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President of US-China Business Council explains impact of coronavirus, trade war at Duke summit

What happens when you bring a former rock band guitarist together with a former U.S. ambassador?

Duke’s China-U.S. summit did just that, organizing a spotlight conversation Feb. 29 between Kaiser Kuo, former member of the rock band Tang Dynasty and current host of the Sinica Podcast, and Craig B. Allen, former U.S. Ambassador to Brunei Darussalam and current President of the U.S.-China Business Council. In a live recording of a Sinica episode, Kuo interviewed Allen regarding recent developments in the global economy and U.S.-China trade relations. 

COVID-19, the novel coronavirus that has wreaked havoc in China and has begun to infect other parts of the globe, loomed large over the conversation. Allen acknowledged the unpredictability of the virus’s long-term effect on the global economy. 

“I don't know what will happen in Korea. I don't know what's going to happen in Nigeria. I don't know what's going to happen,” he said. “This is not only a China issue anymore.” 

The speakers also examined the current economic impact of the global pandemic on both the demand and supply sides of the international market. On the demand side, the coronavirus has dampened confidence and stifled demand, particularly in the tourism and retail sectors.

According to Allen, the coronavirus has also disrupted the supply chain for many companies, causing warehouse closures, borders tightening and more red tape for businesses wanting to reopen. 

Commenting on the Trump Administration’s response to the coronavirus’s arrival on U.S. soil, Allen urged caution given the complexity of dealing with such a novel threat.  He paraphrased a line from the ancient Chinese military handbook, “The Art of War” by Sun Tzu: “If you know your enemy and you know yourself, you’ll win a hundred battles.”

In our fight against the coronavirus, “we don’t know the enemy,” he said. 

But Allen also emphasized that the situation provides a chance for the global community to join hands. 

“This is an opportunity for robust U.S.-China cooperation for the benefit of both of our peoples,” Allen said.  “Let us seize it.” 

The speakers also discussed the fallout of the U.S.-China trade war that arose after the Trump administration imposed tariffs on Chinese goods, provoking retaliatory measures from the Chinese. 

They described the effects of this trade conflict as “decoupling”: reduced interdependence between the two countries, as evidenced by a 17% decline in U.S. exports to China and an 80% decrease in Chinese investment in the U.S., Allen said.  In the wake of reduced imports from the United States into China, European and Japanese investors swooped in to capture the market demand, as seen in a 20% increase in their exports to China.     

Despite these costs, both Kuo and Allen recognized that problems in U.S.-China economic relations had begun to fester long before the outbreak of the trade war.   These issues derived in part from the changing dynamics between the countries. 

“The China we knew 20 years ago is not the China that we face today,” Allen said.  He described the Great Recession of 2008 as a turning point in which China recognized its ascendance in the world economy. 

Allen spoke of how in 2008 Wang Qishan, China’s current vice president, had said to Hank Paulson, then U.S. Secretary of the Treasury, “You were my teacher...we aren’t sure we should be learning from you anymore.”

Since then, China has often diverged from global norms established in the World Trade Organization, creating challenges for American companies seeking a presence in China. Such companies, particularly those in the technology sector, deal with problems of intellectual property theft and have to compete with state-owned, subsidized companies. 

As a result, American companies have expressed frustration over the lack of a “level playing field” for their businesses, Allen explained.  The Trump Administration’s tariff policy was intended to coerce China into creating a trade agreement that would level that playing field. 

It has succeeded in doing so, at least in part.  Kuo and Allen discussed the recent Phase One trade agreement that Chinese and U.S. officials signed on Jan. 15.  Although Allen described the agreement’s benefits for financial and agricultural sectors, he also acknowledged “thorny” issues such as the Chinese government’s subsidization of companies and its technology policy that will have to be thrashed out in a Phase Two agreement. 

Ultimately, he said, a recoupling between China and U.S. on trade will require officials to navigate a “complex chess board” involving bilateral, multilateral and regional cooperation. 

K. J. Chen, a senior in Pratt, said the discussion provided him with information that will guide him as he chooses whether to start a business in China or the U.S.

He also said conferences like the China-U.S. Summit “introduce us to things we couldn’t have seen before, couldn’t have even thought of before.” 

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