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Trump Adviser On China Offers Grim Assessment Of Escalating Tariffs

May 14, 2019
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STEVE INSKEEP, HOST:

A specialist in the United States rivalry with China offers a grim observation. He says that in its trade war with China, the U.S. is insisting on demands that China may never really meet. Michael Pillsbury is sometimes called a China hawk, meaning someone who believes the U.S. needs to be tough with Beijing. He's got a book about the U.S. and China called "The Hundred-Year Marathon." He has from time to time advised President Trump at the White House, and he offers his grim assessment just as escalating tariffs drove down stock markets in both the United States and Asia.

And he's on the line from London. Welcome to the program, sir.

MICHAEL PILLSBURY: Hi, Steve.

INSKEEP: So let's just note the U.S. wants China to give up industrial espionage and forced technology transfers and also big subsidies to state-owned firms, lots of things that China does to a greater degree, it seems, than other countries. Why do you think it's unlikely China would truly say yes to those things?

PILLSBURY: Well, I think China would say yes in principle and then not implement their promise. This has been the problem in the past. So it's the enforcement part, where China makes a commitment and then actually can be monitored that it's implemented; that's the part I'm worried about.

INSKEEP: Oh, if China says we're not going to spy anymore, how do you, yeah...

PILLSBURY: (Laughter) That's right.

INSKEEP: How do you prove they're not spying?

PILLSBURY: Well, any of these things. They could say well, gee, well, we won't have any more subsidies to our high-tech companies and, oh, we're so sorry about intellectual property theft. You know, the head of Microsoft - or former head, the other day, said that he estimated $20 billion a year of lost revenue in China because China does not pay for using Microsoft software.

INSKEEP: Well, now...

PILLSBURY: Take that times a hundred companies, and you get a pretty big loss.

INSKEEP: Now, when you say that your view of China is they may agree to various things but then not keep their word, this is particularly interesting because of the way the trade talks stalled in recent days. We were told that China agreed to terms that might be acceptable to the United States but did not want those terms in writing. Is that the kind of thing you're talking about?

PILLSBURY: No, that's one part of it. The option exists that the agreement would not be made public, just a summary. It's not a treaty, so it doesn't have to be made public and con - and approved by the Senate. Also, it could be shown on a confidential basis to the Congress. The purpose of this, Steve, is that if the Chinese make concessions that would alarm their hard-liners. There's no need to sort of stir the pot in China with the hard-liners. It's only one option. I don't think that's an issue in the talks. It's just an option.

The main issue in the talks has been over the actual reneging that China did. They took back quite a few things, and this upset the president and caused an almost immediate reaction for him to put a full 25% on half of their exports to us. Obviously, the president has more steps he can take. The Chinese have not done very much in retaliation. I don't consider this 60 billion that's been - the total amount of 60 billion being raised...

INSKEEP: Oh, they raised tariffs on 60 billion of U.S. products being sold to China. Right?

PILLSBURY: From 10% to 25 - so they could have done much more in retaliation. So I remain optimistic that the reformers in China want their system to change; the hard-liners don't.

INSKEEP: Oh, you're saying there are people in China who might like the U.S. pressure because it helps them achieve their goals of opening up Chinese markets in what we would see as a more free market direction.

PILLSBURY: Yes, that's exactly right. These people have been quite vocal. They've been inside the government. There's a very famous document in the U.S.-China economic relations field called China 2030, published jointly with the Chinese and the World Bank. Liu He, the chief negotiator, is a co-signer of it. He worked on it. And the plan in China 2030 is for a much freer market, more foreign investment, cutting back on these massive state-owned enterprises and the subsidies they have. It's a whole series of things. And it's also working toward 30 megacities in China. And...

INSKEEP: That's a lot of big, big cities, yeah. Let me...

PILLSBURY: That plan's been on hold for more than 10 years...

INSKEEP: And they would like...

PILLSBURY: ...Since Xi Jinping and the hard-liners took over.

INSKEEP: They would like to go forward. But as you know, Xi Jinping could be described as a hard-liner himself, so let me ask about the U.S. options here. If the United States does not get an enforceable agreement, would it be your preferred view and do you think it's the preferred view of some in the White House to effectively decouple the United States and China, just trade with them less and less as tariff barriers stay up?

PILLSBURY: Well, in my "Hundred-Year Marathon" book, what I argue is that American companies will make that decision themselves. If they see themselves being disadvantaged - in other words, ripped off - by China going into the future, the number of American companies who will have their supply chains be vulnerable because they're located inside China will go down. And they will shift to India or Vietnam or elsewhere, where they can get their infrastructure and their needs met.

INSKEEP: Although American companies have never quite been willing to take that step because the Chinese market is so huge and tempting.

PILLSBURY: The Chinese market's, in many ways, been closed off. You may know the famous case of the credit cards, wherein WTO, we sued China and won.

INSKEEP: Oh, yeah.

PILLSBURY: Their market was closed to our main credit cards.

INSKEEP: For years...

PILLSBURY: China...

INSKEEP: ...Until it didn't matter anymore, sure.

PILLSBURY: Yes. And China said yes, you know, we'll fix it. Then they never did. It was seven years ago.

INSKEEP: So you - and yet you remain - in a few seconds - optimistic that the White House is on its way to a deal.

PILLSBURY: I think the relationship between President Trump and President Xi is what's at work here. They know this is part of a larger set of issues between the U.S. and China, and they want to solve it. So ultimately, I'm optimistic the two presidents can make a deal.

INSKEEP: Mr. Pillsbury, thanks. It's a pleasure talking with you.

PILLSBURY: Thanks, Steve.

INSKEEP: Michael Pillsbury advises the president and is author of "The Hundred-Year Marathon: China's Secret Strategy To Replace America As The Global Superpower." Transcript provided by NPR, Copyright NPR.