Stephen Roach: Pick the Low Fruit - But Then What?

Jan 27 , 2021

Stephen Roach, Senior Fellow at Jackson Institute of Global Affairs, Senior Lecturer, School of Management, Yale University.


Thank you very much, Victor. It's really an honor and a pleasure to speak to all of you today and to be on such an illustrious panel with many of my friends whom I miss very much and hope to see again once we get through this pandemic. 

I want to speak to you today about the U.S.-China conflict — clearly, I think, the most disruptive geostrategic event that has occurred in the world over the last four years, and a conflict that must be resolved. 

The conventional wisdom right now in the United States, even with a new Biden administration, is that there's going to be a little change in the new administration's policies toward China. There's still a groundswell of bipartisan public opinion that is more negative toward China than ever before. And if there's one thing that republicans and democrats agree on right now it's to stay tough on China. But I think that view is going to be challenged and eventually change. I think we're going to be moving from four years of bluster that was called The Art of the Deal by our former president, to a period of deeper thought wisdom, and hopefully to what I call the wisdom of the compromise. 

I want to give you two specific thoughts on how this conflict can get resolved. They are: first, pick the low hanging fruit, and then second, develop and implement a more strategic framework for engagement. Let me speak briefly to each of these two ideas.

The low hanging fruit: There are many very important global issues that both the United States and China have in common that they would like to resolve individually and collectively. I just pointed out two of them right off the bat — climate change and global health, especially in a COVID era. These are issues that deeply affect both nations and their leaders. And the key is to set up a mechanism by which the leadership in both nations can begin to exchange views and dialogue on them. 

America's new president, Joe Biden, our 46th president, has been in office now for seven days. He's already broken the ice. He has joined the World Health Organization again, which sets up the possibility of U.S. dialoguing with other members of the WHO. And in fact, our leading epidemiologist, the famous Anthony Fauci, has already initiated that dialogue in a very high level meeting of the WHO just a few days ago. President Biden has already indicated the U.S. is immediately rejoining the Paris agreement on climate change, something that is very important to China. And there is ample opportunity for the two leaders to speak together and focus their concerns, their attention and their policy apparatus on that critical objective that the world faces. President Biden has indicated this is one of the highest priorities of his new administration. 

Once we get the ball rolling and start talking about big issues like climate change and global health, especially in this COVID era, then we've broken the ice, and we can begin to tackle tougher issues. 

And that gets me to the second piece of my comments to you this morning, and that is a new framework of engagement. The old framework hasn't worked. The old framework was one in which we would have these periodic summits that we called the Strategic and Economic Dialogue. They met twice a year under the George W. Bush administration, once a year under the Obama administration. Many of us attended some of the sessions that were associated with those engagements. Both countries sent massive delegations. I used to see my friend, former Vice Minister Zhu, at many of those meetings over the years. We felt like we were doing something, but ultimately we accomplished very little. And the trade war of the last three years indicated that this particular way of addressing our problems or issues was not workable. 

So we need a new structure for dialogue. I am proposing that we set up a fulltime office — I call it a permanent secretariat — that does nothing except work on all aspects of the U.S.-China relationship, from trade to economics and people-to-people issues as well. Staffed by senior professionals, operating in a neutral jurisdiction, involved in a multitude of tasks from building joint databases, conducting joint research and writing policy white papers, to proposing agendas for negotiating on key policy proposals by senior leaders of nations. And then overseeing implementation and monitoring progress is being done in terms of compliance. And there are disputes that will arise, certainly there will be, having a transparent dispute adjudication mechanism under the purview of the secretary. That's point one. 

The second one is trade. The trade war between the U.S. and China has been destructive. It's hurt both nations. It has not accomplished anything other than to create more animosity. And the simple reason that a bilateral trade war doesn't work, is that you have a country like the United States, which has multilateral trade deficits with 102 countries. And so if you close down trade with one, as Trump attempted to do with his tariffs, you just push the deficit somewhere else, which is exactly what the data show has happened. 

The multilateral trade deficit the U.S. has is a function of its savings shortfall. And so we need to address that if we want to reduce our trade deficits with China or anyone else. And so, on the trade front, I think we need to abandon the phase one trade deal and the tariffs that drive it. They didn't work. They're unproductive, and they will continue to do damage to both nations, and we need to be honest and focus on the U.S. saving more and China saving less to reduce your large collection of multilateral trade surplus. 

And then finally my third piece, which is the most important one, is the so-called structural agenda. We need to shift the conflict away from bilateral trade, to the big structural issues that separate the United States and China. I give the Trump administration credit for one thing, and that is raising the debate on these structural issues, like innovation policy, intellectual property rights, forced technology transfers, cybersecurity, subsidies of state-owned enterprises. These are very important issues. 

Unfortunately, the allegations they made under the auspices of the former U.S. trade representative, Robert Lighthizer, were based on extremely weak evidence. So the issues still need to be investigated very carefully. They're still important, weak evidence or not. And the best way, in my opinion, to address this structural agenda is not by tariffs, not by sanctions, not by a so-called entity list, but by moving to restart negotiations on a bilateral investment treaty. 

We got very close to completing those negotiations under the Obama administration, and Trump of course abandoned it, just as he abandoned every policy that President Obama was in favor of. But the bilateral investment treaty, which both nations have long supported as a means to improving market access in countries around the world, is something that the U.S. right now has — over 40 bilateral investment treaties in place. China has over 100 of them. Both nations favor this framework. And the recently enacted comprehensive agreement on investment, a bilateral investment treaty between China and the European Union, indicates, I think an important sign that China is open to this frame-work. And the U.S. should see that opening, and that opportunity. 

So that concludes the points that I want to make today, again just to reiterate: There's low-hanging fruit — we've already started to pick it — with the U.S. rejoining the Paris agreement, and the WHO. And as we now begin reconnecting and reengaging in a spirit of mutual collaboration. We need to think about a deeper and more meaningful framework to build a stronger relationship. And by focusing on a new structure of dialogue, getting real on trade and really using a bilateral investment treaty to address the structural agenda, I think we can make a lot of pro-gress and move away from this four years of the so-called Art of the Deal to a much wiser solution, driven by meaningful compromise on both sides. 

Thank you very much.