China-US Relations: From Cold War to Trade War

THIS IS AN UNEDITED TRANSCRIPT

Hello. I'm John Milewski and this is Wilson Center NOW,  a production of the Woodrow Wilson International Center for Scholars. My guest today is Robert Daly. Robert is director of the Wilson Center's Kissinger Institute on China and the United States.

We're going to talk about the latest developments in this escalating trade war between the United States and many countries, but including China. Welcome, Robert. Thanks for joining us. Good to be with you. So as I was preparing to speak with you today, as I always do, I'll look at the latest headlines just to see what's percolating up and a term that kept turning up in in terms of describing the U.S. posture right now is waging a global economic and trade war.

Does China view it that way that they are engaged in a global economic and trade war with the United States? They would not say that it is global. It is just between them and the United States. And the United States started it. The United States picked it so they wouldn't they wouldn't globalize it. They think that other than the United States imposing tariffs on China, China is doing more or less just fine in trade vis a vis the rest of the world.

So, you know, if the Trump administration expects China to be intimidated, this comment from the foreign ministry earlier this week suggests just the opposite. A spokesperson said if the U.S. insists on waging a tariff war, a trade war, or any kind of war, China will fight till the end. Right. The Chinese phrase, I think, Fèngpéi dàodǐ, which really means we'll stay with you until the end.

In a suggestion of sort of blow to blow, rather, it's not quite as martial. I saw that translation. It has a slightly different sense in the Chinese. But yes, China's view of this is that China is pursuing its necessary and righteous goals to guarantee the flourishing of the Chinese people and the Chinese state, and that this was all brought on by American aggression and American misunderstanding.

This is what they say is central to the relationship. America has to correct its misperception that Chinese power is a threat and China furthermore, has been down this road with us before in the first administration and has been preparing for this new round. And so they're not surprised. They're not taken aback this time. And while they are in some ways pessimistic and they know that they are vulnerable, they're not really afraid.

This stage, I think, is a fair way to characterize it. Is there any clarity from the Chinese perspective of what could be accomplished through this back and forth? Or it's some observers, you know, are puzzled by what the ultimate goals are. So the first the usual disclaimer these days, which is that there's a high degree of uncertainty and nobody really knows anything.

It's not clear yet what our goals are. Excuse me, what the new administration's attitude toward China is. None of that is certain. China tends to make worst case assumptions now. And to that end, they have been doing what they can to sanctions proof their economy. They obviously can't do that in its entirety. They sell more to us than we do to them.

And that means that if it becomes tit for tat tariffs, they run out of things to tariffs before we do. But they have through their made in China 2025 project and their other what they call indigenous innovation strategies have tried to make themselves less dependent on less exposed to the United States. They've had some success with that, especially in high tech.

You know, Huawei has managed to come up with some pretty good chips and new products despite the export controls. Deep Sea was able to do whatever it did were not 100% clear on that. Again, despite the same American strategies that were designed to hobble them. So China has had some success there, and they've also built out more international markets such as the United States and Europe won't buy their electric vehicles.

Others might. They know their vulnerable and they know that it's a bad time because China is in the midst of its worst economic crisis since 1978. But they are not going to come cap in hand to the administration are proposing deals as a supplicant. They will insist on absolute respect. And they've said repeatedly they're happy they will sit down and negotiate and discuss this as a necessary dialog between equals, but they're not going to try to preempt this simply by pleasing the American president before the fact.

You know, you mentioned the uncertainty, and I want to ask you the question. I knew there was no easy answer, but I thought I would ask anyway. With all the uncertainty, with all the volatility included. Can we just focus on right now for this next question? What we know about the implications of the tariffs that both countries have already put in place?

Where will where will people see those both in China and the United States in the marketplace? Well, the Chinese assume that we will ratchet up incrementally and that they haven't yet really been the object of intense attention from the Trump administration. And so for that reason, China wants to keep its powder dry and its own tariffs that it has placed on the United States have been designed to warn the United States that they have weapons.

But they're trying not to escalate because they hope that there may yet be a path to a preemptive deal which gets them out of these cycles. However, they are hitting back, as you suggest, especially against the American heartland and against agricultural exporters who they assume are supporters of President Trump's. So like Canada, they are looking to harm industries and areas that they think might effectively lobby President Trump.

And they have also put in place bans and things like a growing number of critical minerals to remind us of how much more they could do because we're so dependent on China for refined minerals and for medical precursors. So they have, you know, tools at their disposal, weapons from our point of view, that they didn't use the first time and didn't, but that they want us to know they're ready to use them now.

So for now, they're still keeping their powder dry. There is talk of a birthday summit, President Trump's birthday between Trump and Xi Jinping in June. We thought it might be in April, but now they're saying June, where there might be something that is called deal. And China still is holding out some hope that they can do that to fend off what from their point of view, are simply unrelenting attacks on China's ability to develop its economy.

Robert, on the notion of keeping powder dry and not doing putting their worst hurt on the United States, if things were to escalate where is the U.S. most vulnerable to China? So it's the areas that I've mentioned. Of course, a lot of the rare earths that are necessary for a for high tech manufacturer, including weapons systems and computers, medical precursors, where we have, you know, in the case of some important drugs, up to 90% or higher dependency on China, No China, no ibuprofen for the United States.

Legacy computer chips, not the bleeding edge chips, but the chips in your refrigerator, in your car are largely from China. And then, of course, a whole range of consumer products that target at Walmart, which have tended to keep prices down for Americans and are particularly available, valuable for lower income Americans. And then agriculture is another area, not where they will hurt us by cutting off exports, but by cutting off their imports from the United States.

The National People's Congress has been meeting the very ambitious growth target set, especially given the circumstances that you described earlier. What can you tell us about the news emanating from what is largely seen as a rubber stamp? Yeah, I mean, an ambitious and entirely predictable growth target of around 5%, which is what they said they would hit and then claim that they hit last year.

And of course, this is a very old story. Be skeptical of these Chinese claims. They do not analyze their economy and try to accurately describe the growth rate at the end of the year. They predict it, which is to say they announce it at the beginning of the year and then lo and behold, they hit their targets. And there are a wide range of estimates on this.

There are American economists with a lot of experience in China who say, yeah, that's that's about right. These numbers are good. There are others equally experienced, experienced, but with different models who say, no, it's 2% or it's 0%. So we just don't know where that number really is and how far, you know, the initial reports seem to suggest that she and company are not willing to do anything dramatic to boost consumption while they're attempting to deal with this deflationary spiral.

Talk to us about that strategy. What is this sort of timid, what appears to be a somewhat timid approach? It does. And they've most of the kinds of stimulus or the reforms they've announced have been on the supply side. There have been some on the demand side, but they have been very shy of increasing the spending power of ordinary Chinese directly.

Now, a couple of their measures could have an indirect impact, positive impact on income, but they're mostly looking at the supply side. They are letting local governments have new rights to issue bonds to spend in different ways. They are letting local governments buy up. You've heard about the Chinese ghost cities. All of this is incompletely built or unsold Chinese real estate, which is one of the issues at the heart of China's slowdown.

Now they are giving governments that can sell new bonds permission to use some of that revenue to buy up and finish these projects. So marrying the local government debt crisis to the real estate crisis, but they haven't been willing to do is to just give cash to consumers or do something major on the demand side. And the reason seems to be that President Xi, general Party secretary, she really is convinced that that is welfarism and that it would make people lazy to simply provide them with income.

Now, this is odd for a socialist, you might note, and there are some ways in which, you know, she is an orthodox communist, Leninist, socialist, in other ways in which he can sound like, you know, an American anti welfare politician from the eighties or nineties. Right. He does both of those. He really he does worry about welfarism and he seems to be putting most of his eggs in the new industrial capacity basket, betting that China can use its leadership in green technologies, particularly solar, wind, lithium batteries, electric vehicles, and export its way out of its slump.

Would you add air to that list? Well, air is not yet exportable commodity. They're not making money off of that yet. An area of focus for how China sees. Absolutely. So the investment, if you look at where universities are building up curricula, admitting far more students to air programs, I engineers, they love the reputational boost that they got from deep sea, which seemed to produce an almost equal result to American large language models with far less investment.

Now, the jury's still out on exactly how deep silk got to where it is and how much their current performance does depend on the earlier server and investment driven breakthroughs that American Air had made. But still, it seemed to be a genuine sort of leapfrogging innovation. And of course, she would like to prolong that for as long as he possibly can.

So, yes, that's a major area of investment, as is education, as is high tech generally. But it's all on high tech manufacturing for China and for export. And again, not not on the demand side. So he's not really taking on deflation yet. Another area of competition is push back on China's growing dominance in the shipbuilding industry. And this began under President Biden and continues under President Trump.

What are China's relative advantages in regards to shipbuilding and how much of a threat can the U.S. in trying to play catch up, pose to that dominance? Well, if you go back and look at China's Made in China 2025 plan in which China defined a number of industries in which it wanted to be the global leader with 70% global market share by 2025.

And a lot of those industries were in technology sectors which would be developing the machinery, the infrastructure for the next phase of discovery and innovation. And many of them too were about transport, including shipping. And they have done it. And here, you know, China's advantage has always been scale at scale and wealth and the ability of the government, if it picks industries properly, you know, to pick winners and to essentially order the economy to produce certain kinds of goods.

And they've been at it in shipping for a long time. We are now putting heavy duties on any Chinese, not any Chinese made ship, no matter which country's flag it's flying or any ship that wants to dock in American ports that has Chinese ships in its fleet. We want to put a duty of 1 billion or more on every ship.

It's very early days on this. We do not have the capacity either in terms of of human talent or manufacturing plant to ramp up quickly. These are these are massive investments. And if you go up the Yangtze River practically from the mouth of it to well west of Nanjing Shipping, you know, shipbuilders all through this area, America cannot simply turn on a spigot and recreate those supply chains.

We'll also have to see how the rest of the world responds to this. In the case of shipping. To the best of my knowledge, I haven't. The accusation is not that China has done something nefarious, that China has stolen intellectual property or violated WTO agreements or otherwise, other than subsidizing industries, which is more or less its sovereign right.

I haven't seen an accusation of anything except, you know, sort of effective long term planning on China's side. It's not like the accusation or guilty of getting it right. Is Huawei having stolen I'm sure in response to this, somebody will say, no, no, no, they cheated in the following ways, because that seems to always be implicit in what we're saying.

I haven't heard us yet explicitly say that there was anything nefarious and therefore we say it's a threat. Yes, we don't want dependance on China. We don't want China to be able to choke off global supplies. And of course, part of this shipbuilding capability is the ability to build naval ships. China has a bigger navy than we do now, but I think we need to be careful about putting every Chinese advantage into the malign behavior basket, because if it poses a threat or a challenge to us or a perceived challenge, but there's no nothing that's demonstrably malign that will have an impact on the way the rest of the world sees our claims.

Right. And their willingness to play along. So if we are going to seriously begin building ships again, that's a radical restructuring of American industry. It will depend also on South Korea and Japan and a number of other allies. And we'll have to see how that meshes with steel and aluminum tariffs on imported steel and aluminum. It's a little bit at odds with some of the fundamental commodities that we're increasing the prices up.

So we've woken up to the fact that, yes, we have a vulnerable city. China is is way out ahead of us. It's not even close at this point. We don't know how we ramp up to even half of their capacity. We know that now. So good. That is a vulnerability. But we don't yet seem to have a serious plan for competing with China here.

But maybe it's the expanding the we as is being done with icebreakers and including other nations. And so that is the commonsense way to go. But we're tariff in a lot of these other nations. Right. So how is that going to be regarded? We either need allies or we don't. And during the first Trump administration, we were repeatedly hitting South Korea, which is very important in the supply chain, and Japan, with demands for more money for American soldiers who were stationed there, claiming that we're giving them an insurance policy for which they don't pay enough.

Whereas past administrations have seen this as essential to our security, this foreign presence presence in the Western Pacific. So we're trying to do an awful lot of things at once, and they have not yet cohered into what looks like a feasible plan. But again, it's early days. I think that we are very serious. You know, the Congress and the Defense Department are very serious about the shipbuilding issue.

Can the administration line that with the desire to to tariff or put reciprocal tariffs in place for all of our allies? We'll see about what you just said about tariffs so that President Trump's seeming affection for tariffs certainly goes beyond China. No tariffs on our friendly neighbors north and south. Does China see this as an opportunity internationally that if the U.S. is making economic or trade war with even its friends, that it could create some openings for them?

Sure. There's a big question about whether China can take advantage of that. So, you know, during the first Trump administration, when America was losing soft power, China proved incapable of taking advantage of that. Global views of China declined as well. They simply couldn't do it. But they are looking to drive more wedges to present themselves. And this is the new as a point of focus in Chinese propaganda.

We are the reliable partner in. Notice that that's not ideological, right? We are the reliable partner. You can count on us. China has been consistent. And that's that's true to a considerable extent. And so they seem to have settled on that as their important line. And it's obviously in contrast to the United States. They don't say that they don't have to, but that's the propaganda line that they are taking out for a run.

And this is because of tariffs, but it's also broader than that. You know, if if think from foreign countries point of view back to the beginning of the first Obama administration, 2012. Well, from that time up until the present, you know, America has been a rather different country every four years in and out of various agreements. The World Health Organization, the Paris Accords, there's a there's a question about whether other countries will see us as a dependable partner or not.

And that's been the banner now for China. We are the reliable partner. A final question for you, Robert, In this iteration of our ongoing discussion, and that is about whether President Xi, that Chinese government in general feels it can work with President Trump. They have previous experience from his first four years in office. The two leaders are not strangers to each other.

Do they feel when, as you look ahead to this potential birthday summit, that they can make a deal, that this is someone they can work with? They see a possible path. They're not naive. They remember the previous trade war, and they are very cognizant of the bipartisan consensus in Washington that Democrats and Republicans feel pretty consistently that China is our greatest long term strategic challenge.

And they know that at the same time, because President Trump really hasn't gone after China yet rhetorically, he's very focused on immigration issues, on the American federal government and on global tariffs. But China doesn't seem to have been a top priority. He doesn't yet seem to be concerned with issues of global order upholding the sort of global order we've had since World War Two.

He is not as solicitous of allies, interests or desires as other presidents have been. He doesn't seem very concerned about Taiwan, and his concerns about China don't seem to be ideological. He also has Elon Musk in his administration, who has deep equities in China, and President Trump himself has spoken of a deal. So they're very comfortable with that.

The transactional side, again, they won't come cap in hand, but they'll come. They'll try to put together what they hope is an attractive offer that will take China off of the front burner for the United States. As you mentioned, they have a big domestic agenda. They have to get their domestic economy in shape. It's hard to do that when they feel under assault, regular assault from the United States.

So I would say that they are overall pessimistic, but they see a possible path to a deal. I my own view is that a deal, if it can be reached, which is a big if, is unlikely to change anything fundamentally or to last very long, the United States and China are not in their current adversarial state because we've been overlooking and obviously available deal for the past 20 years.

It's much deeper than that. It's historical, it's structural. We have incommensurate interests. So it's not clear what a deal does. A deal, even if we get there, cannot do what China really wants, which is again, for us to shut up, go away and stop perceiving them as a threat. And we're just, you know, we're not very good at shut up.

Well, as you mentioned, this is so complicated. And we we barely touched on Elon Musk's role and his relationship with China, which you just brought up. And so we'll table that for a future discussion. But, Robert, thanks as always. You know, knowing who's going to college is what an old hockey announcer used to say to his some of his interviewees.

So thank you, as always. Thank you. My guest has been Robert Daly, director of the Wilson Center's Kissinger Institute on China United States. We hope you enjoyed this edition of Wilson Center now and that you'll join us again soon. Until then, for all of us at the center, I'm Jon Milewski. Thanks for your time and interest.