Larry Summers on the Future of U.S.-China Relations

FSI Stanford
Feb 22, 2019 · 4 min read

The following is an excerpt from an address delivered by Larry Summers at the Stanford Institute for Economic Policy Research on February 19, 2019. The event was hosted by the Freeman Spogli Institute’s Center on Democracy, Development, and the Rule of Law. Portions of this transcript have been edited for clarity.

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Larry Summers, the Charles W. Eliot University Professor at Harvard University. Photo: Djurdja Padejski

As the United States contemplates its economic strategy vis-à-vis China, I think one of the great risks, a risk that far exceeds the damage that China is somehow doing to the United States, is that we will set ourselves up as the scapegoats for poor economic performance, and have to deal with an aggressive, and nationalist China. What does all of this say? Here I’ll conclude. About U.S. economic strategy, and U.S. strategy more broadly vis-à-vis China. I would suggest a few tenets. First it’s not mostly about the economy, stupid.

The truth is that what will determine American standards of living is overwhelmingly American policies, not Chinese policies. If the United States uses our scarce influence capital with China to get more branches for the Bank of America, or more rights to trade derivatives for Morgan Stanley, or more ability to sell insurance for AIG, or more protection for Micky Mouse on behalf of Disney, we will be using what is surely scarce influence capital on matters that are not central to the interest of average Americans. While I am not an expert on the security issues, I would suggest that there are likely far greater issues at stake in the architecture of Pacific security.

Second, we are unlikely to succeed in limiting access to knowledge in China on a substantial scale. Of course we should make our greatest efforts to protect our military secrets, but when I hear that we’re going to hold our knowledge of AI, or quantum computing separate for the benefit of the United States, I am reminded that in the late 1940's, and again in the early 1950's, we were successful in staying only three years ahead of the Russians with respect to the atomic bomb. This was at a time when the atomic bomb — unlike our artificial intelligence — was a technology that required substantial manufacturing efforts.

At a time when there were essentially no Russians in the United States, and at a time when it was our most important military secret, we were not able to effectively keep it secret with respect to either the initial atomic bomb, or the hydrogen bomb. How successful can we aspire to be with respect to artificial intelligence when the major papers are publishing open journals, when 350,000 students are studying in the United States, when large parts of the technology can be operated on quite rudimentary equipment? Much better than seeking to hold China down is a strategy of seeking to build ourselves up with proper investments, and scientific, and physical infrastructure with proper investments in research and education.

Third. It is the essence of diplomacy to seek to make triangles that have short sides to you, and long sides to others. The reason why Nixon’s trip to China was a master stroke, was not because of some deep congeniality between Chairman Mao and American values. It was because there were going to be three majors in the world — the United States, Russia, and China. If we were able to connect more closely with China, we would both be in a stronger position vis-à-vis Russia. Having a short U.S.-Chinese axis was a much better reality for us than there being a short Chinese-Russian axis.

From this perspective we are doing roughly everything wrong. We are encouraging coalitions of our potential adversaries like China and Russia. We are more substantially alienating even our closest allies. A reader of yesterday’s Financial Times will have observed that the government of Great Britain judges that Huawei and the set of issues associated with Huawei contributing to Great Britain’s 5G network can be comfortably managed, but that Facebook constitutes lethally dangerous gangster capitalism. That has to be regarded as a major failure of U.S. economic diplomacy, and U.S. international relations. The third tenet is to connect your allies, and divide your adversaries, rather our current strategy of uniting our adversaries, and dividing our allies.

The fourth tenet is that we need to know what we want, and have the capacity to say yes. Is the U.S. objective to change the bilateral trade surplus? Is the U.S. objective to increase intellectual property protection for U.S. firms operating in joint ventures? Is the U.S. objective to, in a generalized way, weaken the Chinese economy? In the absence of a clear answer it is very hard for anyone to say yes to us. We have not as a nation declared a clear answer to that question.

My hope, and I’ve gone on too long, is that we will walk back from the path of confrontation and competition over who can be harsher towards China, to a policy that is grounded in an accurate assessment of U.S. economic interests, and therefore more modest in its attempt to transform China, and more ambitious in its attempt to build alliances with our natural allies, and to strengthen our productivity, and economic strength more broadly in the United States.

Freeman Spogli Institute for International Studies

The Freeman Spogli Institute for International Studies is…

FSI Stanford

Written by

The Freeman Spogli Institute for International Studies is Stanford’s premier research institute for international affairs. Faculty views are their own.

Freeman Spogli Institute for International Studies

The Freeman Spogli Institute for International Studies is Stanford’s premier research institute for global affairs.

FSI Stanford

Written by

The Freeman Spogli Institute for International Studies is Stanford’s premier research institute for international affairs. Faculty views are their own.

Freeman Spogli Institute for International Studies

The Freeman Spogli Institute for International Studies is Stanford’s premier research institute for global affairs.

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