the U.S. economy, much larger than reciprocal U.S. travel to China. This has been a strong component of U.S. growth, contributing 0.8 percent to the U.S. GDP, according to Buckley.

China and the United States also cooperate on many regional and international issues. They share broad common interests in safeguarding world peace and addressing global challenges, Li said.

But since 2018, tensions between the two countries have grown, mainly over trade. U.S. President Donald Trump blames China for the U.S. trade deficit, regarding it as the cause of U.S. manufacturing job losses. So far, the Trump administration has slapped tariffs on $250 billion of Chinese products, roughly half of China’s annual exports to the United States.

Buckley, who served as senior economic policy advisor to four U.S. commerce secretaries, said when the United States talks about its trade deficit with China, it fails to acknowledge its $40-billion surplus in services trade. “Services are a large proportion of U.S. employment and output,” Buckley said, adding that the United States enjoys significant competitive advantages in terms of trade.

“There’s been a huge attribution when things go wrong… We always attributed factory closures to trade, without paying attention to technology,” she said.

The trade tension has affected investment from China, according to Buckley.

Although Chinese investment in the United States is a lot smaller than U.S. investment in China, it has been growing rapidly, from $1 billion in 2008 to $40 billion today. The number of Deloitte’s Chinese clients looking to locate their businesses in the United States has grown 20 percent yearly, according to Buckley. “It’s a very dynamic market,” she said.

But now, it’s difficult for Chinese companies to decide where to locate their facilities in the United States as they have to think whether the tariffs will be long-lasting or short-lived. “What if your inputs are going up in price by 25 percent? That can really change the equation of how a business seeks to organize its supply chain. These side issues have real repercussions on our jobs,” Buckley said.

Benjamin Shobert, a member of the National Committee on U.S.-China Relations, warned that in the midst of trade tensions, it’s very easy to forget all the extraordinary good work, all of the diplomacy, all the personal relationships and all the institutional capacity that were built between the two countries. “There are people around that are focused on making sure we learn lessons from history,” he said. “Don’t take the modern era for granted.”

Dealing with differences

U.S.-China relations should be put in a multifaceted context and dealt with in a multi-layer approach, Li Shanquan, Senior Vice President at investment agency OppenheimerFunds, said. As the world situation changes, every country, including the United States and China, has its own internal challenges, he said. “The United States can’t win by simply blaming its partner. It should try to figure out its own problems.”

Li Shanquan said structural changes are difficult to implement. “Trump wants to bring manufacturing back to the United States, but it took so long to form the current economic structure. It won’t change overnight,” he said.

He said China and the United States need dialogue to figure out ways to cooperate. While there are difficulties at the government level, “you have to look at the corporate level and the people level,” he said. Despite their concerns, many U.S. and Chinese corporations are still trying to figure out how to carry on with their business as before. More importantly, according to Li Shanquan, ordinary U.S. and Chinese people still think the two countries’ relations should advance and improve.

Khairy Tourk, an economics professor at the Illinois Institute of Technology, said one of the difficulties the two countries face is that they look at the same thing and interpret it differently.

“China looks at the Made in China 2025 program as a way to get out of the middle-income trap. It wants to move up the technology ladder and join the advanced nations. But the United States looks at the same thing with the mindset of the Thucydides Trap (an established power’s fear of a rising power, which leads to war). The United States is afraid that it will be replaced soon. This is not the right reading,” Tourk said.

Consul General Li also referred to it. “China’s development is not to challenge the United States but to bring the Chinese a better life,” he said, stressing that the two countries should handle their differences in a constructive way based on mutual respect.

“It’s only natural for the two countries to have disagreements and differences. Only by respecting each other’s core interests and major concerns, building trust through dialogue and consultation, and seeking common ground can we narrow differences and keep bilateral relations from being adversely affected by the differences,” he said.

(Reporting from Atlanta)

Copyedited by Sudeshna Sarkar

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