US President Barack Obama (L) walks with China's President Xi Jinping at the Zongnanhai leaders compound on November 11, 2014. The summit of Asia-Pacific leaders supported a China-backed "roadmap" towards a vast free trade area.

US President Barack Obama (L) walks with China's President Xi Jinping at the Zongnanhai leaders compound on November 11, 2014. The summit of Asia-Pacific leaders supported a China-backed "roadmap" towards a vast free trade area.

In a two-day summit this week, President Barack Obama and China’s President Xi Jinping came to historic agreement on a number of pressing issues. On climate change, China agreed for the first time to stop carbon emissions from growing by 2030. And the U.S. promised to double its current pace of carbon reduction, bringing the nation in line with U.N. standards. On trade, the two countries also found common ground, with China agreeing to lift tariffs on hundreds of tech products like medical devices and phones. But Republican leaders in Congress say the climate deal is too soft on China. And others say the trade agreement is bad for American workers. Guest host Susan Page and a panel of experts discuss new developments in the U.S.–China relationship.

Guests

  • Minxin Pei Professor of government, Claremont McKenna College
  • Gary Hufbauer Senior fellow, Peterson Institute for International Economics; former deputy assistant secretary for international trade and investment policy of the U.S. Treasury; author of "Bridging the Pacific: Toward Free Trade and Investment between China and the United States" (2014)
  • Robert Scott Director of trade and manufacturing policy research, Economic Policy Institute

Transcript

  • 10:06:54

    MS. SUSAN PAGEThanks for joining us. I'm Susan Page of USA Today sitting in for Diane Rehm. She's in Indianapolis on a visit to WFYI and will be back on Monday. At a summit in Beijing this week, the U.S. and China reached historic agreement on a range of major issues, including carbon emissions, trade and military operations, but sensitive topics like human rights were left off the table.

  • 10:07:18

    MS. SUSAN PAGEJoining me in the studio to talk about what a new atmosphere of cooperation between the two super powers could mean, Gary Hufbauer of The Peterson Institute for International Economics and Robert Scott of the Economic Policy Institute. Thanks so much for being with us.

  • 10:07:32

    MR. ROBERT SCOTTThank you.

  • 10:07:33

    MR. GARY HUFBAUERThanks.

  • 10:07:34

    PAGEAnd joining us by phone from Claremont McKenna College in California, Professor Minxin Pei. Thanks for being with us.

  • 10:07:43

    PROF. MINXIN PEIIt's my pleasure.

  • 10:07:44

    PAGEWe welcome our listeners to join our conversation as well. You can call us on our toll-free number, 1-800-433-8850. Send us an email to drshow@wamu.org or find us on Facebook or Twitter. Well, Professor Pei, let me start with you. The meeting that we saw this week between President Obama and the Chinese president Tuesday and Wednesday, in some ways it was a surprise. It seemed to be a last minute summit. Was it a surprise?

  • 10:08:13

    PEIIt was a surprise because for a while, it was not clear whether President Obama would designate his visit to Beijing a state visit. Had that been designated a state visit, this would technically not be a summit so I guess they must have reached a set of understandings prior to Obama's departure from Washington to know that this is going to be a fruitful summit.

  • 10:08:39

    PEIAnd also prior to the summit, the dynamics in U.S./China relationship have not been good for about two years so this very surprising.

  • 10:08:52

    PAGEWell, we saw, for instance, that President Xi took Obama inside the Chinese Leadership Compound. Was that significant?

  • 10:09:00

    PEIThat's very significant because the last time an American president was allowed inside that compound was 1972 when Nixon visited Mao and he was not shown around the property. And this time, it was publicized widely in China and it demonstrates that President Xi Jinping would like to show to President Obama that he's different from his predecessors.

  • 10:09:27

    PAGESo Gary Hufbauer, let's talk first about the agreement on tariffs on tech products. Now, maybe more attention in the American press to the climate agreement, but this tariffs agreement, also significant.

  • 10:09:43

    HUFBAUERIt's very significant. When President Xi came into power in China two years ago, he rhetorically was very much in favor of liberalization, opening reform, all good things that we want to hear about. However, he hasn't delivered or had not delivered from a U.S. standpoint and from the standpoint of Europe and Japan until, you know, until just now.

  • 10:10:12

    HUFBAUERAnd this information technology agreement, which covers a lot of products, about an additional $1 trillion of products worldwide trade, is a major step because China did all the heavy lifting. That is, it was blocking the agreement, which had been under negotiation for several years. It receded and accepted a very long list of products and many of those are major U.S. exports.

  • 10:10:42

    HUFBAUERSo we're delighted and we hope -- I think the U.S. government hopes and I hope that this is just the first step in a number of agreements with China on other trade issues.

  • 10:10:54

    PAGEAnd so what kind of products are we talking about?

  • 10:10:57

    HUFBAUERWell, they're kind of products -- information technology sounds like -- pretty broad and vague and it is. But it's semi conductors. It's video games. It's magnetic resonance indicators, CAT scans. It's all kinds of electronic equipment that you can think of, including things that you can't think of. The Apple phone, the Galaxy phone and so forth. So it's a very wide range of products which are principally driven by electronics.

  • 10:11:35

    HUFBAUERSo it would not include, for example, automobiles, but it would include the GPS systems in automobiles.

  • 10:11:43

    PAGESo Rob Scott, is this a good deal for American workers?

  • 10:11:46

    SCOTTWell, I think it's not clear yet, but I think we have real reason to question whether or not this agreement's going to be good for American workers or not. Currently, in this industry, particularly in computers, and parts, which is where most of these products are made, the United States has a $160 billion trade deficit this year with China in these products.

  • 10:12:08

    SCOTTWe import 15 times as much from China in this industry as we export to them so this is really a losing industry for the United States in trade with China. We have a surplus in high tech trade with the rest of the world, but not with China and that's the problem. China may adopt zero tariffs. It doesn't they're actually going to trade with us. It's been a problem for decades now with China. Also, we've lost over a million jobs in this industry due to growing trade deficits with China in the last decade.

  • 10:12:39

    PAGEBut, in general, isn't free trade, isn't open trade a good thing for the American economy?

  • 10:12:43

    SCOTTWell, I think that's the prevailing view, that any kind of cuts in tariffs are great for the economy. Most economists will tell you that. I tend to look at agreements and ask the question, what actually happens, how is it actually affected the American economy. And in this case, because of the massive subsidies in China and other forms of unfair trade, currency manipulation, China has an unfair advantage and they exploit it as much as they can.

  • 10:13:09

    SCOTTAnd opening a door to more unfairly traded products is not going to be helpful to the American economy.

  • 10:13:13

    PAGEProfessor Pei, what do you think? Is this a good deal for American workers or should they be concerned?

  • 10:13:18

    PEIWell, the trading electronics is a very complex one because you cannot look at the head line figure, $150 billion, because you have to look at the content of where the original parts are made. And that would get us to a set of numbers that would be very different. But, by and large, I would say that free trade is good. This deal will be good for consumers. It may not be very good for American workers.

  • 10:13:47

    PAGEGood for consumers, not for workers. Yeah, so it's kind of a mixed bag. What do you think?

  • 10:13:51

    HUFBAUERWell, Robert Scott and I have been debating these issues for many years and I actually look at the numbers as well and this will be very beneficial for the U.S. The United States produces the high end products in the information technology space. I mentioned MRIs and CAT scans, which were in this and we extremely complex semi conductors now that can do everything but make your bed and fix your breakfast.

  • 10:14:25

    HUFBAUERWe do that. China makes the lower end of these items and so this agreement is going to open up for the United States more high end shipments into China, the more sophisticated products. Yes, we purchase a lot of the low end products from them. That's international trade. That's the benefit for both of us.

  • 10:14:45

    PAGEHow do we know that China will live up to this agreement, Professor Pei? Are we confident about that?

  • 10:14:51

    PEIWell, trade agreement, I'm more confident that the U.S. has more leverage over China because this agreement, as far as I can tell, will have to be ratified by WTO and the U.S. can go to WTO to impose sanctions if China does not live up to its part of the commitment.

  • 10:15:13

    PAGESo let's also talk about the agreement on climate, which is being hailed as transformative. Do you see it that way, Gary Hufbauer?

  • 10:15:22

    HUFBAUERAbsolutely, absolutely. Until this agreement, China was saying, you know, they need not restrain their emissions of carbon until they reach the U.S. level. Now, remember China has about 1.2 billion people. We have about 350 million. They produce a little more emissions than we do, but, you know, they've got a lot more people. So on a per capita basis, it's about one-third of what we produce.

  • 10:15:53

    HUFBAUERAnd the Chinese rhetoric, until now, was, you know, we'll just keep on producing. Well, this represents a big change in that and they have said they will cap, at the production level, in 2030. I think they will have to cap sooner than that, but that's a really big change from the position before. At the same time, the United States has said, finally -- or President Obama has said. Republicans have disagreed. That the United States will cap its -- will reduce its emissions from the 2005 level by about 27 percent in the year 2025.

  • 10:16:31

    HUFBAUERAnd, you know, that's pretty big stuff for us because we have not made, this country, has not made that commitment before. So it's not enough on either side. We need to do more, but it's a step forward.

  • 10:16:43

    PAGEBut Rob Scott, we've some Republicans, including the incoming Senate Majority Leader Mitch McConnell, say this deal is bad for American workers. It's gonna increase energy costs for Americans. He says it will kill jobs in his home state of Kentucky and other places that have a coal industry. Is he right?

  • 10:17:02

    SCOTTOh, I think with -- there will certainly be some losers. There's no question there's gonna be some coal jobs that are gonna be lost. But we have looked at efforts to reduce carbon emissions, raise standards for power plants and so on and we find that the investments that are made in pollution control equipment and new technologies for generating energy generate more jobs than are lost as a result of the reduction of coal.

  • 10:17:28

    SCOTTYou know, it's certainly a problem of adjustment and it needs to be addressed, but it's -- this agreement appears to be win-win for not just the U.S. but also the world economy if China follows through on its commitments and I think that is the big question, whether China's actually gonna do what they've said they're gonna do.

  • 10:17:46

    PAGEProfessor Pei, you said you were pretty confident that China would live up to the trade agreement. Are you equally confident that China will live up to this climate agreement?

  • 10:17:54

    PEIWell, this is much more difficult because it involves not just China itself. China will try to do what it can, but it also looks at how the U.S. does on this front. If, for example, Obama faces a lot of domestic opposition and essentially the Republicans tell him to get lost on climate change, then the Chinese will say, hey, I've done my part. You've failed to live up to your part of the bargain and I'm not going to do as much as I promised.

  • 10:18:26

    PAGEWe're going to take a short break and when we come back, we'll talk about the reasons behind each leaders calculation to make these deals and the reception they're going to get in their home town politics. And we'll take your calls and questions. Our phone lines are open. You can call us at 1-800-433-8850. Stay with us.

  • 10:20:00

    PAGEWelcome back. I'm Susan of USA Today sitting in for Diane Rehm. And with me in the studio, Robert Scott. He's director of trade and manufacturing policy research at the Economic Policy Institute. And Gary Hufbauer, he's a senior fellow at the Peterson Institute for International Economics. He was deputy assistant secretary for international trade and investment policy at the Treasury Department during the Carter Administration. He has a book "Bridging the Pacific."

  • 10:20:26

    PAGEAnd joining us by phone from Claremont, Calif., Minxin Pei. He's a professor of government and director of the Keck Center for International and Strategic Studies at Claremont McKenna College. He's the author of "China's Trapped Transition: The Limits of Developmental Autocracy."

  • 10:20:44

    PAGELet's talk first about why these two leaders were able to reach a deal, talking first from the point of view of the Chinese leader, Professor Pei. Why was he willing to do this when this has been so difficult in the past?

  • 10:20:55

    PEIWell, there are two reasons. One is personal, the other is strategic. Personal reason is Mr. Xi Jinping would like to have a good relationship with Mr. -- with President Obama before President Obama leaves office. And he would like to come to the U.S. as the new leader of China. And if he can deliver a fruitful summit that possibility has greatly increased.

  • 10:21:21

    PEIThe other reason is that on the strategic front, Mr. Xi Jinping wants to show that he can both compete and cooperate with the U.S. And this time we see that China, at least in rhetoric and on paper, delivers something that can be seen as cooperative with the U.S.

  • 10:21:40

    PAGEWhat is -- Professor Pei, how do you think the Chinese government leaders view President Obama himself? Not just the American president but his own presidency? And would they have watched closely something like last week's mid-term elections in the kind of way that Democrats took it on the chin?

  • 10:21:57

    PEIWell, there were different views in China but I think the majority view is that President Obama may be weakened but he still stands for the U.S. And they understand the U.S. political system enough to know that the agreement that they can strike with President Obama may actually be honored by his successors.

  • 10:22:20

    PAGEYeah, and of course he doesn't need to go to congress for approval of these agreements, correct?

  • 10:22:25

    PEIWell, I think he -- the climate change agreement does need to get flushed out. Let's be clear, this is a very preliminary agreement. In legal terms, it's like a memorandum of understanding. And it needs to have a lot of substance, a lot of specifics put into this. And that process, at least in the U.S., will require congressional input.

  • 10:22:52

    PAGEGary Hufbauer, why do you think President Obama wanted to reach this agreement? And it involved, of course, putting aside some issues like human rights that American presidents traditionally have talked about when they've been in Beijing.

  • 10:23:05

    HUFBAUERPresident Obama had this famous phrase, pivot Asia. And this is a very important part of a pivot. He didn't mean -- President Obama did not mean that we're going to go into a big -- a containment policy of China, that we're going to initiate a new Cold War or anything like that. He was basically saying that the U.S. has a lot of Asian interests, economic and geopolitical as well. And obviously those include China.

  • 10:23:38

    HUFBAUERI think President Obama understands -- he's a very smart guy -- that we will have geopolitical competition with China for years to come, well after his presidency. However, there are a lot of areas of economic cooperation between our two countries, existing present cooperation and future cooperation. So he wanted to deliver on that side of the agenda. And he found a very willing partner with President Xi Jingping who also, for reasons that Minxin has talked about, wants to reform the economy and wants a strategic relationship with the United States. So it was kind of a natural relationship. Maybe not quite as natural as Nixon going to China but it had some of those dimensions in it.

  • 10:24:30

    PAGEMaybe Nixon going to China only seems natural after the fact. It didn't seem so natural before it happened.

  • 10:24:35

    HUFBAUERI was in the Nixon Administration before the Carter Administration and it wasn't such a surprise.

  • 10:24:42

    PAGEAll right. Rob Scott, is this good politics for President Obama, do you think?

  • 10:24:47

    SCOTTWell, I think there's widespread support, in particular for advances on reducing the threats of climate change, reducing carbon emissions. And, you know, that's an issue that the Administration's been working on for more than a year. I know it was initiated by Secretary Kerry when he was still Secretary of Foreign Affairs. So, you know, this has been going on for some time. And, you know, so they harvested a disagreement. And, I mean, this was a summit. You know, they're looking for deals they can announce to show that they've made progress.

  • 10:25:21

    SCOTTUnfortunately, I think they went too far in the giving in on this information technology agreement. There's lots of people in Washington who think, as I said earlier, any kind of cut in tariffs is a good thing, but if you look at it closely I think China comes out way, way ahead on that deal.

  • 10:25:35

    PAGEYou know, we've got some callers who want to talk about this issue. Let's let them join our conversation. We'll go first to Martin who's calling us from Fort Worth. Martin, hi, you're on the air.

  • 10:25:45

    MARTINYeah, good morning.

  • 10:25:45

    PAGEGood morning.

  • 10:25:47

    MARTINYeah, I'm right along with the comment the gentleman just made about the semiconductors of the Chinese. Of course they're going to give President Obama a tour of the -- whatever grand leadership temple or whatever they call it. He just handed them the keys to the kingdom. All of our top semiconductors are going to be headed over there and come back to us and whatever kind of electronics they can build and sell to us. They're going to use them in their military. To me it looks like President Obama, who -- I'm a Democrat by the way and voted for him twice -- but it looks like he just made a deal. That's all he's done. And I don't think it's really in the best interest of the United States. It looks like we've lost strategically in this deal.

  • 10:26:35

    PAGEAll right. Martin, thanks very much for your call. What does the panel think? Is there a risk here of sophisticated technology being used in ways against our own interests? Professor Pei, what do you think?

  • 10:26:46

    PEIWell, there's always a risk when you have technology transfers sell, even civilian-used technology to a country that potentially can be your enemy. But when you look at the history of technology transfers, the U.S. by and large has done a very good job in controlling flow of very sensitive military application technology to China. What the U.S. is less capable of controlling is Europeans and other more advanced countries, what they do with their trade to China. So I think I'm much less worried of the military front in this deal.

  • 10:27:27

    PAGERob Scott.

  • 10:27:28

    SCOTTWell, I think the real concern long term is with loss to the keys to the kingdom with technology transfer And what these kinds of deals do, such as the information technology agreement, they tend to make it even more profitable for U.S. firms to export production, to outsource production. We're going to be moving more factories to China, produce things that can now be imported here duty-free.

  • 10:27:52

    SCOTTUnfortunately, the risk of that is that the Chinese are going to be engaging in forced technology transfer. They're going to require U.S. firms to acquire Chinese partners to share technology with them. This has been the pattern for the past 15 years, and it could very quickly lead to a loss, not just of the low-tech labor-intensive stuff but the very high-tech products that we can still produce in this country. So I'm very concerned this is going to be a threat to the industry in the long term.

  • 10:28:17

    PAGEHow about you, Gary Hufbauer, do you think this is a concern?

  • 10:28:20

    HUFBAUERWell, it won't surprise you that I disagree quite sharply with what Rob has just said and also with the implications of what Martin said in the call. The United States is not going to stay at the frontier by trying to limit imports from China of semiconductors or any other electronic product. We're going to stay at the frontier by being as inventive as possible as we have been.

  • 10:28:52

    HUFBAUERI mean, look at how successful Apple is. Look at how successful Oracle, Microsoft. You go right down the list of this whole information technology. And if you look at the companies, it is completely dominated by the United States. Now Rob is quite afraid that these companies are just going to locate everything in China. Not so. They're quite concerned about theft of technology in China. Also they have an extremely good workforce here in the United States.

  • 10:29:20

    HUFBAUERAnd the opportunities for additional sales in China are terrific because China is the country with the tariffs. We don't have tariff on most of this stuff. Our markets are already open. The change is that China is going to reduce its tariffs on this range of high-tech products that I mentioned. And that's a big advantage for the U.S.

  • 10:29:45

    PAGEAll right. Let's talk to Andrew who's calling us from Williamsburg, Va. Andrew, thanks for holding on.

  • 10:29:52

    ANDREWExcuse me -- thank you for taking my call. I'd like to ask Professor Pei, he mentioned that the deal was good for American consumers, perhaps not so for American workers. How do you distinguish between the two since the workers are the consumers?

  • 10:30:08

    PEIWell, even I think for workers you have the distinction between lower and high end. I think the deal is good for high-end -- for the workforce at high end, not necessarily at the low end. And consumers, that is people who are employed in this industry, and Gary can tell us more about this, are relatively few because this is a very tech intensive technology, intensive industry, not necessarily labor intensive industry. While the people who consume electronic products, IT products are vast in the U.S.

  • 10:30:46

    PEISo if you look at the two set of groups, the people who are likely to be affected and people who are likely to benefit, one group outnumbers the other by a huge margin.

  • 10:30:57

    PAGENow Stephan has called with a question. He asks, "How many high-end jobs are in the United States versus low-end technical jobs?" Who could answer that? Rob?

  • 10:31:06

    SCOTTWell, I think a good case study would be Apple, which Gary mentioned earlier. They employ a few tens of thousands of people in California designing and marketing their iPhones. Many more are involved in selling them around the U.S. That would be the case whether we made them here or abroad. But the core high-tech employees are the ones, you know, located in Silicon Valley.

  • 10:31:27

    SCOTTOn the other hand, the Apple iPhones are being made by Foxconn which is the largest private employer in China. They employ over a million workers making these products. So if you look at the jobs they're most of them there. Now, go to the wage question, the problem we have is that short, we're getting these cheap electronics but we have to buy them.

  • 10:31:44

    SCOTTAnd trade with China has put tremendous downward pressure on wages of most working Americans, most people without a college degree. That's about 100 million people. My colleague Josh Bivens (sp?) has estimated that growing trade with China and other low-wage countries has cost those workers about $1500 a year. So those TV sets don't go very far in compensating people for their lost wages. And that's the core problem.

  • 10:32:09

    PAGEI'm Susan Page and you're listening to "The Diane Rehm Show." We're taking your calls 1-800-433-8850 or you can always send us an email to drshow@wamu.org. Well, let's talk about the military agreement that was reached between the two leaders at the summit. Professor Pei, what did they agree to do on this subject?

  • 10:32:30

    PEII think they agreed so far to notify each other if there are major military deployments or shifts. They have not been able to reach agreements on other more sensitive issues such as code of conduct in the air, practice of interception. These are very difficult issues so they decided not to -- well, they could not agree on these issues. And so, again, the China-U.S. military relationship is the most contentious, difficult and potentially the most dangerous. So any movement on the front is good news.

  • 10:33:10

    PAGEIs this a significant agreement on the military front, Gary Hufbauer?

  • 10:33:13

    HUFBAUERIt is quite significant for the reasons that Minxin said. And I think it will lead to understanding on these air incidents where Chinese fighters, for example, rolled over U.S. fighters, which is a very dangerous maneuver and could've led to an accident and then terrible relations. We do have obviously geopolitical rivalry. And that means military, that means nuclear submarines, that means carriers, that means aircraft between our two countries. And that, as I said at the beginning, is part of our future and part of China's future.

  • 10:33:50

    HUFBAUERHowever, this kind of measure will reduce the level of tension and avoid, we would hope, these kind of unfortunate accidents in the future. So it's a really good step.

  • 10:34:01

    PAGELet's talk to Bob. He's calling us from Ann Arbor, Mich. Hi, Bob, you're on the air.

  • 10:34:06

    BOBHello. I have a question about the relaxing of the visa requirements. Just as a little background, about 15 years ago I was in China and I was trying to get a friend a -- help her get a visa to the United States. And I went to the American Embassy and it was one of the more humiliating experiences that I have ever been in, the way they treated her. And I understand there's been some sort of change. And I wondered what the panelists would think what changes will come, and will this practice of the visa requirement continue, the same experience that I went through?

  • 10:34:56

    PAGEAnd Bob, did your friend, in the end, get a visa?

  • 10:34:59

    BOBNo.

  • 10:35:00

    PAGEAll right. Well, Professor Pei, this is -- China's kind of notorious for being difficult to get visas in. I think you had to get a visa for each visit. Is that changing?

  • 10:35:08

    PEIOh, it's changing dramatically. This is just for people who do business in China, travel to China, study in China and also for Chinese who do the same things in the U.S. This is going to be really a huge gift because right now it's complicated. The time you can stay in each country is limited. Effective immediately, people who go to China, business people can have a pay year model entry visa. And people who want to study in China will have a five-year model entry visa. And it's reciprocal.

  • 10:35:47

    PEISo in the past, I have to go to China, each time I have to get a one-year visa -- at most a two-year model entry visa. Now one stamp and it's good for 10 years. And you save people a lot of money because each application costs you $160.

  • 10:36:06

    PAGEAnd, you know, we don't want to overstate what has happened with the summit this week in China, but we're talking about these agreements in various areas, on trade, on climate, on visas. Is this a transformed relationship do you think, Professor, or does that go too far?

  • 10:36:20

    PEINo, it's not -- this summit did not transform the relationship. U.S.-China will for years to come, as Gary said, remain geopolitical rivals. And let's be clear, what is happening in China on the political front, on the human rights front is very disturbing to any Americans.

  • 10:36:38

    PEIBut this is summit that shows U.S. and China, despite their differences, can actually work together on common grounds on issues that they all have interests in in terms of solving problems.

  • 10:36:52

    PAGERob Scott, is there a disappointment that human rights did not take center stage at this meeting?

  • 10:36:58

    SCOTTWell, I think the United States has historically been missing lots of opportunities in dealing with major issues like human rights in China. There's no question that should have been on the table in these discussions. I mean, essentially we're giving China what it wants in access to our industries but we're not talking about the issues that are a concern to the United States.

  • 10:37:15

    PAGEWe're going to take a short break. When we come back, we'll continue our conversation. We'll take more of your calls. Stay with us.

  • 10:39:53

    PAGEWelcome back. I'm Susan Page of USA Today, sitting in for Diane Rehm. And joining us by phone from Claremont, Calif., Minxin Pei, professor of government and director of the Keck Center for International and Strategic Studies at Claremont McKenna College. With me in the studio, Gary Hufbauer, a senior fellow at the Peterson Institute for International Economics and Rob Scott, director of trade and manufacturing policy research at the Economic Policy Institute. And we've been taking your calls. Let's go to Margaret, calling us from St. Louis. Hi, Margaret.

  • 10:40:26

    MARGARETHi. Thanks for taking my call. I wanted to speak to you as a professor of information systems. I am concerned that when we outsource manufacturing of our electronic devices to China, anything that's programmable -- and most electronic devices these days are -- can be programmed with malicious software. And the Chinese have proven their expertise in cyber espionage. Could you comment on that, please?

  • 10:40:59

    PAGEAll right. Margaret, thanks very much for your call. Gary Hufbauer, what do you think?

  • 10:41:05

    HUFBAUERIn a word, she's right. And we're very good. That is we, the United States is -- are experts at doing just what she said. And the Chinese are catching up. So there is programmable espionage on both sides. And that's part of the geopolitical competition. It's troubling. It happens with Russia. It happens with other countries, as well. And that's the life we live in. I don't think the answer to that is to try to, you know, not import things from China, not have U.S. firms go to China.

  • 10:41:41

    HUFBAUERThat's just ridiculous because they'll be European, they'll be Japanese firms. This -- there have to be more sophisticated answers to the espionage problem, which she has correctly identified.

  • 10:41:53

    PAGEThis isn't something that was part of the agreement that they put forward. Do you think they talked about it?

  • 10:41:58

    HUFBAUERYes, they did. President Obama and President Xi did talk about it, but here's the big difference. We all spy. Let's be honest. We all spy. The U.S. view is that spying on military capabilities is, you know, that's what we do. The Chinese view is that military capabilities includes companies like Boeing, Lockheed Martin, Apple, Microsoft.

  • 10:42:25

    HUFBAUERSo there's a very different view on what is the appropriate limits of spying. The United States does not spy to gather industrial espionage and then pass it on to U.S. companies. That's a big difference.

  • 10:42:38

    PAGESo Prof. Pei, just too big a divide to reach a deal on, do you think?

  • 10:42:42

    PEIOh, it's very, very contentious. The -- both sides have fundamental different views, as Gary said, on the issue of cyber security, cyber espionage. I want to respond to the callers question by saying that this issue actually is very sensitive inside China. The caller may not know that Chinese banks all run on IBM, Oracle and EMC, which is a storage device. So if -- and they all worry, they have the same worries that the American companies must have planted malicious software on these systems.

  • 10:43:17

    PEIAnd without American system, the Chinese banking system would not run. Many of China's critical system will not. So in other words, I think when we worry about the potential of Chinese espionage or other malicious acts through the technology transfer conduit. We have to think about the vulnerabilities the Chinese themselves have because of their dependence on American technology.

  • 10:43:41

    PAGEWell, do you think that's true? Do you think they're right? Is there a malicious spyware loaded onto their banking system?

  • 10:43:47

    PEINo. I don't think so. I think the Chinese -- but, again, as we know, paranoia knows no bounds.

  • 10:43:53

    PAGENo boundaries, either. Yes.

  • 10:43:57

    SCOTTI think it's important to keep in mind, one of the things that's driving this tension is the fact that there are very different economies at work here. The Chinese economy is still largely state driven. Many of the largest corporations in China, particularly in high-tech areas are controlled by the military. So there's a very different mindset there, where companies are operating in the interest of what they see as their national interest. Whereas, in this country, companies are pursuing simply the greatest possible profits. That leads to a very different perspective on this question of espionage.

  • 10:44:27

    PAGELet's go to Eugene, Ore., and talk to Bill. Bill, hi. Welcome to "The Diane Rehm Show."

  • 10:44:31

    BILLHi. Thank you having me. I'm so happy to finally make it on your line. I listen to you all the time. Anyway, I'd like to discuss things about China. I'm old enough to remember when China couldn't even feed themselves. And maybe it -- and the United States did the helping hand and gave them free trade. And our big companies like Wal-Mart and all these super big -- but mostly Wal-Mart, thought -- and our government probably thought so too.

  • 10:44:54

    BILLBecause they were probably paid off for all the money Wal-Mart makes, the stockholders hold -- run our government -- thought, well, you know, we'll help with China, make all these free -- cheap products over in China and help Americans out by having a lot more choice in products and they can buy a lot more because it's cheap. The only cost was, was we've lost 90 percent of our manufacturing. And we're basically a service industry country now. And just an international rating of the top 40 Western industrial countries, the United States rates as the second dumbest.

  • 10:45:30

    BILLWe do not -- we don't even know how our government runs anymore. And in my -- what I'm seeing happen is here we've given the farm away to China so we could get cheap products, basically no tariffs. They basically can -- we send all our jobs overseas, and of course super companies like Apple and all these other companies get all their products made there. And we employ maybe 10,000 to 20,000 high tech people to design the stuff, but they make it over there.

  • 10:46:01

    PAGEBill, you know, that's an interesting point. And we've got another comment from Martha who says -- writes, "This friendly relationship with China is short-sighted. They've not proven themselves trustworthy at any point." So what about Bill's point? Has this been a deal that has really cost Americans -- do develop these relationships with China? Or is it a good deal that we've made that benefits both sides? Prof. Pei, what do you think?

  • 10:46:22

    PEIWell, I think there are two questions here. One concern's a specific technology deal. And I agree with Gary that by and large the U.S. comes out a winner and China, of course, does not lose either. Then the other question is about overall trade relationship between the U.S. and China. And this is a much more complex question. Because here you have both winners and losers, either in China or in the U.S. And I have to agree that by and large the U.S. played a very important policy role in China's development.

  • 10:46:59

    PEIBut on the other hand, many of the job losses, painful industrial change in this country, cannot be blamed on trade alone. Technology is very, very important in driving how our economy works. And depending on who you ask, trade contributes job losses, but technology probably contributes a lot more to job losses or job redeployment of labor.

  • 10:47:30

    PAGERob, it looks like you disagree.

  • 10:47:32

    SCOTTI'm sorry, but I have to disagree with that. I've looked at this question. We've had rapid technical progress, especially in manufacturing for decades. And, you know, we had stable employment until around 2000. In fact that was around the time when China was given entry to the World Trade Organization. And we were told at the time by the government, oh, you know, China has these massive tariffs. We're going to see a huge access to the Chinese market. And it's going to generate millions of jobs.

  • 10:47:58

    SCOTTIn fact, just the reverse has happened. The first decade after that deal, I've shown that we've lost over 2.7 million jobs. And as the caller earlier said, about three-quarters of those were in manufacturing. So this is a lose, lose deal. These numbers are going be updated, by the way, in a new report coming out next month.

  • 10:48:14

    PAGESo you'd agree with Bill. Gary Hufbauer, you wanted to talk about the impact on wages for American workers.

  • 10:48:20

    HUFBAUERYes. Because we do have disagreements on this. The gold study on this issue was done by Autor and Hanson. And what it found, in looking at -- in very detailed ways, using census data and social security data and so forth -- in a very detailed way it found that China's imports to the United States did reduce the wages of effective workers by 3 percent over a period of about 10 years. So there was a loss, but it was not the massive loss which opponents of trade talk about.

  • 10:49:01

    HUFBAUERIt was 3 percent over 10 years. And incidentally, the same study, which again is a gold standard study, showed that there's no effect on average on imports from Mexico and Central America, which are also demonized for reducing wages. Now, let me turn to the jobs numbers question. The U.S. is running a trade deficit right now. Much smaller than we used to, but it's still a couple hundred billion dollars a year. A couple hundred billion dollars a year, when we have unemployment -- which we do have in this country -- less than we had, but we still have a fair amount of unemployment -- does translate into lost jobs.

  • 10:49:40

    HUFBAUERThere's no doubt about it. But that's a macroeconomic phenomenon, which involves U.S. trade, not just with China, but with the world. And there are a lot of policies that go into that, that need to be corrected. But I don't think one should demonize China for causing this trade deficit.

  • 10:50:00

    PAGELet's talk -- he's calling us from Indianapolis. Hi, Art.

  • 10:50:04

    ARTYes, hi. I was going to ask two questions in particular, one on this same manufacturing jobs thing, but the other one on environmental. It seems to me as though prior to China's entry into the WTO and the U.S.'s agreement to let them come in, they had committed to do all kinds of things in terms of their internal and external environmental pollution and river and oceanic contamination and poisoning of the ocean fisheries.

  • 10:50:31

    ARTAnd I also -- the European and American locomotion continent, producers of best of breed, environmental remediation technologies were supposed to be bought in considerable quantities, but did not ever occur. That's item number one. And so, in effect though, they have not opened their economy to U.S. and European products, when they were the clearly superior products that could help them solve their own internal problems, which were supposedly such a high priority to them.

  • 10:51:03

    PAGEArt, thanks so much for your call. You know, Prof. Pei, we're hearing a lot of, I think, suspicion on the part of our callers about whether you can trust China to do what they say on the economy, to not spy on American businesses and to live up to these climate agreements. Is that a legitimate concern on the part of Americans, given the history of previous agreements?

  • 10:51:23

    PEIWell, I can't understand where the distrust comes from. This distrust exists not only public level, but all the -- so at every level and on both sides. But on this specific issue, I don't believe -- and Gary can correct me if I'm wrong -- that in the (unintelligible) agreement between China and the U.S. there are specific provisions -- environmental technology -- of how much technology China will buy from the U.S. to improve its environment. But I would say that China's -- in the last 10 years, a green energy revolution. At least in terms of the production of solar panel and wind technology has occurred.

  • 10:52:12

    PEILargely in China because of its cheap labor cost and the cheap production costs. And that has actually helped provide a cheaper source of new technology for the rest of the world.

  • 10:52:27

    PAGEI'm Susan Page and you're listening to "The Diane Rehm Show." We're taking your calls. Let's go back to the phones to Birmingham, Ala., and talk to Doug. Doug, thank you for holding on.

  • 10:52:38

    DOUGThanks, I'm a third generation coalminer. My father, grandfather, we've collectively mined coal for 100 years in my family. And now you're panelists are pretty flippant about my job and my livelihood and the, you know, how I put food on my table. You know, there's going to be some winners and losers I think was said on this show. And I'm one of the losers. And what have you got to say to me?

  • 10:53:02

    DOUGWhat have you got to say when I don't have a job because Obama's making a ridiculous agreements with the Chinese, when they're still mining coal left and right, and mining resources all over this planet? And you're making agreements with them and now you're going to kill my job. I go into one of the most dangerous mines in the United States -- it's over 2,000 feet deep -- every day. I don't have tenure. I'm not a professor. And my job's not guaranteed. And another thing, my power bill's probably going to go up 50 percent. What have you got to say to me?

  • 10:53:32

    PAGEDoug, thank you very much for your call. It's great to hear your perspective. Rob Scott, what do you think?

  • 10:53:38

    SCOTTWell, I think one of the greatest failures of the Obama administration is the failure to create enough jobs to eliminate unemployment. If we're going to help the coalminers we're going to have to put more people to work. And the simplest way to do that is to eliminate unfair trade practices, such as currency manipulation. This is the way China makes its good artificially cheap. They keep their currency artificially low and effectively subsidizes everything they export. If we could end that problem we could create anywhere between two and five million jobs in the United States. That would put a lot of coalminers back to work.

  • 10:54:09

    PAGEGary Hufbauer?

  • 10:54:09

    HUFBAUERYeah, I'd like to comment first on the environmental question which came earlier. It's an important one. Minxin is completely right. This is not something which is covered by international agreements. It's up to the Chinese to clean up their own environment and they have a big task ahead. But I do want to correct the view that China always cheats. I mean that's a common view in the U.S. We've taken polls on that. We know that.

  • 10:54:36

    HUFBAUERIt's not true. China has lost a number of cases in the World Trade Organization and by and large it has a record as good as or better than the U.S. in changing its practices when it loses a trade case. Let me turn now to the coalminer. And he has a very legitimate concern. And I have a very specific response.

  • 10:54:59

    HUFBAUERAfter the Second World War the deal was made between the coalminers and the U.S. -- and the companies in the U.S. that the coalminers, which were going to face a big reduction in labor force on account of mechanization, would be paid off. And I think we need that now. We need a compensation for the coalminers who are going to lose.

  • 10:55:19

    PAGEProf. Pei, just a last question. One of the things I thought was most interesting about the summit was the news conference that was held with the two leaders at the end, because we often don't see that with Chinese leaders taking questions from reporters. What did you think of that?

  • 10:55:32

    PEIWell, the Chinese leaders still have this residual mindset of being emperors. And emperors simply do not answer from the common folks. And journalists are among them. So I would say this is very unfortunate.

  • 10:55:45

    PAGEUnfortunate they don't take questions, but he did take questions.

  • 10:55:47

    PEIThey don't field questions. Well, they showed diplomat maneuvers, the U.S. made China agree to a session where questions will be asked to their leader.

  • 10:55:58

    PAGEMark Landler, a reporter for the New York Times and a frequent guest on the "Friday News Roundup," was the New York Times reporter who stood up and asked a question. Which after some delay, was answered by the Chinese leader. Well, I want to thank our guests for being with us this hour on "The Diane Rehm Show." Gary Hufbauer from the Peterson Institute, Rob Scott from the Economic Policy Institute and Minxin Pei from Claremont McKenna College. Thank you all for being with us this hour.

  • 10:56:24

    SCOTTThank you.

  • 10:56:25

    HUFBAUERThank you.

  • 10:56:26

    PEIThank you.

  • 10:56:26

    PAGEI'm Susan Page of USA Today, sitting in for Diane Rehm. Thanks for listening.

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