Chen Wenling: Trump Administration Has Crossed China’s Bottom line and Red line

On the morning of September 11, 2018, Chen Wenling, chief economist of China Center for International Economic Exchanges (CCIEE), and members of the US-China research team interviewed by the US delegation of journalists. Below is the summary of the interview.

Chen Wenling: we are very pleased to welcome this very important journalist group from the United States.

CCIEE was established in 2009 and has conducted many research projects and important exchanges on US-China issues. In 2011, the US-China second track dialogue was launched. As the co-organizers, CCIEE and the US Chamber of Commerce hold the US-China CEOs and Former Senior Officials’ Dialogue twice a year and so far, 11 dialogues have been hosted. During the 7th dialogue, President Xi Jinping met with the US representatives attending the meeting at the Great Hall of the People. When the dialogues were held in the US, many former US political leaders and current senior officials attended the meeting and delivered important speeches.

In this conference room, we have conducted in-depth discussions with experts from many US institutions such as the delegation of the US National Congress, the Conference Board, the Peterson Institute for International Economics, the Strategic Research Institute of the US State Department, and the Research Department of the US Federal Reserve. A few days ago we had an in-depth exchange with Professor Cooper of Harvard University. Today’s exchanges with the China-US journalist is very meaningful because the US-China relations are at an important historical moment.

From China’s leaders to think tanks, Chinese companies to the Chinese people, all of them hope that China and the United States can work together to create a better future and China has always made unremitting efforts in this regard. The two nations should avoid conflicts and confrontation, respect each other and achieve a win-win outcome. However, the current President of the United States, Mr. Trump and his administration have made many irrational choices that are difficult for the Chinese to believe and accept.

The Trump administration has crossed China’s bottom line and red line. For example, the US imposed a high tariff of 25% on 50 billion of Chinese goods, followed by a 10% increased tariff on 200 billion of Chinese goods and is planning to add another 25% next year. It now even threatens to impose high tariffs on $267 billion of Chinese goods. We know that the tariffs imposed by the United States is not based on international laws or WTO rules, but based on its domestic laws and regulations. In other words, the US uses its national laws and regulations as well as the will of the leaders to sanction another country, this is absolutely unprecedented! This practice goes beyond the scope of trade friction and truly has become a trade war. It has become a war tool to contain China’s manufacturing industry, high-tech development, and stable economic development. The true purpose of the US is to trigger a comprehensive economic war and prevent China from becoming a stronger nation.

Here is China’s bottom of line: problems should be resolved through consultation in accordance with international rules, not trade wars, trade fraud, and mass sanctions against a country. The solution should conform to the common interests of both countries. The United States has withdrawn from the Iranian nuclear agreement, imposed sanctions against Iran and even required all countries not to do business with Iran. Can the US force all other countries not to do business with China? Is it possible? Who will suffer if the global economic ties are being cut off? China? I believe that the sanction is not against one particular country but the entire global industrial chain, and ultimately the United States will suffer as well. China has now become the largest trading partner of more than 120 countries and regions, and the second largest trading partner of more than 70 countries and regions. This was the status of the United States 10 years ago. The share of the United States in international trade is now declining and it will not be able to prevent China from trading with these countries. Nor can it break the inextricable link between the Chinese and US economies.

The Trump administration also crossed the red line of China. What is the red line of China? Taiwan is China’s territory and this is sacred and inviolable. Nonetheless, the United States has passed five laws and regulations related to Taiwan this year. Recently, some US Congressmen proposed to pass the Taipei Law, which has completely crossed China’s red line.

The situation today has never happened before since the establishment of the diplomatic relations between China and the United States more than 40 years ago. Now, the Trump administration has not only crossed China’s bottom line but also the red line, which leaves China no choice but to fight back. I believe that China’s counterattack is rather effective and powerful. There is an old saying in China that “It is impolite not to make a return for what one receives.” These contradictions, disputes and conflicts are caused by the United States not China and therefore, China must fight back.

Chen Wenling: Furthermore, I would like to clarify the following issues.

First, the faster the US trade war against China is escalated, the faster the rebound will be. The United States begins with hurting others but will end up with hurting itself. American companies and consumers have already started to feel the pain, but the feeling is not strong enough. Previously, the United States imposed a 25% tariff on $50 billion of Chinese goods, which has already increased the cost of enterprises in the United States and reduced their profits. Later on, it imposed 25% tariffs on $200 billion of Chinese goods, 60% of the tariffs will be gradually passed on to consumer goods, leading to an increase in production costs and living costs. If it imposes tariffs on another $276 billion of Chinese goods, the US market will become chaotic. At the 6-day hearing of the United States from August 20 to 26, 90% of the participating companies expressed their strong opposition to the proposed high tariffs on Chinese exports, implying that the American companies, people and the society are feeling the pain.

Second, the higher the expectation for the US Trump administration, the bigger the disappointment. I think that there is now a strong stimulus and stimulant in the United States that confuses the American society. First, the economy is not bad. Second, the employment is doing all right. Third, the US stock market is good. Lastly, the return of capital due to the US tax cuts. All these have led to the irrational excitement of the American society and a rising approval rating of Trump.

But the view above is short-sighted and I think the United States will experience a big reversal in the second half of this year for the following reasons.

First, the escalation of the trade war will affect the US companies and economic growth. The economic growth rate of 4.2% in the second quarter will not appear again.

Second, the Trump administration have lost their heads and feel very good about themselves. They are not only attacking China but also the rest of the world and has hence lost their credibility, which is a damage to the United States in the long run, not a gain.

Third, as a president, Trump is capricious and often goes back on his words and consequently, the US will lose opportunities to conduct strategic cooperation with other countries. For example, Chinese Vice Premier Liu He led a team to negotiate with the United States and at the end, the two sides agreed not to impose high tariffs on each other. However, a few days after the joint statement was issued, the Trump administration introduced tariffs on $50 billion of Chinese goods and increased to 200 billion later. As a leader of a country, Trump has no moral integrity at all.

Fourth, the highly-skilled professionals are leaving the United States. The United States is no longer friendly to Chinese scientists and students. The Trump administration believes that they cannot be in important positions, study important subjects, and even suspect some of them are spies. This is absolutely discrimination. Many overseas Chinese talents have returned to China as they can play a bigger role and even get a better treatment than that of the United States. The reason why the United States has become the superpower is that it could attract outstanding talents from all over the world but now all the talents are moving to China. Therefore, the United States is unable to block China and China will accelerate its technological innovation. I believe that the American people will sooner or later become rational again and begin to realize that Trump has brought huge political and economic losses to the United States. The current economic performance has disguised Trump’s bad behaviors, and made the American society and people unable to see the negative impact he will cause to the United States in the long-term.

The US-China trade war has both positive and negative impacts. Of course, it will hurt the US and China in the end but the United States may suffer more than China. The good thing is that the trade war has inspired the Chinese government, enterprises, scientists and the people to undertake independent innovation and to nature its core technologies. Chinese companies started to realize that they must break through America’s technological blockade and accelerate their original research. It would be great if the United States can remain as a superpower but it should not contain China.

Trump said on Twitter that he will make the United States great again and he has achieved that goal because he has prevented China from surpassing the US. In my view, the United States is already a great country because of the American people not Trump. China is also a great country. The Chinese people have created 5,000 years of glorious history and culture, and no one can cut it off. In modern history, China has been invaded by some countries and hence lagged behind. Although China is catching up quickly, there is still a big gap between China and the United States, including technology, education and manufacturing. China’s leaders are aware of the gap and never said that China has surpassed the United States. Trump said that he successfully prevented China from surpassing the United States. This is nonsense. In the future, China will surely overtake the United States but not now.

The China-US relations must be handled with sincerity and we need to create a sound environment for competition and cooperation, so as to keep the world full of energy. This will help us to create a better tomorrow.

Thank you!