I’ve been traveling to China for forty years. It’s time we get this relationship right.
Rhetoric coming from the Trump administration about China is spinning out of control, and I don’t see an exit ramp. Talk of a cold war that would take us back to what we experienced with the Soviet Union in the mid 20th Century is not something we should replicate. Commentary is inevitably more heated in election years, but we need to course-correct before it’s too late.
I made my first of my many visits to the People’s Republic of China in 1981 when I was working in the private sector. Back then, we never imagined China would turn into the challenge it has become. We thought with increased trade would come capitalism and democracy, but that didn’t happen.
Having witnessed firsthand China’s extraordinary metamorphosis over the last four decades into a superpower, there appears to be no stopping China’s expansion. The country’s GDP is rapidly catching up to ours. It is now the second largest economy in the word, and by some measures, the largest.
Trying to shut out a fierce competitor rather than work toward better circumstances is misguided: We’ll shut ourselves out of major markets. That will lead to economic loss, debt inflation, fewer export opportunities for our manufacturers and, above all, a hostile enemy on the diplomatic stage.
1981
When I first landed in China, just two years after the United States re-established diplomatic relations in 1979, it was like flying to a far-off, forgotten land that was still totally in the dark. Electricity was a luxury. Bicycles were everywhere, and there were few cars.
My first visit was a business trip to the Canton Fair. The city was named Guangzhou decades before, yet many westerners continued to refer to the city and fair as Canton until the late 20th Century. I traveled in my role as president of Lillian Vernon, the mail order catalog company my mother founded to sell home goods. We made that trip to China to source products that were innovative, hard to find elsewhere, less expensive and ostensibly exclusive to us. We were not alone; American retailers were starting to flock to China for inexpensive goods that American consumers craved.
Taking a few hours off one day, we visited an open-air market where I pulled out a Polaroid camera to snap pictures. I imagine many had never seen a photo of themselves before because they all clamored for a photo of themselves in front of their shops. I took picture after picture and handed them out to the shopkeepers I met that day. My one regret is I didn’t keep any for myself; I gave them all away.
We found and sourced many products, such as traditional Chinese soup bowls and pottery — that I still use today — as well as children’s items, textiles and home goods. We brought with us exclusive designs that we knew would appeal to the American market with the idea to produce those goods in China. They were our designs and our exclusives — that is, until we got on the plane to leave.
It was clear that the idea of producing something, even with our designs, and not selling them to anyone else was a western idea that didn’t carry much weight with our Chinese suppliers. Our response at the time was to work harder, keep coming up with new ideas and, when possible, only work with suppliers that had at least some respect for the exclusive nature of our designs. Sometimes that worked. Often, it didn’t. We felt betrayed and cheated when we saw other retailers selling our designs and products. Enforcing copyrights was not very practical with inexpensive and simply produced goods. We had to keep innovating. It was my first brush with China’s penchant for intellectual property theft.
I get it, or at least now I do: The Chinese were trying to bolster and nurture a fledgling economy. According to the World Bank, China’s GDP that year was about $196 billion in U.S. dollars, while the U.S. GDP was $3.2 trillion dollars, or 16 times the size of China’s.
Over the next decade, our buyers and designers returned year after year to expand our sourcing from China. In time, we opened a quality control office in Hong Kong to inspect goods and ensure they were properly marked with country of origin before making the long voyage to America.
1991
I didn’t return until a decade later to do some more product-sourcing, and I found greater ease of travel and commerce between mainland China and Hong Kong. Hotels and infrastructure had been upgraded, and I started to spot some new buildings, but Shanghai was not yet the city it is today. There were a few tall hotels (like the Hyatt) but no real skyscrapers to speak of. And after being surrounded by thousands of bicycles on my previous visit, intersections were now jammed with scooters, often 10 or 15 across.
The Canton Fair had also grown globally. It was an important international trading fair for finding household goods and toys. China at that time had started competing with Taiwan because even then, it was so much cheaper to produce goods there. “Made in Taiwan” labels were starting to be replaced by “Made in China” labels.
By then, the U.S. GDP closed in on $6.2 trillion dollars, compared with China’s $383 billion. And still, the U.S. GDP was 16 times larger than China’s.
2000
I returned next in May of 2000, when I joined then-Commerce Secretary Bill Daley on a delegation to China to negotiate Permanent Normal Trade Relations (PNTR) with PRC. This time, I represented the Small Business Administration, and my previous visits to China — in addition to growing a small business — were instructive to ensure the voice of small businesses were at the table.
China in 2000 was eager to establish normal trade relations with the United States because it offered legitimacy and an opening of trade to the rest of the world. (The only two countries that don’t have this status today are Cuba and North Korea.) That ultimately would be followed by China’s admission to the WTO. So they hosted us for a series of elaborate dinners and receptions. I was anxious to sample true Chinese food, but I was disappointed. At every dinner we were served nothing but western fare. Every banquet was steak and potatoes — no dim sum, no delicious local fare.
At one evening’s banquet, I was seated next to a Chinese official who quizzed me about my role in the U.S. government, and then, surprisingly, the conversation shifted to his questions about same-sex marriage and the rights of LGBTQ Americans. He had obviously done his research on me. He was curious about the changes in America and why my confirmation by the Senate was so challenging. He wanted to understand what was going on in the United States.
And outside: The bicycles I had seen in 1981 that were replaced by scooters in 1991 were now replaced by autos. Cars were suddenly everywhere. There were taller buildings and towers. More and more of China looked like a developed country.
In 2000, U.S. GDP was 8.5 times larger than China’s at $10.3 trillion to China’s $1.2 trillion. We grew our economy, but theirs grew even faster.
2009–2016
When I joined the Obama administration as Chairman of the Export-Import Bank in 2009, I admit now I made a big mistake: I largely ignored China for the first few years. It simply was not a major market for exports and did not need the kind of financing the Export-Import Bank provided. My sense today is that many of us missed that China had emerged from producing inexpensive, low-tech goods to now manufacturing locomotives and power plants. And they were on their way to producing high-speed rail, satellites and commercial aircraft.
A year later, in 2010, China surpassed Germany and became the largest exporter of goods in the world. We slipped to number 3.
It was in traveling to other markets that I saw firsthand the threat of China as a competitor. They were competing with us in the export market with cheaper products and cut rate financing. We were competing with China in rail, power, water treatment and other capital goods. Our quality is unparalleled, and yet our financing often fell short. Rather than viewing China only as a market for our exports, it was critical to see them more as a fierce global competitor.
Consider this: From 2013 to 2015, Chinese government-backed export banks provided as much financing as the Export-Import Bank provided in 80 years to all U.S exporters globally. They were more than aggressive; they overwhelmed our exporters with their financial leverage. The Chinese brushed aside and totally ignored the rules and norms that other governments followed.
It became abundantly clear that for U.S. businesses to be successful in export markets, knowledge and understanding of China was required. They compete fiercely in every market.
So I, in turn, focused my sights on China. What goods and services could we export to China to support U.S. jobs? Aerospace, medical devices, farm and fire-fighting equipment were at the top of the list. Our products and services are superior, and we have the products and the innovation that the world wants, including China. We negotiated a Framework Agreement so these goods could enter China free of duties and tariffs to provide an opportunity for U.S. exporters.
Reliable credit reports on Chinese private sector firms were exceedingly hard to obtain, which limited our ability to finance U.S. exports to China, so the Framework Agreement was essential. Additionally, China — unlike the United States and most other developed nations —make importing exceedingly difficulty because they would prefer to import as few manufactured goods as possible. They basically don’t see the advantages of innovation and cost that come with imports.
President Obama and President Hu Jintao decided to continue and expand the Strategic and Economic Dialogue, the annual meetings between our two countries that started in the Bush administration. The meetings were formal and stark: There was diversity that was a hallmark of the Obama administration on one side of the table, and uniformity on the other, as the Chinese delegation was almost entirely men. Sometimes it seemed the progress was slight: More Memorandums of Understanding (or MOUs) than action, but at least we had a dialogue and a forum to find areas of common ground. And finally, at the meeting in Beijing in 2010, we were served Chinese food — not steak and potatoes!
I’ve lost count of the number of times I’ve traveled to China since the earlier trips. In 2016, I returned to China for the last time as a member of the administration. The issues before us were far more complex than I found in 1981. The issues between China and the United States, and, for that matter, the rest of the world were thorny and hard to resolve. Most of them were highly contentious: trade, intellectual property theft, technology transfers, currency manipulation, terrorism, the North Korean threat, the oil embargo from Iran, human rights abuses and flare-ups in the South China Sea. And of course, there’s the area I worked on: the unlevel playing field between U.S. companies competing for export sales with Chinese companies, many of which were state-owned.
There was also particular urgency on climate change and the environment, in part due to the Paris Climate talks that concluded in December of 2015 that were to be ratified in 2016. I believe we made the most progress at this last meeting on environmental issues. China recognized the major environmental threats they were facing; pollution and environmental degradation had reached crisis proportions. This was an issue of great domestic urgency. It also was of paramount importance to President Obama, and it was the one area with perhaps the greatest common ground.
When I made my first trip as an Obama official in 2010:
- U.S. GDP was $15 trillion compared to China’s $6.1 trillion.
- It was the first year China’s GDP surpassed Japan’s.
By my last trip in 2016, U.S. GDP was $18.7 trillion to China’s $11.1 trillion.
Today
Up until President Trump took office, each previous administration shared a view that, in some way, we must find a way to work with China. We have to find areas of agreement, such as climate change and the environment, and be firm when their values and norms are at odds with ours and the west. Working together to solve this pandemic is another area where common ground will be essential.
But the 45th president has decided there’s only one issue that matters when it comes to dealing with China: trade. To him, there are no other metrics upon which to be judged. He’s done some saber-rattling on Hong Kong and TikTok, but it’s clear his view of the Chinese relationship is one-dimensional. In fact, it’s a narrow view of trade; it comes down largely to the bilateral trade deficit. He thinks we buy too much from China and they buy too little from us. And they do. And we do need to keep pushing them to open their markets and compete fairly around the globe.
Forty years ago, we could focus on trade and trade alone. But now, with so many more issues roiling China and impacting our relationships around the globe, we need a more robust and far-reaching approach to China that doesn’t rest solely on commerce between our two countries.
In 2019, U.S. GDP was $21.4 trillion versus a Chinese GDP of $14.1 trillion.
- The Chinese economy in 2019 was a whopping 72x larger than it was in 1981.
- The U.S. economy in 2019 was 6.7x larger than it was in 1981.
Talk of this Cold War analogy is flat-out wrong. China wants a world order that is productive, stable and predictable — and not disruptive. China is not on the brink of collapse. And it certainly won’t collapse from outside pressure, despite what the president might hope.
The Chinese economy is on track to surpass ours — and it well could be by the next decade.
We need to find common ground when we can, go toe to toe on the areas where we disagree, and stand up for our American values. It’s time to banish the idea of a cold war.
