James Chau:
Ambassador Craig Allen, thanks so much for your time today. In just 100 days, President Joe Biden's administration outperformed even their own bold ambitions. But not everything has changed for the better, especially on foreign policy, including U.S. relations with China. Do you think that's going to stay the same?
Craig Allen:
I think that we need to separate the rhetoric from the actions that we have seen thus far. If you look at actual policies, there's been practically no change whatsoever. The Biden administration is telling us every time we ask them that the policy is under review. But none of the sanctions that had been put in place by the Trump administration have been removed, except in a couple of small cases where courts have intervened. But that's different from the making of policy.
At the same time, from a rhetorical basis, there has been a very, very significant shift. That shift was presaged, if you will, or practiced, in the Anchorage meeting between Yang Jiechi, Jake Sullivan, Tony Blinken and Wang Yi about a month ago. There was quite a harsh rhetorical uptick at that time. And indeed the rhetoric of the relationship has deteriorated on both sides. President Xi Jinping's comments at the Bo'ao Forum were yet another rhetorical shift, indicating a degree of tension that had not existed before. I think that we'll probably continue to see increased use of difficult language going forward.
James Chau:
A lot of people say that the rhetoric and language plays to the domestic audience politically. But does it actually cause long-term damage? And is that borne by businesses, such as those you represent?
Craig Allen:
Let's unpack that for a second. I think the shift in the administration of the United States has led to some frustration in Beijing. The Biden administration has done two things that underlie the shift and rhetoric. The first is a real emphasis on human rights and democratic values. That is coming from a heartfelt place, and we should expect it to continue. The Chinese, however, look at that as an ideological affront. They understand that this should be expected to continue, and they are hitting back.
The other major shift from the Trump administration to Biden has been a much greater reliance and demand for cohesion with America's allies. That is not rhetorical; that is real. The meeting of the Quad: Prime Minister Modi of India, Prime Minister Suga of Japan and Prime Minister Morrison of Australia with Joe Biden, shortly before the Anchorage meeting, was an indication of the importance of alliances and relationships within this, as the United States looks at China. Again, the Chinese side does not appreciate that shift in policy.
On the Chinese side also, we see some significant shifts, as Xi Jinping prepares for the 100th anniversary of the Communist Party on July 1 of this year and as he begins to prepare for the Olympics some six months later — but most important, as he prepares for the 20th Party Congress, which is expected to be held in October and November 2022. The rhetorical shifts here are embedded in domestic policy dynamics that are going to be difficult to change. Being a good corporate citizen — in both countries — is becoming more and more difficult, as the gap between the two seems to grow ever wider.
James Chau:
We hear about the United States and China in terms of gaps and differences. Those are words that have become commonplace now, but you spoke, for example, about the United States meeting with its allies, the Quad, in the run-up to Anchorage. The Chinese did exactly the same thing right after they left Alaska. So, if not equally, do you think they both bear a great burden of responsibility in terms of the actions, but also the consequences that come out of that?
Craig Allen:
Right. There is a clear mirroring between Beijing and Washington on so many of these issues. And we saw that in Anchorage very clearly. The U.S. side spoke first at the meeting and raised human rights, while the Chinese side mirrored that exactly and raised human rights concerns in the United States as well. To the extent that the U.S. is going to be talking and working more closely with allies, China is going to be doing that as well. So this mirroring and this conflict, which really permeates many aspects of the bilateral relationship, continues to grow and change form, creating uncertainties in all elements of the relationship.
James Chau:
No matter how much they mirror, that damage doesn't cancel itself out. I think it's very fair to say that the state of the relationship has now declined to a level where decoupling and a new Cold War have become commonplace discussion points. If either were to occur, what would be the impact?
Craig Allen:
The word decoupling is not used by the Biden administration. I think that that is a very positive signal. Indeed, just yesterday, Secretary of State Tony Blinken rejected the term cold war. I think that's wise, because we need to be careful about picking our historical analogies to describe the U.S.-China relationship. The analogy that you pick will lead to certain policy prescriptions that may or may not be appropriate. The trade numbers, and to a certain extent the investment numbers, suggest that decoupling is a myth. U.S. exports to China in 2020 rose 18 percent. At least across most industries, decoupling is really not a relevant concept. In consumer goods, for example, in agriculture, in raw materials, in energy, in finance, we see a tremendous amount of growth in trade between the two countries. The question where decoupling becomes very real is across the technology industries. That's been true for a long time. But it's more true today. In both countries, we see a mirroring of technology restrictions and a chorus of voices calling for self-reliance, secure supply chains and clean networks.
I expect that the results will be very complicated, depending on the industry. All American technology companies want to be in China, and all Chinese technology companies want to be in America. I think at the end of the day what we're going to see is American, and European, and Japanese tech companies in China, mostly for the China and the Asia market. But there are indeed structures, systems, institutions and projects that might be bifurcated and duplicated in some cases, with redundancies built in, that are required by law in one or the other country. Let me just add a coda on that. In China, the drive for civil-military fusion is real. The president of the country is heading a commission on civil-military fusion. That gives technology companies around the world second thoughts about to what degree R&D should be done in China.
James Chau:
We're living through an ongoing pandemic, which has brought the world to its knees, from the most vulnerable communities to the most advanced economies. The United States and China have an opportunity to shape opportunities for the world's poorest people. What must be done?
Craig Allen:
The most important area for the U.S. and China to collaborate is climate change, because this is going to be where the world's poor are going to be most immediately impacted. And I think that due to Secretary Kerry's efforts we see a promising start there. But the devil is in the details.
The most important contribution that China could make to the global economy is to increase domestic consumption rapidly by a couple of percentage points a year, every year for the next 10 years, to draw in global imports, and simultaneously to move out of China a lot of the labor intensive manufacturing that is just getting really old and unprofitable. From the world's poorest perspective, raising China's household spending as a percentage of GDP by 20 points would do more for global welfare than any other thing I can imagine. It's a difficult thing to do: You would need a restructuring of State-owned enterprises, with more money going to the national treasury. You would need reform of the hukou system. You'd need much better enforcement of labor laws. You'd need massive investment of labor-intensive industries to Africa, to India, Pakistan, Bangladesh. It's a long-term process. But that process should be engaged in — and in a robust manner. The benefits to the Chinese people would be immense. And the spillover effects to the global economy would be extremely positive.
James Chau:
You represent the voices of more than 200 American companies doing business in China. What are they telling you?
Craig Allen:
We need to look at this on an industry-by-industry basis. Most of our consumer goods companies are very happy with the growth of the Chinese middle class and robust consumer spending in China. Most of our agricultural companies are very happy also, with very significant increases in U.S. commodity — agricultural commodity — exports to China. Our energy companies are very happy in terms of China continuing to import a lot of oil and natural gas and some coal, especially metallurgical coal. I would say on the services side, people are pretty happy. The financial services industry is undergoing significant opening and reform in China. Foreign companies are getting licenses and are allowed to own 100 percent of their operations in China, in contrast to a year or two ago.
The area of uncertainty and tension is in the tech area. There again, we need to kind of break it down. Pharma and medical devices are different from semiconductors, which is different from aerospace, which is different from IT. In all of those areas, there's both growth and pressures within both countries, as both try and sort out the geopolitical relationship and investment decisions are being affected as a result of the government demands coming from both capitals. That is an ongoing process. I think all of our companies want to be in China. Similarly, Chinese companies want to be in the United States.
One area to really watch is data. What are the rules for bringing data back and forth? China is developing its cybersecurity and personal information or personal data laws, and the U.S.s is having a lot of debate on the same subject. And the Europeans have yet another standard. This is going to be an area where companies are going to have to spend an enormous amount of time in being fully compliant with the law.
James Chau:
I will finish by asking you what words you would share with the leaders of the U.S. and China. But before that, there's been some keen anticipation in the direction of the new United States Trade Representative Katherine Tai. How important will she be in terms of executing orders on behalf of the president?
Craig Allen:
I'm proud that I've been a colleague with Ambassador Tai for many years. I have enormous respect for her in every way. She comes from the background of a litigator and having worked with the WTO in that context. She also brings her immensely valuable background with our Congress, because trade policy at the end of the day under the U.S. Constitution is made by Congress, not by the executive branch. So she has her thumb on the pulse of the Senate and the House of Representatives where, ultimately, decisions will be made. Trade policy is a subset of both domestic policy and foreign policy, and the emphasis of the Biden administration right now is really on getting domestic policy right. On the foreign policy side, the role of alliances and working with our partners around the world has really been given a new importance that we had not seen in the previous administration. I think that China will remain a focal point, as well.
If I had the ear of both presidents, I would say that effort is needed to engage on the cooperation and on the competitive side of the relationship. More effort is needed also to manage the antagonistic side. There should be full discussions going on at all levels, between our two countries, from military to military, economics, trade, people to people, visas, climate change, public health. I fear that that the current lack of dialogue is just feeding suspicions and ceding the ground to those who might wish to exaggerate the threat that they see on the other side. It's easy to judge somebody when you don't understand them. It really requires effort to understand the other side's perspective, to be able to manage their expectations and to manage the inevitable conflict that we know is coming in the U.S.-China relationship.
James Chau:
Ambassador Craig Allen, thank you very much for your time.
Craig Allen:
Thank you for this opportunity.
(The foregoing transcript was lightly edited for clarity.)