This bipartisan sentiment makes it difficult for those seeking to argue for a more cautious and less aggressive approach to the world’s second-largest economy, such as former US Treasury Secretary Larry Summers, who was instrumental in helping China join the World Trade Organization. (China formally joined the international body in December 2001.) “I am, in many ways, an admirer and a friend of China,” Summers said in a virtual conversation with Clay Chandler, Fortuneon Thursday, at the Fortune Innovation Forum in Hong Kong, he served as executive editor for Asia.
The United States and China “really have no alternative but to find a solution way of life for cooperation if one of them wants to succeed,” he said. “It’s very difficult for me to imagine scenarios where the United States is very successful while China is failing, or where China is very successful while the United States is failing.”
Summers compared the United States and China to “two guys who don’t like each other very much, don’t know each other very well, and find themselves in a lifeboat that requires two oars, in a very turbulent sea, very far from shore.”
Yet Summers said some of Beijing’s actions are not making it easy for those who are more accommodating toward China to make their case for improving relations.
“I have to say that China sometimes seems to do its best to make a less confrontational or containment-oriented approach difficult in political debates in the West,” he said. “What comes from China makes things much more difficult for those of us who want to emphasize negotiation and cooperation.”
US-China relations have been in a downward spiral since former US President Donald Trump imposed heavy tariffs on imports from China. The Biden administration has largely chosen to maintain Trump’s tariffs.
In recent years, Washington has blocked the sale of advanced chips and chip-making equipment to Chinese companies and banned U.S. investments in Chinese companies involved in areas such as quantum computing, artificial intelligence and semiconductors. The US is also encouraging companies to “de-risk” their supply chains from China and move operations to other countries, including those friendlier to the US
Chinese officials have attacked these policies as violations of global trade rules, even filing cases with the WTO.
Summers predicts such claims will fall on deaf ears, given China’s reliance on industrial policy, protectionist measures and subsidies. “I don’t think China is in a strong position to complain about industrial subsidies…[and] nationalist economic policies”. she said Thursday.
Work with allies
The Biden administration, unlike its predecessor, says it is more open to working with allies to contain China. The United States, for example, persuaded Japan and the Netherlands to impose their own controls on the sale of chip-making equipment to China.
But domestic political pressures could undermine these efforts. US politicians, including President Biden, have attacked Japanese steelmaker Nippon Steel’s $14 billion deal to buy US Steel on national security grounds.
Nippon Steel, for its part, has tried to defend its acquisition by arguing that it would create a steel giant capable of competing with China.
Summers has previously criticized attempts to block the deal. “There is no remotely plausible national security rationale for questioning the Nippon-US Steel transaction. Japan is a faithful ally.” he told Bloomberg TV in January.
On Thursday, the economist again hinted at the idea of trying to keep U.S. Steel in domestic hands. “The United States employs more than 60 times more people in steel industries than in the steel industry,” he noted.
“When we do things that increase the price of steel with various types of economic restrictions, we need to think very carefully about whether we are, overall, helping or hurting American workers,” he continued.
Where are US-China relations going?
Other speakers at the Fortune Innovation Forum noted that despite trade tensions, there are still some positive trends in U.S.-China economic relations. Chinese President Xi Jinping met with U.S. CEOs on Wednesday in the wake of the China Development Forum, the Beijing summit for Chinese officials and foreign business leaders.
“There has also been less criticism from Washington this year of U.S. business leaders doing business in China,” Ben Harburg, managing partner of global investment firm MSA Capital, said at the Fortune Innovation Forum on Wednesday. “This kind of narrative that it was treasonous to do business in China has been toned down a little bit, and that has given people a little more confidence to show their feathers.”
Washington and Beijing have worked to restore ties in recent months, including a summit between Xi and Biden last November.
Graham out LUCK
But speakers at the Fortune Innovation Forum were cautious in predicting that U.S.-China relations would improve anytime soon.
“The geopolitical situation is not really going to get better. If anything, I think I will be very happy if the situation doesn’t get any worse,” Victor Fung, president of Fung Investments, said on Wednesday. Fung, who led supply chain management firm Li & Fung, predicted that the “geopolitical crackdown ” could lead to a “total fragmentation” of supply chains to avoid direct trade between China and Western markets.
Harburg predicted that American policy could once again worsen relations with China. “Trade tensions are going nowhere and will continue to increase over the years,” he said, “especially as we go through an election cycle where everyone has to compete over who is tougher on China.”