May 15, 2025 • 48 mins
Dr. Elizabeth Economy and Susan Schwab sit down to discuss the current global trade environment and the outlook for US-China trade relations in the aftermath of negotiations in Geneva. The two discuss the magnitude and reaction to President Trump’s “Liberation Day” tariffs, along with the motivations and scale behind the actions. Schwab then explains the dynamics of negotiating within a presidential administration and the importance of understanding the objectives and red lines within those negotiations. The two conclude with an assessment of the US-China trade war, recent developments in the relationship, and what the United States can best do to compete with China in a new era. Economy and Schwab touch on the importance of engaging allies, clearly illustrating the rules China is violating and using a whole-of-government approach to take on the challenge.
ABOUT THE SPEAKERS
Ambassador Susan Schwab has more than three decades of international trade and policy experience. From 2005-2009, she served as US Trade Representative (USTR) and Deputy USTR in the George W. Bush administration. Ambassador Schwab also sits on several corporate and non-profit boards and is a frequent speaker at associations, corporations, and think tanks. In 2022, she became board chair of the National Foreign Trade Council (NFTC).
During her tenure as USTR, Ambassador Schwab successfully opened markets for US products and services in every region of the world and across a variety of business sectors and industries. She concluded the United States’ Free Trade Agreements (FTAs) with Peru, Colombia, and South Korea and launched the Trans-Pacific Partnership (TPP) talks. Ambassador Schwab helped to achieve congressional approval of FTAs with Oman and Peru, as well as the bipartisan “May 10th, 2007” agreement on trade, labor, and the environment.
Elizabeth Economy is the Hargrove Senior Fellow and co-director of the Program on the US, China, and the World at the Hoover Institution. From 2021-2023, she took leave from Hoover to serve as the senior advisor for China to the US Secretary of Commerce. Before joining Hoover, she was the C.V. Starr Senior Fellow and director, Asia Studies at the Council on Foreign Relations. She is the author of four books on China, including most recently The World According to China (Polity, 2021), and the co-editor of two volumes. She serves on the boards of the National Endowment for Democracy and the National Committee on US-China Relations. She is a member of the Aspen Strategy Group and Council on Foreign Relations and serves as a book reviewer for Foreign Affairs.
Elizabeth Economy is the Hargrove Senior Fellow and co-director of the Program on the US, China, and the World at the Hoover Institution. From 2021-2023, she took leave from Hoover to serve as the senior advisor for China to the US Secretary of Commerce. Before joining Hoover, she was the C.V. Starr Senior Fellow and director, Asia Studies at the Council on Foreign Relations. She is the author of four books on China, including most recently The World According to China (Polity, 2021), and the co-editor of two volumes. She serves on the boards of the National Endowment for Democracy and the National Committee on US-China Relations. She is a member of the Aspen Strategy Group and Council on Foreign Relations and serves as a book reviewer for Foreign Affairs.
ABOUT THE SERIES
China Considered with Elizabeth Economy is a Hoover Institution podcast series that features in-depth conversations with leading political figures, scholars, and activists from around the world. The series explores the ideas, events, and forces shaping China’s future and its global relationships, offering high-level expertise, clear-eyed analysis, and valuable insights to demystify China’s evolving dynamics and what they may mean for ordinary citizens and key decision makers across societies, governments, and the private sector.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
>> Elizabeth Economy (00:00):
Foreign welcome to China Considered,
a podcast that brings fresh insights and
informed discussion to one of the mostconsequential issues of our time,
how China's changing andchanging the world.
I'm Liz Economy Hargrove, senior Fellowand co Director of the Program on US China
(00:21):
and the World at the Hoover Institutionat Stanford University.
Today, we're going to talk about tariffs,a word that President Trump
has said is one of the mostbeautiful ones in the dictionary.
And we're really, we're really luckyto have Ambassador Susan Schwab,
who was the US Trade Representativeduring the term of President George W.
Bush and currently a strategicadvisor to the law firm Mayor Brown,
(00:44):
to help us understand everything we needto know about this sometimes complicated,
complex topic.
Susan, I know you are inmuch demand these days.
Your interviewsare blanketing the airwaves.
So thank you so much fortaking the time to speak with us.
>> Susan Schwab (00:58):
Well, thank you, Liz, you know I'm a fan.
>> Elizabeth Economy (01:01):
So let's get to it.
On April 2,President Trump announced Liberation Day.
His administration placed 10%tariffs on all goods coming into
the United States and
then additional tariffs at varying rateson goods coming from dozens of countries.
Then within a week,he started to give countries a reprieve.
Let's start with why he did this.
What is his strategy?
>> Susan Schwab (01:24):
So the first, as you said, April 2nd, Liberation Day,
I think everyone was caught bysurprise about the magnitude.
So the reciprocal tariffs,sort of with a 10% baseline and
then above that up to above 30,40% depending on the country,
they're called reciprocal tariffs.
(01:46):
They aren't actually reciprocal tariffs.
They are based on a formulathat has to do with the size of
the US Trade deficit with that country.
And in countries wherethe US Has a trade surplus, and
there are a few of them,they get just flat out 10%.
So that was how it was constructed.
(02:09):
It was a shock to everyone.
Trading partners, andone has the sense watching the Rose Garden
ceremonies are shocked to a lot ofpeople in the Trump administration,
certainly the business community and themarkets reacted very badly, very badly.
Stock market, bonds, the whole bit.
(02:30):
And the president and his teamdiscovered that, yes, in fact, there was
a tipping point beyond which you can'tgo on tariffs which without significant
disruption in the economy or riskinga significant disruption in the economy.
And so April 8 camethe announcement that these tariffs
(02:51):
were going to be suspended forevery country except China.
For.A 90 day period during which time
bilateral negotiations were going totake place to address the challenges,
the motivations, the objectives,the priorities that this
(03:12):
administration has China,let's separate China for right now.
So that list of countries, I mean that,
that list of countriesis very significant.
It's over 60.
The, the motivations,it's sort of interesting.
It depends on who you'retalking to on what day.
(03:33):
Let's start with the president'sassertion that everyone has.
This is a PG13.
Everyone has been unfair tothe United States in terms of
its treatment of our exports,treatment of our trade.
(03:53):
They have treated us unfairly sinceforever and we need to get back at them.
Motivation 1,2 Motivation Reindustrialization,
rebuilding an industrialbase in the United States.
The assertion that we don't makeanything here anymore, which by the way,
is not accurate, butwe don't make anything anymore.
Trying to use tariffs to increaseinvestment in manufacturing in
(04:16):
the United States and manufacturingemployment in the United States.
Changing behavior of trading partnersin terms of their foreign barriers,
the objective of raisingrevenues to help plug
the rather significant gapin our federal budget.
(04:40):
A variety of other objectives,some of which now show
up in the template thatthe administration appears
to be presenting to eachof the trading partners.
But that gets into boththe issues that I addressed and
(05:00):
some other issues having to do with howthey, in some cases, how they treat China,
how they treat US Exports,specific barriers that show up in
the National Trade Estimate Reportthat the USTR puts out once a year.
So you, you sort of takethose major motivations and
(05:22):
translate them into specific asksof specific trading partners.
>> Elizabeth Economy (05:28):
So you were.
So a whole range of issues, a wholerange of ostensible motivations, and
maybe some of them coming differentparts of the administration.
And we can come back to sort of the viewswithin the administration because they're
not uniform, which makes.
>> Susan Schwab (05:43):
And they're not necessarily mutually consistent.
>> Elizabeth Economy (05:46):
Right, that's all, [LAUGH] Right.
It's another problem.
We'll come back to that in a minute.
But you were ustr, is this,
is President Trump really the firstpresident to use tariffs in this way or
have other presidents, you know,how did, how did George W.
Bush use tariffs?
What was the point during his tenure?
How did he think about them?
>> Susan Schwab (06:06):
Well, I think it's safe to say that President Trump is the first
president since, let's say,1934, because one would argue,
I would argue that US trade policy,contemporary US trade policy,
really started after 1930,after the Smoot Hawley Tariff act of 1930,
and really started withthe Reciprocal Trade act of 1934.
(06:30):
And since then, presidents have usedtariffs both in terms of carrots and
sticks, but more carrots than sticks.
Right, reciprocal trade negotiations,negotiation of bilateral trade agreements,
of multilateral, of sectoral tradeagreements using tariffs as allure.
(06:54):
We'll lower our tariffs in areas where,where you're competitive if you lower
tariffs and non tariff barriers obviouslyin areas where we're competitive.
So that kind of negotiation andthen Obviously starting in 1947,
the General Agreement on Tariffs andTrade and you bring in the concept of
most favored nation treatment andnon discrimination and so on.
(07:17):
Now the use of tariffsas a negative motivator,
the first major use of that I wouldargue is the first Trump administration.
The Biden administration, as you know,didn't lower those tariffs, Right?
And from time to time, yes,
the United States has raisedtariffs to force, persuade,
(07:41):
encourage a change in behaviorby other trading partners,
particularly as it impacts U.S.exports, and
that is generally through Section301 of the Trade act of 1974.
After an investigationas to whether there are.
Are acts, policies andpractices that are unreasonable,
(08:04):
burdensome anda whole variety of other terms.
But yeah, tariffs have been used that way,but they're sort of
scalp alike rather than acrossthe board and based on calculation,
based on deficits, rather than basedon the value of trade impacted,
say by that trade barrier orby that unfair trade practice,
(08:28):
which is we put up tariffs allthe time related to dumped product,
product that subsidized into thismarket and injuring US Producers.
I mean, we use tariffs, but
not quite the way they're beingused under this administration.
>> Elizabeth Economy (08:44):
Arguably the Trump administration put these tariffs on as
a form of leverage,given how quickly, right.
Within the space of a week,as you mentioned,
all of a sudden you're getting a reprieve,a 90 day reprieve.
So this seems more likehere's the threat of action.
Of course it causes an enormous amountof tumult, as you also pointed out.
(09:05):
And then we're giving you 90 days and
we're going to negotiatewith really no expectation.
I don't believe that the tariffs are goingto remain at the high level that they were
for many countries.
Is that fair that in essence thesewere just a threat and then, you know,
the real negotiation begins andnobody expects that they're going to stay.
>> Susan Schwab (09:24):
It is a great question.
I mean, the real question iswhat happens July 9, right.
That's 90 days after the challenge.
And this is speaking asa former negotiator,
the challenge is they shot the hostage,right.
And once you've shot the hostage, thatkind of changes the negotiating dynamic.
Now, you could argue they showed thatthey are capable of shooting the hostage,
(09:48):
but they backed down.
And they backed down forgood reasons, by the way.
I'm not arguing with that, but it doeschange the negotiating dynamics somewhat.
And so that, and the fact that they'renever going to be able to negotiate with
all of those countries and do deals withall those countries before July 9th.
(10:11):
So there's a question, and let's face it,the uncertainty that all of this creates,
whether you're talking about domestic USFirms that are thinking about investing or
foreign companies thatare thinking about investing or
companies that are making purchasedecisions, all that's kind of up in
the air because nobody knows whatthe tariff is going to be, Right.
(10:35):
No one knows what they'regoing to be paying.
And in some cases you're talkingabout tariffs that are, you know,
twice the cost of the productin the first place or more.
>> Elizabeth Economy (10:45):
Right. And then for some, in some cases,
I know forcountries like Madagascar, right,
where they have A surplus of cloves andvanilla, right?
One of this countries on Earth.
You're wondering,what is the point of this really.
>> Susan Schwab (10:58):
PG water or Lesotho?
I mean, little, small,poor countries that.
Small, poor countries that, you know,
are trying to make it ina tough trading world.
And, and, you know, we might havegiven them trade preferences.
Trade preferences 10 years ago.
(11:19):
And, and now the administrationslaps a tariff on them and
they don't know what hit them.
And, by the way,the administration doesn't.
Isn't going to have time tonegotiate with them anytime soon.
So they're facing the prospectof real chaos unless,
you know, the pause is extended for them.
(11:41):
It's not their fault they're notgetting an audience with ustr.
>> Elizabeth Economy (11:45):
Right.
And I guess that begsthe question as well.
I mean, you know,it does seem as though there are just some
differences of opinionwithin this administration.
Not everybody seems to be aligned.
I think, Kevin Hassett, forexample, has written for
years about tariffs, not in a,not particularly favorably.
(12:05):
So how do you sort of understandthe dynamics of the administration?
And do you think that has contributed tosome of the chaos that we seem to have
experienced in this process?
>> Susan Schwab (12:18):
Well, you know, each, each president runs their operation,
runs their cabinet the waythey choose to run it.
I was very, you know,I was blessed by working for George W.
Bush, who was a terrific boss, andyou could tell he had been a CEO.
You knew your red line.
I felt very empowered as a negotiator.
(12:40):
I knew my red lines.
I would sit down with my, say, Chinesecounterparts who had to phone home for
every single decisionthat they had to make.
Whereas we sat at the table andwe could wheel and deal because we knew we
could be innovative and creativein the structures we came up with.
And we knew what the red lines were,we knew what our objectives were,
(13:02):
we were empowered.
And our marching orders generally were,get the best deal you can, and
if it's a bad deal, you walk away.
And I did both as ustr.
I got some good deals andI walked away from bad deals.
So the current team,there was only one decider, right.
(13:24):
And that is the president, and he isdelegating up to a point, but no further.
And I think I have the sense thatthey're settling into a rhythm and
they're settling into who haswhat responsibility, right?
So you have Secretary Besant and
(13:45):
Jameson Greer as the lead inthe China talks at this point.
You have Secretary Lutnick and AmbassadorGreer on all the other negotiations.
I think it's pretty safe to say that mostof the work is being done at USTR and
the interagency process, you know,experts at the Commerce Department,
(14:08):
experts at the Agriculture Department,experts at the Treasury Department,
and that's the way that interagencyprocess has always worked.
What they don't know is, andnobody knows at the end of the day,
what is going to be satisfactory andwhat else the president's going to want.
>> Elizabeth Economy (14:25):
Right.
And so we've seen the deal with the UK andnow a big investment deal with
Saudi Arabia, investment andtrade deal with Saudi Arabia.
How do you evaluate these deals?
I mean, the president, of course,has called them successes, big successes.
I mean, as a US Trade negotiator,
do you see these as successes fromwhere we started to what we got?
(14:47):
Do they seem like successes to you?
>> Susan Schwab (14:50):
Well, if you're talking about I'm not familiar at all with
the Saudi deal at this point,except that obviously the United States
has always been orcertainly has been in the, you know,
the contemporary decades,a really good place to invest.
(15:11):
And that has been evident by the amountof foreign direct investment,
both in terms of stock and flows.
And the key is not to screw that up.
And I think the president wants to be apart of encouraging that or forcing that.
And he declares victory.
When he has done that,we'll see what how the, you know,
(15:34):
press releases translate into action,actual investment.
Some of that investmentis gonna come in slowly.
We know that it takes a long timeto build, you know, factories or
retool factories.
It takes a long time to hire people,
particularly when you've got skilldeficits in the United States.
But those are to be applauded if they comethrough in terms of some of the other.
(15:59):
The other elements, there's the factthat they are negotiating agreements.
I mean, I give them creditin terms of the UK deal.
There is some substance there,there's a whole lot of work to be done.
And I give both sides creditin terms of the UK deal for
having got as far as they did.
(16:24):
But the devil is always in the details and
they're going to have to workthose out and we'll see.
You know, the, the, the last we'veheard is that, is that, you know,
Switzerland is, is up on the list.
The EU is not so far up on the list.
They are negotiating.
I don't know what the latest count is,but, but
with at least 20 countries wherenegotiating is, seems to be defined as
(16:48):
the country has to not have retaliated,has to come in with a proposal.
Then the US hands them the templatewith the specific asks and
that may be remove these barriers againfrom the National Trade Estimate Report.
(17:09):
Perhaps some purchases,purchase agreements,
perhaps encouragingforeign direct investment
actions to reduce the trade deficit.
But that's hard to do, I mean,because governments can't, you know,
commit to that.
(17:30):
But if there are concernsabout currency manipulation,
commitments on currency manipulation, and
in some cases it,it's quite clear concerns or, or
actions to address concerns aboutChinese overcapacity finding
its way into third country markets andthen coming to the US and
(17:53):
those are going to be harder forsome countries than others.
But that seems to be one ofthe kinds of things that shows up or
is being asked in these agreements.
There are also some really interestingthings on the digital front,
some to be getting, some of which they,they aren't necessarily getting.
(18:15):
That that was still a standoff inthe UK case digital services tax,
which we have a real problem with.
But they've agreed to have a digitaltechnology forum bylat and
if they can come up with a deal there,that'd be terrific too.
>> Elizabeth Economy (18:31):
Yeah, I, I think that was one of the points that they said
we're going to move forward right ontrying to come up with some kind of
digital trade agreement which would be,I think, terrific.
That would represent a real step forward.
And as for the Saudi deal,I would just say it's a lot of investment.
The trade seems to be mostly inpurchases of defense equipment,
military equipment by the Saudis, buta lot of Saudi investment here and some
(18:56):
investment by our tech companies there andyou know, worth apparently $600 billion.
Although again, to your pointabout what actually materializes,
there's some that, you know,could take a long time and
there's also some that's already underwaythat they've just kind of included,
as we both know from working on thesekinds of statements in the US Government,
(19:17):
you try to take advantage of thingsthat may also already be in the works.
And it's clear there's some ofthat wrapped up in this as well.
>> Susan Schwab (19:25):
And the thing to remember about the UK Deal is the first Trump
administration worked very hardon a bilateral trade agreement,
I mean, like a full scale comprehensivetrade agreement with the UK So
they put in several years on that and theyhad that available to them as a template,
(19:45):
a blueprint that they could draw on forthis current negotiation and
people on both sides who had beeninvolved in those negotiations,
namely Jameson Greer and Amanda Brookson the UK side, among others.
>> Elizabeth Economy (20:02):
And they're back again, right?
>> Susan Schwab (20:04):
That's exactly right.
>> Elizabeth Economy (20:05):
Yeah. So they have the opportunity now to move
things forward.
So that is, I think, a very,you know, a positive sign.
So let's spend a minute on China.
You know, as you mentioned, USTR Greer,
Ambassador Greer andTreasury Secretary Besant,
they were in Switzerland withtheir Chinese counterparts.
They came to some accord.
(20:26):
They, you know, huge reduction inthe tariff levels on both sides.
So that now for the next 90 days,it's sort of 30%, I think,
in terms of Chinese goods coming into theUS and 10% on US goods going into China.
And the Chinese removed all of the nontariff measures that they'd put,
I think critically for us on the criticalminerals, rare earth elements.
(20:50):
But the narrative seems to be->> Susan Schwab: Let me offer just one
caveat.
Sure, absolutely.
>> Susan Schwab (20:55):
It is, if you look at the press releases,
it is the US andChina dropping the tariffs
that they imposed on April 2nd by 115%.
>> Elizabeth Economy (21:10):
Right.
>> Susan Schwab (21:11):
So it's not a 30% tariff.
It is on the US side, 30%.
10 plus the 20, the 10% baseline,the 20% fentanyl on the Chinese side,
10% on top of what wasin effect on April 1st.
>> Elizabeth Economy (21:29):
Thank you for that.
>> Susan Schwab (21:30):
Yeah. So,
>> Elizabeth Economy (21:31):
okay,
>> Susan Schwab (21:31):
so we're talking about
tariffs that can go well in excess of 30%.
>> Elizabeth Economy (21:36):
Okay.
>> Susan Schwab (21:39):
And then there were some changes in de minimis that had again,
we went from prohibitive, you know,
they, as they refer to itas effectively an embargo.
>> Elizabeth Economy (21:50):
Right.
>> Susan Schwab (21:51):
To high but not prohibitive depending on the product.
>> Elizabeth Economy (21:57):
Right. >> Susan Schwab
depending on the sector,
there will be some resumptionof some resumption of trade.
So that's a very important distinction, thank you for that.
So people are saying, or the media,
I would say the general narrative has beenthat Somehow China won that Xi Jinping,
(22:19):
standing tough, standing firm,that actually China came out ahead.
Is that how you read this?
>> Susan Schwab (22:29):
Not really.
I sort of read it as both of themfinally came to their senses and
sent some adults to Geneva to talk.
>> Elizabeth Economy (22:37):
Yeah.
>> Susan Schwab (22:39):
We were an absurd situation where the fact that neither one
wanted to make the first call atthe leader level was just utterly absurd,
while both economies were feelingsignificantly negative impacts,
for God's sake, just sit down and talk.
And they finally sentsome adults to do that.
>> Elizabeth Economy (23:01):
Right.
Yeah.My sense was that both leaders recognized
that the real hurt was about to hit andtake action.
Now, [CROSSTALK] serious problem, yeah.
>> Susan Schwab (23:13):
You're aware, more than, more than most, the extent to which so
much of China, so many of China'sexports to the US Are actually small,
medium sized,>> Elizabeth Economy: Right.
Enterprises that can't last that long.
And there's a limit to how longpeople are gonna be able to hang out
(23:36):
not producing things and not gettingmoney and having contracts canceled.
Because these tariffs are acrossthe board, not just on.
And are across the board,not just on critical items.
>> Elizabeth Economy (23:50):
Right. And I think the Trump administration, for
its pardon, to its credit,recognized that, you know, no matter that
the President says, you know,you can have two dolls instead of $30.
Dolls this was going to affect a lot morethan that in terms of consumer prices for
American families and
that this was going to have significantnegative impact on the U.S economy.
(24:11):
And we're already seeing in termsof the shipping and containers and
just the whole supply chain really,I think was under threat.
So many different parts ofthe US Economy would be hit,
not even just the US Consumer.
So I think, you know, for both sidescoming together, I think it was a,
(24:32):
you know, it was time.
So, you know, what about the,if we're focusing on China, you know,
what about the longer term benefits ofwhat the president is trying to do or
the longer term costs?
I mean, if you were sitting,you know, with him or
sitting with Jamison at this point, whatwould you recommend moving forward now?
(24:53):
What would you say?
This is really how I would try tostructure a deal or here's where I think
there's room to actually getsomething useful from the Chinese.
What do you see asthe opportunity at this point?
What do you see as the risk?
>> Susan Schwab (25:06):
So I guess I would say the Chinese have been decoupling for
over a decade and we need to be morestrategic about what we're doing.
You can call it decouplingin strategic areas,
you can call it de riskingas the Europeans are.
But the fact of the matter is the Chinesehave been doing it and we have not.
(25:27):
There were some effort is,you know, some effort in,
under your tutelage under,under Secretary Raimondo and
on a couple, in a couple of sectors,but not generally on the trade side.
And it was interesting to hearJameson Greer comment that there
(25:49):
were no bilateral conversationsgoing on between USTR and
their Chinese counterpartsover the last several years.
So not,>> Elizabeth Economy: I have to say,
at the Commerce Department we haddiscussions going on on the US China
business relationship andtreasury had those discussions, but
(26:09):
quite right that USTR really hadn't,really hadn't established any sort of
channel of communicationwith their counterparts.
Right. And you need a whole of government
approach and you really need,I mean if you're going to do it right,
you're going to need a wholeof government approach.
And so that's, you know,a second piece of advice which is you got
to figure out what your priorities are andthat's what you target.
(26:30):
And dolls, I'm not sure dollsis it apparel, footwear,
you got to figure out what, what is itthat we can be trading with each other and
that's going to be in the tens and
hundreds of billions of dollars that Iwas going to say nobody cares about,
but a lot of people care about,they're good for both sides.
(26:52):
Whereas those aspects of the tradingrelationship that by one definition or
another are sensitivein terms of security,
whether on the import side orthe export side.
And those are the ones weneed to be focused on.
So that would be really my first pieceof advice is figure out what matters and
(27:17):
what doesn't matter andjust focus on that.
The second piece of advice, so
the first piece of advice mightactually be taken seriously.
The second piece of advice is we reallyneed our allies on board on this.
>> Elizabeth Economy (27:31):
Yeah. >> Susan Schwab
I'm not going to pretend youcan dial back the clock, but
I would hope in the context ofnegotiations with other trading
partners as we try to addressthe existing tariffs or you know,
the situation we find ourselves in orthey find themselves in with the,
(27:57):
the, the bilaterals thatwill be going forward,
that a premium is placed on how to addressthe China relationship both in terms of,
of how we andour trading partners behave, but
also how to reinforce the trading system,the wto,
(28:18):
the GATT rules, to make sure thatit's not just the US alone or
not just the US andJapan or the EU alone, but
that there are a whole lot ofcountries out there that are really
unhappy with China andChina's trading practices.
(28:39):
Whether it's the coercive side,
whether it's the fact that all they'redoing is shipping raw materials to China.
Yeah, China is theirbiggest trading partner.
But, but it's because China isa market for their raw materials.
Right.
>> Susan Schwab (28:53):
And they would rather be adding value and adding more skilled,
you know, skilled labor on their side.
So they don't want tobe China's plantation.
And I think there's room forreinforcing rules that are agreed and
enforced multilaterally andplural, laterally, you know,
(29:16):
multi country agreements,agreements among the willing.
I would take us back to cptpp.
That's not gonna happen.
But something like that, where we havecountries that had the same concerns
that we do, cooperating doesn'thave to be a formal agreement, but
(29:38):
I would put that higher on the list, Ithink, than some of the terrorists per se.
And then third, the sooner you canget certainty into the markets,
the better because then the soonerbusinesses can do the kind of investing
that the administration would like.
And finally, visas, you know, work visas,
(30:02):
typically skilled, you know, H1B visas,
skilled labor visas, andthat includes visas for
people in trades where we have not and
have not been able to and can't find the,
the bodies to,to do the welding or other trade.
(30:25):
So not displacing US Workers butfinding workers to take on those jobs in
those factories where we'verun out of US Workers.
So those would be,those would be my recommendations.
>> Elizabeth Economy (30:37):
So let me, let me pick up on a couple of points.
I think on the sort of more proactivetrade policy which has been I think
lacking over the past eight years haseven just, it's not even something new.
I think we can agree.
Do you see that happening, a reform,a wholesale reform of the wto?
(30:59):
Do you see a way in which Chinais involved in a new or if not,
do you see a way that China is involvedin any sort of new trading regime?
Or do you really think realisticallythat we can only have trade
agreements now among like mindeddemocratic partners or you know,
countries that are at least operatingwith the same level of, you know,
(31:21):
labor standards and corporate governanceand you know, market openness?
I mean, how is there a way that,
that China actually is in a global tradingregime and we're in it at the same time?
>> Susan Schwab (31:35):
So I think first of all that we've done a lousy job.
We over as you say,a decade of taking China to the WTO and
filing cases against Chinathat are winnable cases.
Everyone focuses on the disputesettlement, you know, the appellate body.
And that's the wrong, that's,that's been a diversion.
(31:58):
As far as I'm concerned.
The GATT Pretty well before the WTO andbefore there was an appellate body.
And we need to be running up the, weneed to be running up the, the score and
showing that China is, in fact,
violating a whole lot of things that Chinacommitted to do when they joined the wto.
I think we just need to be showing thatover and over and over again because China
(32:19):
keeps saying they're the good guys andthey're the multilateralists, and, and
they're, you know,they want partnerships and all that.
And, and then, I'm sorry,that's not how they behave in real life.
So that would be the first thing.
And I think WTO is very useful for that.
And I think negotiating through the wto,you can smoke out the Chinese.
>> Elizabeth Economy (32:41):
Okay, that's, I think, a really important point because
I'm not sure that's the general sortof feeling in Washington these days.
I think, you know, the arguments.
I was just, you know, in D.C.
last week and at a meeting wherethere was a lot of trade discussion.
And I would say that overall it was about,you know, sectoral trade agreements or,
(33:02):
you know, a CPTPP type agreement, buta sort of throwing up the hands like,
forget about the wto, I think,was really the general sense of the room.
>> Susan Schwab (33:12):
I think there is value to be placed in plurilateral sectoral
agreements.
I think there is value inregional agreements or, you know,
plurilateral agreements that are likeCPTPP among willing countries,
but I don't think they'remutually exclusive.
You know, the, the WTO has,has particular benefits.
(33:37):
And you can do.
There's certain things thatyou cannot do bilaterally and
you cannot do with small agreements andyou cannot necessarily do sectorally.
So things like protectingintellectual property.
And there are certain things that youcan only do multilaterally that isn't
going to bother anybodyif you do them well.
(34:00):
And having China and the US in the sameagreement, the fisheries agreement,
trade facilitation agreements,
those are things that you reallywant to have multilaterally.
But it may be that if you're going to doa deal on, let's say, pharmaceuticals or
medical equipment, and you want to makesure you got supply chains that are going
to be there and operating and reliablesources of supply the next time you have
(34:23):
a pandemic, it may be that you're notgoing to have China as part of that group,
or maybe you are goingto have China as part.
But you need to have the option.
So I think you can dosectorals in parallel.
You can do regional dealsin parallel with the wto.
But I wouldn't abandon the wto.
We would have to reinvent it if it did.
>> Elizabeth Economy (34:43):
I think that's a really important, important statement.
So maybe get, you need to get thatout there a little, a little more.
I don't think.
Yeah, I just don't think that's the,
that's the tenor ofthe conversation right now.
But let me ask you one more questionon the US China trade relationship,
just the bilateral relationship, becauseit seems to me that you're, you know,
you raised the point of, you know, whereare we between de risking and decoupling.
(35:06):
We need to have a strategy forwhat it is that we want to do.
I mean, a big part of what President Trumphas said that he wants to get done is to
sort of rebalance the,you know, $300 billion or
more trade deficit thatwe now have with China.
Treasury Secretary Bessen has saidthat's going to take a couple of years.
I mean, do you see that as even realistic,
(35:27):
given the current state of what we exportto China, what China exports to us?
And in fact, if we are lookingto strategically decouple,
that could end up taking,you know, many more US you know,
high tech products sort of off the tablein terms of our exports to China.
So is that idea of rebalancingthe trade deficit,
(35:48):
do you think it's realistic at this point?
>> Susan Schwab (35:53):
Yes and no.
Yes, to the extent thatthe actions in the first Trump
administration started that process andcompanies said,
okay, the US doesn't want as muchto import as much from China and
therefore companies move manufacturing andmoved sourcing to
(36:14):
other countries, to Vietnam,to Malaysia, to Thailand.
And then the second Trumpadministration comes in and
is focused on bilateral tradedeficits from every country.
And the companies that did whatthey thought they were being told
to do in the first Trump administrationare discovering they're facing all
(36:35):
these big barriers, you know,these, these tariffs now.
So I think if you're really serious aboutaddressing the US China trade challenge,
you've got to be looking, you got tobe taking seriously French shoring,
you got to be taking seriously nearshoring, which I would argue neither
the first Trump administration northe Biden administration really did.
(37:00):
And>> Elizabeth Economy: we, I have to say,
we did try.
We built it into chips in science,actually.
So there were some efforts at near andfriend shoring, but go ahead.
Okay.
And I think that has tobe part of the strategy.
And you're right, absolutely right.
It takes an extended period of time.
We need to focus very heavilyon Making sure that the US is
(37:24):
the place where companies want toinvest and where the R and D and
the creativity andthe innovation takes place organically.
Right.
That has to do with lookingafter university R D.
It has to do with looking after Nest.
(37:45):
It has to do with looking after a lotof things that draw individuals
from all over the world here toinvest their time and effort and
make money and create companies andcreate wealth for
all Americans and quite frankly,others in the world as well.
(38:08):
So I, I think you would haveto differentiate between
the China bilateral trade deficit andthe rest of the world and
where you would prioritize howthose countries interact with
China as opposed to the levelof the bilateral trade deficit
between those countries in the U.S.>> Elizabeth Economy: right.
(38:32):
So China becomes the strategic objective.
Right.Dealing with China and that particular
economic challenge, trade challengebecomes the primary objective and
everything else you're arguing becomesin service of that to some extent.
Yeah.
And the ideal, and I'm not saying thatthis is necessarily realistic, the ideal
(38:55):
is that China starts getting nervousthat this actually is going to work and
that they are going to have tostimulate more domestic demand and,
or play by the rules and they becomea more responsible stakeholder.
>> Elizabeth Economy (39:14):
Right, right.
Which, you know, I think to your earlierpoint about the fact that there are many
countries who are concerned about Chineseeconomic practices, including their
export of their okra overcapacity,it's not simply the United States and
Europe and Japan, butnow it's a lot of middle income economies,
India and Brazil andArgentina and Mexico as well,
(39:36):
who don't want to see their nascentindustries in areas like, you know,
EVs and batteries and medical devices andevery other made in China 2025 technology.
They don't want to see them, you know,
sort of squashed before theyare even given a chance to develop.
So I think you're right.
There's an opportunity, you know, ifmanaged properly, to work with others and
(39:58):
to hold.
Hold China accountable andthat these countries, in effect,
when China sees their pushback,it's a very different dynamic, I think,
frankly, from simply feeling as thoughit's the United States trying to contain
us when they've got other partners,countries they generally consider
(40:19):
to be their partners, saying these typesof economic practices are not okay.
So maybe that is also another typeof pressure that China is going to
feel that could cause it tochange some of its behaviors.
>> Susan Schwab (40:34):
Yep, precisely.
>> Elizabeth Economy (40:36):
So I always finish with a couple of just quick questions to
get your thoughts.
You've been looking at China formany, many years.
What is it that you think wedon't know enough about China?
When you're working on China, when you'rethinking about it in the trade context or
more broadly, what do you wishsomehow that you knew more about?
>> Susan Schwab (41:02):
I wish that I knew more about and the US Government knew more
about or had a way to knowmore about the individuals,
the Chinese individuals whoreally would rather be here,
be educated here,be citizens here, who are not and
(41:23):
would never be a national security threat.
Similarly, the capital flight andthe technology
flight generated by, you know,those individuals and
those companies that do notpose a national security risk.
And in our zealousness, and
(41:46):
I don't know if that's a word in our,you know,
well founded concernabout national security,
I think we are losing a major betin terms of Chinese citizens and
Chinese companies, private companies thatwould much rather be here than there.
(42:11):
And the Chinese are not missing that betbecause they are doing everything they can
to keep those companies andthose individuals from exiting.
And that should tell us something.
And I wish I knew more abouthow one could differentiate.
So that's,>> Elizabeth Economy: I'll
give a small plug to a projecthere at Hoover, actually,
that's being run by one of my colleagues,Glenn Tifford, on research security,
(42:36):
where they are looking at the sort ofuniversity and types of research that
many scholars are doing in the scientificfields in China and tracking them to see,
you know, which ones are not actuallytied to military institutes or,
you know, or security orthe security apparatus so
that you can have a degree of comfortwith, you know, the majority of
(43:00):
Chinese scientists who would like topartner or would like to work here.
And I think this again speaks tothe earlier point you made that we need
a sort of a holistic ecosystem if we'regoing to be able to compete with China.
We need to have the talent that we need,the innovation,
the industry, the manufacturing, etc.
(43:21):
And foreign talent, Chinese and otherwise,is gonna be a big part of that and
funding our research universities,and our labs, and
our institutes like NSF andhealth are critical to that.
So I think, you know, we have a smallproject underway and you can check it
(43:43):
out when it's a little bit further,further along because I think it's,
I think, and I'm hopeful that it will helpto give peace of mind to scholars and
government officials about the fact that,you know,
most Chinese do not come here to study andlearn and to, and spy at the same time.
(44:03):
Okay, book article.
What have you read recently or not so
recently that you think would be great forAmericans to read about China?
So you may laugh at this, and it's not specifically about China,
but I think it would be very helpful ifAmerican policymakers, business people,
(44:26):
and even average Americans were toread a book that was written in 1991,
I think, by Peter Schwartzcalled Art of the Long View.
And it is a book I goback to periodically.
And it was sort of the originof scenario planning.
(44:46):
I think Peter is now.
Peter now, I think,is affiliated with Salesforce.
He's a futurist, but makes you thinkabout how you do scenario planning and
think about scenarios that youwould never have thought of before.
And if there were ever a time forus to be doing that as, as individuals,
(45:09):
as businesses, as governments, this is it.
So I go back to the Art ofthe Long View and I recommend it a lot.
I don't even know if it's still in print.
I hope it is>> Elizabeth Economy: terrific.
I'm sure, I'm sure I can find it.
And I'm going to take,I'm going to take that recommendation.
It's not, I don't usually get,usually I get a China book or
article that I've already read andsay, that's a good idea, but
now you've given me something,something new.
(45:29):
So thank you.
All right, last question.
We know that President Trump hassomeplace inside him a desire to
have a big deal with Xi Jinping.
He'd like to meet with Xi Jinping.
What are the odds that President Trump and
President Xi have a kindof Nixon Kissinger,
Mao Zhou Enlai moment andachieve some kind of breakthrough for
(45:54):
the US China relationship over the nextthree and a half years, one to ten?
I think the odds are pretty good.
I, you know, I look at, andI think that's good and bad, by the way.
I think the odds are pretty good.
I, I give President Trumpa whole lot of credit for usmca.
(46:18):
You know, the, the Canada, Mexico,US Deal that, that no other president
could have done and no other presidentcould have gotten through Congress.
And I hope they don't mess it up nowbecause it was a really good deal and
there's some risk thatthey will mess it up.
In terms of the Kissinger,the Nixon goes to China moment,
(46:39):
I think that's something thatwould appeal to President Trump,
probably would appeal to Xi Jinping.
I just would hope it's not inthe context of us selling out, yeah.
>> Elizabeth Economy (46:56):
Okay.
So, Susan, thank you so much foryour frankness, for your equanimity.
You know, I think kind of helping tosteer us, give us a clear path forward,
I think is really useful at these timeswhen, you know, we're constantly besieged
by what just seems to be, you know,it's one piece of news after another.
(47:21):
It's very difficult to makesense of it all, I think.
But you've really, I think, contributed,not just through this podcast,
but I think more broadly to helpingpeople understand, you know,
what's going on andwhere this might all go.
So thank you again for your time,>> Susan Schwab: Liz.
Thank you very much.
And keep doing what you're doing becauseit really is teaching all of us things we
(47:46):
need to know.
So if you enjoyed this podcast and
want to hear more reasoned discourse anddebate on China, I encourage you to
subscribe to China Considered viaThe Hoover Institution YouTube channel or
podcast platform of your choice.
Our next China podcast will featureHoover Senior Fellow Sumit Ganguly on
the recent military conflict betweenPakistan and India and how China and
(48:08):
the United States fit intothis dangerous dynamic.
Foreign welcome to China Considered,
a podcast that brings fresh insights and
informed discussion to one of the mostconsequential issues of our time,
how China's changing andchanging the world.
I'm Liz Economy Hargrove, senior Fellowand co Director of the Program on US China
(00:21):
and the World at the Hoover Institutionat Stanford University.
Today, we're going to talk about tariffs,a word that President Trump
has said is one of the mostbeautiful ones in the dictionary.
And we're really, we're really luckyto have Ambassador Susan Schwab,
who was the US Trade Representativeduring the term of President George W.
Bush and currently a strategicadvisor to the law firm Mayor Brown,
(00:44):
to help us understand everything we needto know about this sometimes complicated,
complex topic.
Susan, I know you are inmuch demand these days.
Your interviewsare blanketing the airwaves.
So thank you so much fortaking the time to speak with us.
>> Susan Schwab (00:58):
Well, thank you, Liz, you know I'm a fan.
>> Elizabeth Economy (01:01):
So let's get to it.
On April 2,President Trump announced Liberation Day.
His administration placed 10%tariffs on all goods coming into
the United States and
then additional tariffs at varying rateson goods coming from dozens of countries.
Then within a week,he started to give countries a reprieve.
Let's start with why he did this.
What is his strategy?
>> Susan Schwab (01:24):
So the first, as you said, April 2nd, Liberation Day,
I think everyone was caught bysurprise about the magnitude.
So the reciprocal tariffs,sort of with a 10% baseline and
then above that up to above 30,40% depending on the country,
they're called reciprocal tariffs.
(01:46):
They aren't actually reciprocal tariffs.
They are based on a formulathat has to do with the size of
the US Trade deficit with that country.
And in countries wherethe US Has a trade surplus, and
there are a few of them,they get just flat out 10%.
So that was how it was constructed.
(02:09):
It was a shock to everyone.
Trading partners, andone has the sense watching the Rose Garden
ceremonies are shocked to a lot ofpeople in the Trump administration,
certainly the business community and themarkets reacted very badly, very badly.
Stock market, bonds, the whole bit.
(02:30):
And the president and his teamdiscovered that, yes, in fact, there was
a tipping point beyond which you can'tgo on tariffs which without significant
disruption in the economy or riskinga significant disruption in the economy.
And so April 8 camethe announcement that these tariffs
(02:51):
were going to be suspended forevery country except China.
For.A 90 day period during which time
bilateral negotiations were going totake place to address the challenges,
the motivations, the objectives,the priorities that this
(03:12):
administration has China,let's separate China for right now.
So that list of countries, I mean that,
that list of countriesis very significant.
It's over 60.
The, the motivations,it's sort of interesting.
It depends on who you'retalking to on what day.
(03:33):
Let's start with the president'sassertion that everyone has.
This is a PG13.
Everyone has been unfair tothe United States in terms of
its treatment of our exports,treatment of our trade.
(03:53):
They have treated us unfairly sinceforever and we need to get back at them.
Motivation 1,2 Motivation Reindustrialization,
rebuilding an industrialbase in the United States.
The assertion that we don't makeanything here anymore, which by the way,
is not accurate, butwe don't make anything anymore.
Trying to use tariffs to increaseinvestment in manufacturing in
(04:16):
the United States and manufacturingemployment in the United States.
Changing behavior of trading partnersin terms of their foreign barriers,
the objective of raisingrevenues to help plug
the rather significant gapin our federal budget.
(04:40):
A variety of other objectives,some of which now show
up in the template thatthe administration appears
to be presenting to eachof the trading partners.
But that gets into boththe issues that I addressed and
(05:00):
some other issues having to do with howthey, in some cases, how they treat China,
how they treat US Exports,specific barriers that show up in
the National Trade Estimate Reportthat the USTR puts out once a year.
So you, you sort of takethose major motivations and
(05:22):
translate them into specific asksof specific trading partners.
>> Elizabeth Economy (05:28):
So you were.
So a whole range of issues, a wholerange of ostensible motivations, and
maybe some of them coming differentparts of the administration.
And we can come back to sort of the viewswithin the administration because they're
not uniform, which makes.
>> Susan Schwab (05:43):
And they're not necessarily mutually consistent.
>> Elizabeth Economy (05:46):
Right, that's all, [LAUGH] Right.
It's another problem.
We'll come back to that in a minute.
But you were ustr, is this,
is President Trump really the firstpresident to use tariffs in this way or
have other presidents, you know,how did, how did George W.
Bush use tariffs?
What was the point during his tenure?
How did he think about them?
>> Susan Schwab (06:06):
Well, I think it's safe to say that President Trump is the first
president since, let's say,1934, because one would argue,
I would argue that US trade policy,contemporary US trade policy,
really started after 1930,after the Smoot Hawley Tariff act of 1930,
and really started withthe Reciprocal Trade act of 1934.
(06:30):
And since then, presidents have usedtariffs both in terms of carrots and
sticks, but more carrots than sticks.
Right, reciprocal trade negotiations,negotiation of bilateral trade agreements,
of multilateral, of sectoral tradeagreements using tariffs as allure.
(06:54):
We'll lower our tariffs in areas where,where you're competitive if you lower
tariffs and non tariff barriers obviouslyin areas where we're competitive.
So that kind of negotiation andthen Obviously starting in 1947,
the General Agreement on Tariffs andTrade and you bring in the concept of
most favored nation treatment andnon discrimination and so on.
(07:17):
Now the use of tariffsas a negative motivator,
the first major use of that I wouldargue is the first Trump administration.
The Biden administration, as you know,didn't lower those tariffs, Right?
And from time to time, yes,
the United States has raisedtariffs to force, persuade,
(07:41):
encourage a change in behaviorby other trading partners,
particularly as it impacts U.S.exports, and
that is generally through Section301 of the Trade act of 1974.
After an investigationas to whether there are.
Are acts, policies andpractices that are unreasonable,
(08:04):
burdensome anda whole variety of other terms.
But yeah, tariffs have been used that way,but they're sort of
scalp alike rather than acrossthe board and based on calculation,
based on deficits, rather than basedon the value of trade impacted,
say by that trade barrier orby that unfair trade practice,
(08:28):
which is we put up tariffs allthe time related to dumped product,
product that subsidized into thismarket and injuring US Producers.
I mean, we use tariffs, but
not quite the way they're beingused under this administration.
>> Elizabeth Economy (08:44):
Arguably the Trump administration put these tariffs on as
a form of leverage,given how quickly, right.
Within the space of a week,as you mentioned,
all of a sudden you're getting a reprieve,a 90 day reprieve.
So this seems more likehere's the threat of action.
Of course it causes an enormous amountof tumult, as you also pointed out.
(09:05):
And then we're giving you 90 days and
we're going to negotiatewith really no expectation.
I don't believe that the tariffs are goingto remain at the high level that they were
for many countries.
Is that fair that in essence thesewere just a threat and then, you know,
the real negotiation begins andnobody expects that they're going to stay.
>> Susan Schwab (09:24):
It is a great question.
I mean, the real question iswhat happens July 9, right.
That's 90 days after the challenge.
And this is speaking asa former negotiator,
the challenge is they shot the hostage,right.
And once you've shot the hostage, thatkind of changes the negotiating dynamic.
Now, you could argue they showed thatthey are capable of shooting the hostage,
(09:48):
but they backed down.
And they backed down forgood reasons, by the way.
I'm not arguing with that, but it doeschange the negotiating dynamics somewhat.
And so that, and the fact that they'renever going to be able to negotiate with
all of those countries and do deals withall those countries before July 9th.
(10:11):
So there's a question, and let's face it,the uncertainty that all of this creates,
whether you're talking about domestic USFirms that are thinking about investing or
foreign companies thatare thinking about investing or
companies that are making purchasedecisions, all that's kind of up in
the air because nobody knows whatthe tariff is going to be, Right.
(10:35):
No one knows what they'regoing to be paying.
And in some cases you're talkingabout tariffs that are, you know,
twice the cost of the productin the first place or more.
>> Elizabeth Economy (10:45):
Right. And then for some, in some cases,
I know forcountries like Madagascar, right,
where they have A surplus of cloves andvanilla, right?
One of this countries on Earth.
You're wondering,what is the point of this really.
>> Susan Schwab (10:58):
PG water or Lesotho?
I mean, little, small,poor countries that.
Small, poor countries that, you know,
are trying to make it ina tough trading world.
And, and, you know, we might havegiven them trade preferences.
Trade preferences 10 years ago.
(11:19):
And, and now the administrationslaps a tariff on them and
they don't know what hit them.
And, by the way,the administration doesn't.
Isn't going to have time tonegotiate with them anytime soon.
So they're facing the prospectof real chaos unless,
you know, the pause is extended for them.
(11:41):
It's not their fault they're notgetting an audience with ustr.
>> Elizabeth Economy (11:45):
Right.
And I guess that begsthe question as well.
I mean, you know,it does seem as though there are just some
differences of opinionwithin this administration.
Not everybody seems to be aligned.
I think, Kevin Hassett, forexample, has written for
years about tariffs, not in a,not particularly favorably.
(12:05):
So how do you sort of understandthe dynamics of the administration?
And do you think that has contributed tosome of the chaos that we seem to have
experienced in this process?
>> Susan Schwab (12:18):
Well, you know, each, each president runs their operation,
runs their cabinet the waythey choose to run it.
I was very, you know,I was blessed by working for George W.
Bush, who was a terrific boss, andyou could tell he had been a CEO.
You knew your red line.
I felt very empowered as a negotiator.
(12:40):
I knew my red lines.
I would sit down with my, say, Chinesecounterparts who had to phone home for
every single decisionthat they had to make.
Whereas we sat at the table andwe could wheel and deal because we knew we
could be innovative and creativein the structures we came up with.
And we knew what the red lines were,we knew what our objectives were,
(13:02):
we were empowered.
And our marching orders generally were,get the best deal you can, and
if it's a bad deal, you walk away.
And I did both as ustr.
I got some good deals andI walked away from bad deals.
So the current team,there was only one decider, right.
(13:24):
And that is the president, and he isdelegating up to a point, but no further.
And I think I have the sense thatthey're settling into a rhythm and
they're settling into who haswhat responsibility, right?
So you have Secretary Besant and
(13:45):
Jameson Greer as the lead inthe China talks at this point.
You have Secretary Lutnick and AmbassadorGreer on all the other negotiations.
I think it's pretty safe to say that mostof the work is being done at USTR and
the interagency process, you know,experts at the Commerce Department,
(14:08):
experts at the Agriculture Department,experts at the Treasury Department,
and that's the way that interagencyprocess has always worked.
What they don't know is, andnobody knows at the end of the day,
what is going to be satisfactory andwhat else the president's going to want.
>> Elizabeth Economy (14:25):
Right.
And so we've seen the deal with the UK andnow a big investment deal with
Saudi Arabia, investment andtrade deal with Saudi Arabia.
How do you evaluate these deals?
I mean, the president, of course,has called them successes, big successes.
I mean, as a US Trade negotiator,
do you see these as successes fromwhere we started to what we got?
(14:47):
Do they seem like successes to you?
>> Susan Schwab (14:50):
Well, if you're talking about I'm not familiar at all with
the Saudi deal at this point,except that obviously the United States
has always been orcertainly has been in the, you know,
the contemporary decades,a really good place to invest.
(15:11):
And that has been evident by the amountof foreign direct investment,
both in terms of stock and flows.
And the key is not to screw that up.
And I think the president wants to be apart of encouraging that or forcing that.
And he declares victory.
When he has done that,we'll see what how the, you know,
(15:34):
press releases translate into action,actual investment.
Some of that investmentis gonna come in slowly.
We know that it takes a long timeto build, you know, factories or
retool factories.
It takes a long time to hire people,
particularly when you've got skilldeficits in the United States.
But those are to be applauded if they comethrough in terms of some of the other.
(15:59):
The other elements, there's the factthat they are negotiating agreements.
I mean, I give them creditin terms of the UK deal.
There is some substance there,there's a whole lot of work to be done.
And I give both sides creditin terms of the UK deal for
having got as far as they did.
(16:24):
But the devil is always in the details and
they're going to have to workthose out and we'll see.
You know, the, the, the last we'veheard is that, is that, you know,
Switzerland is, is up on the list.
The EU is not so far up on the list.
They are negotiating.
I don't know what the latest count is,but, but
with at least 20 countries wherenegotiating is, seems to be defined as
(16:48):
the country has to not have retaliated,has to come in with a proposal.
Then the US hands them the templatewith the specific asks and
that may be remove these barriers againfrom the National Trade Estimate Report.
(17:09):
Perhaps some purchases,purchase agreements,
perhaps encouragingforeign direct investment
actions to reduce the trade deficit.
But that's hard to do, I mean,because governments can't, you know,
commit to that.
(17:30):
But if there are concernsabout currency manipulation,
commitments on currency manipulation, and
in some cases it,it's quite clear concerns or, or
actions to address concerns aboutChinese overcapacity finding
its way into third country markets andthen coming to the US and
(17:53):
those are going to be harder forsome countries than others.
But that seems to be one ofthe kinds of things that shows up or
is being asked in these agreements.
There are also some really interestingthings on the digital front,
some to be getting, some of which they,they aren't necessarily getting.
(18:15):
That that was still a standoff inthe UK case digital services tax,
which we have a real problem with.
But they've agreed to have a digitaltechnology forum bylat and
if they can come up with a deal there,that'd be terrific too.
>> Elizabeth Economy (18:31):
Yeah, I, I think that was one of the points that they said
we're going to move forward right ontrying to come up with some kind of
digital trade agreement which would be,I think, terrific.
That would represent a real step forward.
And as for the Saudi deal,I would just say it's a lot of investment.
The trade seems to be mostly inpurchases of defense equipment,
military equipment by the Saudis, buta lot of Saudi investment here and some
(18:56):
investment by our tech companies there andyou know, worth apparently $600 billion.
Although again, to your pointabout what actually materializes,
there's some that, you know,could take a long time and
there's also some that's already underwaythat they've just kind of included,
as we both know from working on thesekinds of statements in the US Government,
(19:17):
you try to take advantage of thingsthat may also already be in the works.
And it's clear there's some ofthat wrapped up in this as well.
>> Susan Schwab (19:25):
And the thing to remember about the UK Deal is the first Trump
administration worked very hardon a bilateral trade agreement,
I mean, like a full scale comprehensivetrade agreement with the UK So
they put in several years on that and theyhad that available to them as a template,
(19:45):
a blueprint that they could draw on forthis current negotiation and
people on both sides who had beeninvolved in those negotiations,
namely Jameson Greer and Amanda Brookson the UK side, among others.
>> Elizabeth Economy (20:02):
And they're back again, right?
>> Susan Schwab (20:04):
That's exactly right.
>> Elizabeth Economy (20:05):
Yeah. So they have the opportunity now to move
things forward.
So that is, I think, a very,you know, a positive sign.
So let's spend a minute on China.
You know, as you mentioned, USTR Greer,
Ambassador Greer andTreasury Secretary Besant,
they were in Switzerland withtheir Chinese counterparts.
They came to some accord.
(20:26):
They, you know, huge reduction inthe tariff levels on both sides.
So that now for the next 90 days,it's sort of 30%, I think,
in terms of Chinese goods coming into theUS and 10% on US goods going into China.
And the Chinese removed all of the nontariff measures that they'd put,
I think critically for us on the criticalminerals, rare earth elements.
(20:50):
But the narrative seems to be->> Susan Schwab: Let me offer just one
caveat.
Sure, absolutely.
>> Susan Schwab (20:55):
It is, if you look at the press releases,
it is the US andChina dropping the tariffs
that they imposed on April 2nd by 115%.
>> Elizabeth Economy (21:10):
Right.
>> Susan Schwab (21:11):
So it's not a 30% tariff.
It is on the US side, 30%.
10 plus the 20, the 10% baseline,the 20% fentanyl on the Chinese side,
10% on top of what wasin effect on April 1st.
>> Elizabeth Economy (21:29):
Thank you for that.
>> Susan Schwab (21:30):
Yeah. So,
>> Elizabeth Economy (21:31):
okay,
>> Susan Schwab (21:31):
so we're talking about
tariffs that can go well in excess of 30%.
>> Elizabeth Economy (21:36):
Okay.
>> Susan Schwab (21:39):
And then there were some changes in de minimis that had again,
we went from prohibitive, you know,
they, as they refer to itas effectively an embargo.
>> Elizabeth Economy (21:50):
Right.
>> Susan Schwab (21:51):
To high but not prohibitive depending on the product.
>> Elizabeth Economy (21:57):
Right. >> Susan Schwab
depending on the sector,
there will be some resumptionof some resumption of trade.
So that's a very important distinction, thank you for that.
So people are saying, or the media,
I would say the general narrative has beenthat Somehow China won that Xi Jinping,
(22:19):
standing tough, standing firm,that actually China came out ahead.
Is that how you read this?
>> Susan Schwab (22:29):
Not really.
I sort of read it as both of themfinally came to their senses and
sent some adults to Geneva to talk.
>> Elizabeth Economy (22:37):
Yeah.
>> Susan Schwab (22:39):
We were an absurd situation where the fact that neither one
wanted to make the first call atthe leader level was just utterly absurd,
while both economies were feelingsignificantly negative impacts,
for God's sake, just sit down and talk.
And they finally sentsome adults to do that.
>> Elizabeth Economy (23:01):
Right.
Yeah.My sense was that both leaders recognized
that the real hurt was about to hit andtake action.
Now, [CROSSTALK] serious problem, yeah.
>> Susan Schwab (23:13):
You're aware, more than, more than most, the extent to which so
much of China, so many of China'sexports to the US Are actually small,
medium sized,>> Elizabeth Economy: Right.
Enterprises that can't last that long.
And there's a limit to how longpeople are gonna be able to hang out
(23:36):
not producing things and not gettingmoney and having contracts canceled.
Because these tariffs are acrossthe board, not just on.
And are across the board,not just on critical items.
>> Elizabeth Economy (23:50):
Right. And I think the Trump administration, for
its pardon, to its credit,recognized that, you know, no matter that
the President says, you know,you can have two dolls instead of $30.
Dolls this was going to affect a lot morethan that in terms of consumer prices for
American families and
that this was going to have significantnegative impact on the U.S economy.
(24:11):
And we're already seeing in termsof the shipping and containers and
just the whole supply chain really,I think was under threat.
So many different parts ofthe US Economy would be hit,
not even just the US Consumer.
So I think, you know, for both sidescoming together, I think it was a,
(24:32):
you know, it was time.
So, you know, what about the,if we're focusing on China, you know,
what about the longer term benefits ofwhat the president is trying to do or
the longer term costs?
I mean, if you were sitting,you know, with him or
sitting with Jamison at this point, whatwould you recommend moving forward now?
(24:53):
What would you say?
This is really how I would try tostructure a deal or here's where I think
there's room to actually getsomething useful from the Chinese.
What do you see asthe opportunity at this point?
What do you see as the risk?
>> Susan Schwab (25:06):
So I guess I would say the Chinese have been decoupling for
over a decade and we need to be morestrategic about what we're doing.
You can call it decouplingin strategic areas,
you can call it de riskingas the Europeans are.
But the fact of the matter is the Chinesehave been doing it and we have not.
(25:27):
There were some effort is,you know, some effort in,
under your tutelage under,under Secretary Raimondo and
on a couple, in a couple of sectors,but not generally on the trade side.
And it was interesting to hearJameson Greer comment that there
(25:49):
were no bilateral conversationsgoing on between USTR and
their Chinese counterpartsover the last several years.
So not,>> Elizabeth Economy: I have to say,
at the Commerce Department we haddiscussions going on on the US China
business relationship andtreasury had those discussions, but
(26:09):
quite right that USTR really hadn't,really hadn't established any sort of
channel of communicationwith their counterparts.
Right. And you need a whole of government
approach and you really need,I mean if you're going to do it right,
you're going to need a wholeof government approach.
And so that's, you know,a second piece of advice which is you got
to figure out what your priorities are andthat's what you target.
(26:30):
And dolls, I'm not sure dollsis it apparel, footwear,
you got to figure out what, what is itthat we can be trading with each other and
that's going to be in the tens and
hundreds of billions of dollars that Iwas going to say nobody cares about,
but a lot of people care about,they're good for both sides.
(26:52):
Whereas those aspects of the tradingrelationship that by one definition or
another are sensitivein terms of security,
whether on the import side orthe export side.
And those are the ones weneed to be focused on.
So that would be really my first pieceof advice is figure out what matters and
(27:17):
what doesn't matter andjust focus on that.
The second piece of advice, so
the first piece of advice mightactually be taken seriously.
The second piece of advice is we reallyneed our allies on board on this.
>> Elizabeth Economy (27:31):
Yeah. >> Susan Schwab
I'm not going to pretend youcan dial back the clock, but
I would hope in the context ofnegotiations with other trading
partners as we try to addressthe existing tariffs or you know,
the situation we find ourselves in orthey find themselves in with the,
(27:57):
the, the bilaterals thatwill be going forward,
that a premium is placed on how to addressthe China relationship both in terms of,
of how we andour trading partners behave, but
also how to reinforce the trading system,the wto,
(28:18):
the GATT rules, to make sure thatit's not just the US alone or
not just the US andJapan or the EU alone, but
that there are a whole lot ofcountries out there that are really
unhappy with China andChina's trading practices.
(28:39):
Whether it's the coercive side,
whether it's the fact that all they'redoing is shipping raw materials to China.
Yeah, China is theirbiggest trading partner.
But, but it's because China isa market for their raw materials.
Right.
>> Susan Schwab (28:53):
And they would rather be adding value and adding more skilled,
you know, skilled labor on their side.
So they don't want tobe China's plantation.
And I think there's room forreinforcing rules that are agreed and
enforced multilaterally andplural, laterally, you know,
(29:16):
multi country agreements,agreements among the willing.
I would take us back to cptpp.
That's not gonna happen.
But something like that, where we havecountries that had the same concerns
that we do, cooperating doesn'thave to be a formal agreement, but
(29:38):
I would put that higher on the list, Ithink, than some of the terrorists per se.
And then third, the sooner you canget certainty into the markets,
the better because then the soonerbusinesses can do the kind of investing
that the administration would like.
And finally, visas, you know, work visas,
(30:02):
typically skilled, you know, H1B visas,
skilled labor visas, andthat includes visas for
people in trades where we have not and
have not been able to and can't find the,
the bodies to,to do the welding or other trade.
(30:25):
So not displacing US Workers butfinding workers to take on those jobs in
those factories where we'verun out of US Workers.
So those would be,those would be my recommendations.
>> Elizabeth Economy (30:37):
So let me, let me pick up on a couple of points.
I think on the sort of more proactivetrade policy which has been I think
lacking over the past eight years haseven just, it's not even something new.
I think we can agree.
Do you see that happening, a reform,a wholesale reform of the wto?
(30:59):
Do you see a way in which Chinais involved in a new or if not,
do you see a way that China is involvedin any sort of new trading regime?
Or do you really think realisticallythat we can only have trade
agreements now among like mindeddemocratic partners or you know,
countries that are at least operatingwith the same level of, you know,
(31:21):
labor standards and corporate governanceand you know, market openness?
I mean, how is there a way that,
that China actually is in a global tradingregime and we're in it at the same time?
>> Susan Schwab (31:35):
So I think first of all that we've done a lousy job.
We over as you say,a decade of taking China to the WTO and
filing cases against Chinathat are winnable cases.
Everyone focuses on the disputesettlement, you know, the appellate body.
And that's the wrong, that's,that's been a diversion.
(31:58):
As far as I'm concerned.
The GATT Pretty well before the WTO andbefore there was an appellate body.
And we need to be running up the, weneed to be running up the, the score and
showing that China is, in fact,
violating a whole lot of things that Chinacommitted to do when they joined the wto.
I think we just need to be showing thatover and over and over again because China
(32:19):
keeps saying they're the good guys andthey're the multilateralists, and, and
they're, you know,they want partnerships and all that.
And, and then, I'm sorry,that's not how they behave in real life.
So that would be the first thing.
And I think WTO is very useful for that.
And I think negotiating through the wto,you can smoke out the Chinese.
>> Elizabeth Economy (32:41):
Okay, that's, I think, a really important point because
I'm not sure that's the general sortof feeling in Washington these days.
I think, you know, the arguments.
I was just, you know, in D.C.
last week and at a meeting wherethere was a lot of trade discussion.
And I would say that overall it was about,you know, sectoral trade agreements or,
(33:02):
you know, a CPTPP type agreement, buta sort of throwing up the hands like,
forget about the wto, I think,was really the general sense of the room.
>> Susan Schwab (33:12):
I think there is value to be placed in plurilateral sectoral
agreements.
I think there is value inregional agreements or, you know,
plurilateral agreements that are likeCPTPP among willing countries,
but I don't think they'remutually exclusive.
You know, the, the WTO has,has particular benefits.
(33:37):
And you can do.
There's certain things thatyou cannot do bilaterally and
you cannot do with small agreements andyou cannot necessarily do sectorally.
So things like protectingintellectual property.
And there are certain things that youcan only do multilaterally that isn't
going to bother anybodyif you do them well.
(34:00):
And having China and the US in the sameagreement, the fisheries agreement,
trade facilitation agreements,
those are things that you reallywant to have multilaterally.
But it may be that if you're going to doa deal on, let's say, pharmaceuticals or
medical equipment, and you want to makesure you got supply chains that are going
to be there and operating and reliablesources of supply the next time you have
(34:23):
a pandemic, it may be that you're notgoing to have China as part of that group,
or maybe you are goingto have China as part.
But you need to have the option.
So I think you can dosectorals in parallel.
You can do regional dealsin parallel with the wto.
But I wouldn't abandon the wto.
We would have to reinvent it if it did.
>> Elizabeth Economy (34:43):
I think that's a really important, important statement.
So maybe get, you need to get thatout there a little, a little more.
I don't think.
Yeah, I just don't think that's the,
that's the tenor ofthe conversation right now.
But let me ask you one more questionon the US China trade relationship,
just the bilateral relationship, becauseit seems to me that you're, you know,
you raised the point of, you know, whereare we between de risking and decoupling.
(35:06):
We need to have a strategy forwhat it is that we want to do.
I mean, a big part of what President Trumphas said that he wants to get done is to
sort of rebalance the,you know, $300 billion or
more trade deficit thatwe now have with China.
Treasury Secretary Bessen has saidthat's going to take a couple of years.
I mean, do you see that as even realistic,
(35:27):
given the current state of what we exportto China, what China exports to us?
And in fact, if we are lookingto strategically decouple,
that could end up taking,you know, many more US you know,
high tech products sort of off the tablein terms of our exports to China.
So is that idea of rebalancingthe trade deficit,
(35:48):
do you think it's realistic at this point?
>> Susan Schwab (35:53):
Yes and no.
Yes, to the extent thatthe actions in the first Trump
administration started that process andcompanies said,
okay, the US doesn't want as muchto import as much from China and
therefore companies move manufacturing andmoved sourcing to
(36:14):
other countries, to Vietnam,to Malaysia, to Thailand.
And then the second Trumpadministration comes in and
is focused on bilateral tradedeficits from every country.
And the companies that did whatthey thought they were being told
to do in the first Trump administrationare discovering they're facing all
(36:35):
these big barriers, you know,these, these tariffs now.
So I think if you're really serious aboutaddressing the US China trade challenge,
you've got to be looking, you got tobe taking seriously French shoring,
you got to be taking seriously nearshoring, which I would argue neither
the first Trump administration northe Biden administration really did.
(37:00):
And>> Elizabeth Economy: we, I have to say,
we did try.
We built it into chips in science,actually.
So there were some efforts at near andfriend shoring, but go ahead.
Okay.
And I think that has tobe part of the strategy.
And you're right, absolutely right.
It takes an extended period of time.
We need to focus very heavilyon Making sure that the US is
(37:24):
the place where companies want toinvest and where the R and D and
the creativity andthe innovation takes place organically.
Right.
That has to do with lookingafter university R D.
It has to do with looking after Nest.
(37:45):
It has to do with looking after a lotof things that draw individuals
from all over the world here toinvest their time and effort and
make money and create companies andcreate wealth for
all Americans and quite frankly,others in the world as well.
(38:08):
So I, I think you would haveto differentiate between
the China bilateral trade deficit andthe rest of the world and
where you would prioritize howthose countries interact with
China as opposed to the levelof the bilateral trade deficit
between those countries in the U.S.>> Elizabeth Economy: right.
(38:32):
So China becomes the strategic objective.
Right.Dealing with China and that particular
economic challenge, trade challengebecomes the primary objective and
everything else you're arguing becomesin service of that to some extent.
Yeah.
And the ideal, and I'm not saying thatthis is necessarily realistic, the ideal
(38:55):
is that China starts getting nervousthat this actually is going to work and
that they are going to have tostimulate more domestic demand and,
or play by the rules and they becomea more responsible stakeholder.
>> Elizabeth Economy (39:14):
Right, right.
Which, you know, I think to your earlierpoint about the fact that there are many
countries who are concerned about Chineseeconomic practices, including their
export of their okra overcapacity,it's not simply the United States and
Europe and Japan, butnow it's a lot of middle income economies,
India and Brazil andArgentina and Mexico as well,
(39:36):
who don't want to see their nascentindustries in areas like, you know,
EVs and batteries and medical devices andevery other made in China 2025 technology.
They don't want to see them, you know,
sort of squashed before theyare even given a chance to develop.
So I think you're right.
There's an opportunity, you know, ifmanaged properly, to work with others and
(39:58):
to hold.
Hold China accountable andthat these countries, in effect,
when China sees their pushback,it's a very different dynamic, I think,
frankly, from simply feeling as thoughit's the United States trying to contain
us when they've got other partners,countries they generally consider
(40:19):
to be their partners, saying these typesof economic practices are not okay.
So maybe that is also another typeof pressure that China is going to
feel that could cause it tochange some of its behaviors.
>> Susan Schwab (40:34):
Yep, precisely.
>> Elizabeth Economy (40:36):
So I always finish with a couple of just quick questions to
get your thoughts.
You've been looking at China formany, many years.
What is it that you think wedon't know enough about China?
When you're working on China, when you'rethinking about it in the trade context or
more broadly, what do you wishsomehow that you knew more about?
>> Susan Schwab (41:02):
I wish that I knew more about and the US Government knew more
about or had a way to knowmore about the individuals,
the Chinese individuals whoreally would rather be here,
be educated here,be citizens here, who are not and
(41:23):
would never be a national security threat.
Similarly, the capital flight andthe technology
flight generated by, you know,those individuals and
those companies that do notpose a national security risk.
And in our zealousness, and
(41:46):
I don't know if that's a word in our,you know,
well founded concernabout national security,
I think we are losing a major betin terms of Chinese citizens and
Chinese companies, private companies thatwould much rather be here than there.
(42:11):
And the Chinese are not missing that betbecause they are doing everything they can
to keep those companies andthose individuals from exiting.
And that should tell us something.
And I wish I knew more abouthow one could differentiate.
So that's,>> Elizabeth Economy: I'll
give a small plug to a projecthere at Hoover, actually,
that's being run by one of my colleagues,Glenn Tifford, on research security,
(42:36):
where they are looking at the sort ofuniversity and types of research that
many scholars are doing in the scientificfields in China and tracking them to see,
you know, which ones are not actuallytied to military institutes or,
you know, or security orthe security apparatus so
that you can have a degree of comfortwith, you know, the majority of
(43:00):
Chinese scientists who would like topartner or would like to work here.
And I think this again speaks tothe earlier point you made that we need
a sort of a holistic ecosystem if we'regoing to be able to compete with China.
We need to have the talent that we need,the innovation,
the industry, the manufacturing, etc.
(43:21):
And foreign talent, Chinese and otherwise,is gonna be a big part of that and
funding our research universities,and our labs, and
our institutes like NSF andhealth are critical to that.
So I think, you know, we have a smallproject underway and you can check it
(43:43):
out when it's a little bit further,further along because I think it's,
I think, and I'm hopeful that it will helpto give peace of mind to scholars and
government officials about the fact that,you know,
most Chinese do not come here to study andlearn and to, and spy at the same time.
(44:03):
Okay, book article.
What have you read recently or not so
recently that you think would be great forAmericans to read about China?
So you may laugh at this, and it's not specifically about China,
but I think it would be very helpful ifAmerican policymakers, business people,
(44:26):
and even average Americans were toread a book that was written in 1991,
I think, by Peter Schwartzcalled Art of the Long View.
And it is a book I goback to periodically.
And it was sort of the originof scenario planning.
(44:46):
I think Peter is now.
Peter now, I think,is affiliated with Salesforce.
He's a futurist, but makes you thinkabout how you do scenario planning and
think about scenarios that youwould never have thought of before.
And if there were ever a time forus to be doing that as, as individuals,
(45:09):
as businesses, as governments, this is it.
So I go back to the Art ofthe Long View and I recommend it a lot.
I don't even know if it's still in print.
I hope it is>> Elizabeth Economy: terrific.
I'm sure, I'm sure I can find it.
And I'm going to take,I'm going to take that recommendation.
It's not, I don't usually get,usually I get a China book or
article that I've already read andsay, that's a good idea, but
now you've given me something,something new.
(45:29):
So thank you.
All right, last question.
We know that President Trump hassomeplace inside him a desire to
have a big deal with Xi Jinping.
He'd like to meet with Xi Jinping.
What are the odds that President Trump and
President Xi have a kindof Nixon Kissinger,
Mao Zhou Enlai moment andachieve some kind of breakthrough for
(45:54):
the US China relationship over the nextthree and a half years, one to ten?
I think the odds are pretty good.
I, you know, I look at, andI think that's good and bad, by the way.
I think the odds are pretty good.
I, I give President Trumpa whole lot of credit for usmca.
(46:18):
You know, the, the Canada, Mexico,US Deal that, that no other president
could have done and no other presidentcould have gotten through Congress.
And I hope they don't mess it up nowbecause it was a really good deal and
there's some risk thatthey will mess it up.
In terms of the Kissinger,the Nixon goes to China moment,
(46:39):
I think that's something thatwould appeal to President Trump,
probably would appeal to Xi Jinping.
I just would hope it's not inthe context of us selling out, yeah.
>> Elizabeth Economy (46:56):
Okay.
So, Susan, thank you so much foryour frankness, for your equanimity.
You know, I think kind of helping tosteer us, give us a clear path forward,
I think is really useful at these timeswhen, you know, we're constantly besieged
by what just seems to be, you know,it's one piece of news after another.
(47:21):
It's very difficult to makesense of it all, I think.
But you've really, I think, contributed,not just through this podcast,
but I think more broadly to helpingpeople understand, you know,
what's going on andwhere this might all go.
So thank you again for your time,>> Susan Schwab: Liz.
Thank you very much.
And keep doing what you're doing becauseit really is teaching all of us things we
(47:46):
need to know.
So if you enjoyed this podcast and
want to hear more reasoned discourse anddebate on China, I encourage you to
subscribe to China Considered viaThe Hoover Institution YouTube channel or
podcast platform of your choice.
Our next China podcast will featureHoover Senior Fellow Sumit Ganguly on
the recent military conflict betweenPakistan and India and how China and
(48:08):
the United States fit intothis dangerous dynamic.
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