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A Defining Moment for U.S.-China Trade Policy [Rush Transcript; Federal News Service, Inc.]

Speaker: Max Baucus, Senator, (D-MT)
Presider: J. Stapleton Roy, Managing Director, Kissinger Associates
April 10, 2006
Council on Foreign Relations New York, NY

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Council on Foreign Relations

J. STAPLETON ROY:  Good afternoon, ladies and gentlemen.  I’d like to welcome you to the Council on Foreign Relations for what I think will be a very stimulating session. 

First, a few reminders.  This session is on the record, but it’s not on the air.  So please turn off your cell phones, pagers and other potential buzzers, so that we can concentrate on the program. 

I think you all know that President Hu Jintao will be visiting the United States in 10 days, and financial and trade issues are at the heart of the U.S.-China relationship.  So we’re particularly fortunate to have Senator Baucus with us today to talk about a defining moment for U.S. trade policy. 

We’re going to have to end early today because the senator’s under a very tight schedule.  So hopefully we’ll have about 10 minutes of remarks from the senator; a brief follow-on period, when we will chat up here on the stage; and then try to allow 20 minutes for questions and answers.  But we have to wrap up at 1:45 instead of at 2:00, as we normally do. 

Senator Baucus is one of the most distinguished members of the U.S. Congress.  He’s in his 32nd year there—four years as a congressman, 28 years as a senator. 

He represents what we would like to see in Congress.  He is somebody whose roots are in the American soil and yet who has understood the intrinsic importance of our foreign relations for the United States.  So he has made a point of getting out, seeing the rest of the world, and then translating what he has seen into advice on the policies that the United States should pursue. 

He’s in a position to do so.  He’s the ranking member of the Senate Finance Committee.  He’s the past chairman of the committee. He really understands the critically important issues that affect the U.S. place in the world today.  Senator, we’re honored to have you here.  (Applause.) 

SENATOR MAX BAUCUS:  Thank you very much, Ambassador Roy, for that very kind introduction.  I deeply appreciate your many years of service to the United States.  And I will say that when I—during one of my visits to China, Beijing, when you were ambassador there, I thought to myself, “Man, we’re lucky to have such a great guy representing us, the United States.” 

I think he’s done just a super job. 

Let’s give Stape a round of applause.  He’s done a lot of service.  (Laughs.)  (Applause.) 

And thank you to the Council on Foreign Relations, particularly Martina Donlon, for the opportunity to speak today.  It’s great to come here to get fresh perspectives.  I look forward to the good discussion in my brief, hopefully, 10-minute remarks. 

In two weeks, as Stape said, Hu Jintao makes his first visit to Washington as president of China.  He comes to the United States at a period where on its face, the Sino-American relationship looks to be pretty good, in pretty good shape.  We have made amazing progress since the days when bicycles jammed Beijing streets and then donned monochromatic Mao jackets.  Today Ford cars cruise the streets of Chongqing, Chinese customers wait to buy fries at McDonald’s in Shanghai and Boeing planes traverse China skies. 

But these images mask a more complicated reality.  We have reached a dangerous place in our partnership with China.  Our economic ties have become fundamentally unbalanced, threatening to unravel the progress we have made together in the past 15 years.  Leaders in Washington and Beijing need to make smart choices now to prevent this relationship from going dangerously off track. 

Of course, our relationship has gone through promising and perilous times before, as I was reminded recently when I read “400 Million Consumers” (sic/Customers) by Carl Crow.  Many of you have already read that book, and you may be familiar with it.  Written in 1936, this book was once a bible for American entrepreneurs.  The China that Crow describes in the early 1900s bears striking resemblance to today’s China, full of opportunity, but rife with challenges. 

If Carl Crow were writing today, he would see the same promising consumer market, the same rampant piracy and counterfeiting and the same problems with distributors, agents and contracts. 

But underneath these similarities is something very different, that China of 2006, unlike the China of 1906, has become fundamentally integrated into the world economy.  In Carl Crow’s time, trade accounted for about 7 percent of China’s economy. 

Today, trade constitutes roughly two-thirds of China’s GDP and keeps growing.  In Carl Crow’s time, China’s principal exports were silk, bead products and tea.  Today, they are electronics; that is, television, DVD players and computers.  In Carl Crow’s time, China posted modest trade deficits.  Today, China has a $150 billion global current account surplus and a whopping 202 billion bilateral trade surplus with the United States.  Most important, China has become a truly vested member of the international economic system.  An historic 2001 accession to the World Trade Organization, China bound its economy to the most important set of rules governing international trade.  China promised not to discriminate against employer products. China promised to open its markets to foreign products.  China promises to protect and enforce intellectual property rights of foreign innovators. 

As Ambassador Roy and others will recall, getting here was not easy.  It took China 15 years of tense negotiations to join the WTO. It took painstaking work in Washington to build political support to incorporate China into the world community, and at many times, it took a leap of faith to convince ourselves that China would become a solid and trusted stakeholder in this system. 

Over my years in the Senate, and on my seven trips to China I have worked hard to put the Soviet-American relationship on solid ground.  In the early 1990s, I fought to end the annual review of China’s most favored nation trade status, and believe me, we ran into a lot of opposition in that effort.  In 2000, I led efforts in the Senate to grant China permanent normal trade relation status, paving the way for China’s WTO accession.  And throughout, I had the privilege to engage with many Chinese leaders, including former President Jiang Zemin, former Premier Zhu Rongji and most recently Premier Wen Jiabao. 

But there are danger signals out there.  Popular support for trade with China has waned.  Across America factory closures, unfilled pensions fuel deep insecurity among Americans about the relationship between China’s growth and America’s job loss.  Members of Congress, reflecting this sentiment, have entered this legislation to recast our trade partnership with China by rescinding PNTR or imposing tariffs. 

Even the United States trade representative has characterized our relationship with China as lacking, quote, “equity, durability and balance.”   

But most emblematic of what Americans find wrong with our China trade policy is our gaping $202 billion trade deficit.  That figure is unsustainable economically, is unsustainable politically, and it has thrown our relationship out of whack.  Neither country itself deserves full blame for the dangerous imbalances we face, but we are in this together, and both the United States and China must work very hard to overcome these imbalances. 

Let’s start with China.  China deserves tremendous credit for its efforts to introduce the market into its economy, welcome foreign investments, implement many international trade obligations.  China bears much responsibility, however, for the economic imbalances that we face.  Important WTO commitments remain unfulfilled, and China’s currency is seriously undervalued, contributing to our skewed trade flows.  China must now take steps to address these concerns.  High- profile purchases of American products, while welcome, won’t solve the underlying problems.  There are also more fundamental steps that China can take, such as:  lifting its non-science-based ban on imports of U.S. beef, taking sustained enforcement action to reduce piracy and counterfeiting, ending discrimination in government procurement, allowing the RMB to demonstrate greater market responsiveness, and reducing government intervention in the marketplace.  But these steps must be real, not lip service.  Americans can tell a difference.  And I might add, China needs to take definite steps to open up its markets to health care and pension so that the Chinese consumers don’t have to save quite as much and they can start spending on products in China. 

Americans have heard China’s past promises on improving intellectual property rights.  But what do they see?  That China has rooted out counterfeiting of Beijing 2008 Olympic merchandise, at the same time that piracy and counterfeiting rates for foreign products continues to top 90 percent.   

I made these points to Premier Wen on my last visit to Beijing in January.  And last week I again underscored them in a series of letters to Vice Premier Wu Yi and Commerce Minister Bo Xilai.   

I also introduced legislation last month, with Senator Chuck Grassley, chairman of the Finance Committee, to encourage China and our other economic partners to play by the rules of the international economy. 

Our bill bolsters trade enforcement, and our bill spells out consequences for countries whose currency misalignments harm the United States economy. 

This bill is not meant to punish China or any other country. Rather, it is meant to step up our engagement with our trading partners, so that we can address bilateral problems together, not by shutting off trade but through engagement. 

But we would be foolish if we thought that action by China alone to correct these imbalances is the answer.  Revaluation of China’s currency alone will not be a silver bullet.  Increased enforcement by China of its intellectual property rights alone will not reduce our deficits to sustainable levels.   

We too bear responsibility for the profound economic imbalances that we have with China and other countries, and like China, we have serious work to do to correct them.  We’ll not reduce our trade deficit until we reverse our negative national savings rate.  We will not reduce our trade deficit until we transform unsustainable budget deficits into the surpluses we once had.  And we will not reduce our trade deficit until we bolster the competitiveness of the American economy. 

We can no longer ignore these priorities.  They have become as instrumental to our domestic health as they are to the world economy. We expect China to be a responsible stakeholder in the international marketplace.  We must demand the same of ourselves. 

Let’s be frank.  Compared to China, our economic success is a short stretch on the timeline of history.  Our current global primacy is not a God-given right.  We must work hard to sustain it.  But as a country, we have become too complacent.  With our heads in the sand, we Americans risk being the last to see its decline.   

I am disappointed that this administration does not seem to understand the imperative of getting our fiscal house in order.  I am concerned they have relegated America’s competitiveness and its economic future to the back seat, and in so doing, they have eroded the confidence of Americans to face the challenge posed by China in a rapidly globalizing economy. 

That is why I welcome the creation by Bob Rubin of the Hamilton Project, which will focus on tackling these problems.  He has pointed 

to our fiscal and current account imbalances, entitlements, low personal savings rates and high debt—a dangerous mix faced by no other developed country.  He calls for a special bipartisan process to meet these challenges. 

I hope to play my part, too.  This year I have developed a comprehensive competitiveness agenda dedicated to these very goals. I’ve already introduced legislation on trade, on energy and savings. In the next few months, I will round out these proposals with bills on innovation, education and health care. 

I do not pretend to have the answers, but we have to make these tough choices now, so that when a future Carl Crow writes about the America of 2006, he writes about the year America recognized the approaching challenge of China and stepped forward confidently to embrace it; about a year that America woke up and took responsibility for its economy and turned uncertainty into opportunity; about a year when America did not act out of fear, but did not fear to act; about a year that America saw China approaching, with all of its consequences, and chose not to get out of the way but to lead the way to a prosperous partnership that would endure for decades to come. 

Thank you very much.  (Applause.) 

ROY:  Senator, those were terrific remarks.  And I think you made a very balanced presentation.  But I think you put your finger on a core issue, which is that the public perception is that China’s ripping us off in our trade relations.  But U.S. companies in China are more profitable than ever before.  Some studies show that our trade and investment with China is increasing our GDP and lowering our prices, putting money into American pockets, and our trade deficit with China has increased in almost direct proportion to the decline in the surpluses of the other exporting countries in Asia, suggesting that what’s happening is the exporting industries are moving to China, which is inheriting their surpluses, and that’s what driving it up, rather than exchange rate inequities. 

How do you address this discrepancy between a generally negative public perception of the trade relationship and some of the realities that suggest it’s a more complex issue? 

BAUCUS:  Well, first off, I don’t think Americans know very much about the positive side.  They know a lot about the negative, whether it’s somebody who’s lost a job—you know, a GM employee laid off, other companies—or whether the pension benefits are reduced, probably because of global competitive pressures, or health benefits reduced and so forth, It’s the old thing of human nature that negative news travels a lot faster than good news.  It has a lot greater currency than good news.  And so the positive side is not known; that is, especially the—even, you know, lower consumer prices; you know, Wal-Mart, for example.  That’s maybe vaguely understood, but not very much.   

So there’s a real sort of angst, I think, still among an awful lot of Americans who just don’t know a lot about the positive side. They read about it, they may be told about it, but that’s an intellectual concept, it’s an abstraction more than it is a real—it’s like taxes.  When you pay more in taxes, it hits you right here. Unfortunately, when we talk about great concerns about our fiscal house being in disorder, large budget deficits, that’s more of an abstraction. 

It just—one’s more specific and one’s more general. 

And I think as another point here, namely, Americans, I think, somewhat understand that paying out is the real challenge here, but don’t see a plan how to deal with it; you know, whether it’s retraining, whether it’s a commitment by the federal government, whether it’s commitments by the industry.  It just—I think too many people feel we’re a little bit too much out for ourselves here, and that makes it tough. 

ROY:  I want to go questions from the audience quickly, but let me ask one final question before doing so. 

Are you optimistic that we Americans—and you know America as well as anybody—have the skills to deal with a rising China that’s becoming stronger and more prosperous?  Are we likely to be able to handle this in a mature way, or do you see a real risk that we will panic? 

BAUCUS:  Well, there’s a risk all right.  You know, but you’re in this business, Stape, and I’m in this business because we’re optimistic.  I mean, we just believe things could be better.  That’s why, you know, we’re in public service in one way or another. 

Do I think America can respond?  Absolutely.  We have historically.  We responded to Sputnik, and frankly, I’m trying to find some way to dramatize this challenge in an understandable way as Sputnik was and how we—you know, we saw that Sputnik up in the air, and we therefore responded and put to the moon.  So I’m trying to figure out a way to—and say, “Hey, this is Sputnik up there, so we got to get our act together here,” but it’s like a stealth Sputnik. (Light chuckle.)  You can’t quite see it too well, given the nature of the problems we face, but once we see it, I think Americans will respond if it’s also the beginnings of some kind of a plan, and there really needs to be, you know, public and private leadership here. 

But, yeah, there’s no doubt in my mind.  That’s—it’s in our blood, but it’s not going to be easy.  You know, it’s like the old overworked phrase, you know, that there’s two characters in Chinese, as you know better than I, about danger and opportunity; well, there’s an opportunity here with this crisis.  And I think Americans will want to respond if they kind of see a way to do it, and if they’re in on the deal too. 

ROY:  Outstanding.  I’d like to open the floor to questions, if that’s okay with you. 

BAUCUS:  Sure. 

ROY:  Could I ask you to wait for the microphone, to stand and identify yourself and be brief. 

John? 

QUESTIONER:  John Brademas, New York University.  First, I want to congratulate my former colleague in the House on his splendid talk and his outstanding leadership in the Senate. 

Second, I recall that, I think 30 years ago, I led the first congressional delegation during the Carter administration to visit China, where I saw this young Chinese foreign—Chinese-speaking Foreign Service officer in our embassy, Stapleton Roy.   

The other point I’d make, before I put my question to the senator, is to say that New York University will open a campus in Shanghai in the fall. 

Max, you’ve been talking about trade and economic policy.  What do you have to say about the prospect of greater political freedoms, greater advance toward what we think of as genuine democracy in China?  

I yield back the balance of my time.  (Laughter.) 

BAUCUS:  Well, I think it was yesterday’s paper—maybe it was today’s; I’ve forgotten which—in the op ed—I think it might have been The New York Times—there’s a chart, there’s a matrix that shows that the more countries are involved in trade, open themselves up globally, the more likely they are to address human rights and other social issues.  And that to me is probably accurate and, therefore, you know, a key.  And I think that one of the reasons we wanted China to accede to WTO and be granted PNTR was probably for that very reason; that is, the more China is involved in the world community, subjects itself to international trading rules, the more likely it is that they’ll be able to address issues such as human rights, which is very, very real and very important.   

But I also think that we need to engage China a lot more at lots of different levels.  It’s not just trade, but it’s also joint military exercises with China, you know, education projects with China.  There’s a lot more at lots of different levels at the same time.  That way we’re more likely to minimize misunderstandings between ourselves, and we’re also more likely to address those issues. 

Thank you. 

ROY:  Yes? 

QUESTIONER:  Stephen Roche at Morgan Stanley, Senator. 

BAUCUS:  Hey, Steve, how are you? 

QUESTIONER:  Good.  How are you? 

I wanted to pick up on the point that you made which is so important in this debate, the amazingly low U.S. savings rate.  Given that savings rate—and you and I have talked about this in the past—if, hypothetically, we were to close down trade with China, it’s sort of like a water balloon; the deficit then would go somewhere else.  We have to run these deficits to attract the foreign capital to grow our economy.  So if we’re not fixing our savings rate in America, isn’t there a risk that the political process is really scapegoating China for some of the problems that you correctly mention that we haven’t gotten our act together on? 

BAUCUS:  I think it’s a risk.  But I think the answer to the questions you asked is the biggest little word in the English language is “if.”  You know, if we don’t reduce our private savings or if we don’t address, you know, the fiscal savings, then that’s the real issue of other countries. 

We got to address that “if.”  We just have to get our act together here, and it’s going to be difficult and tough.  Now I don’t want to be too simplistic about this.   

But I am very proud of Bill Clinton and Bob Rubin, you know, in getting a budget through the Congress that did, you know, cut some spending.  It did raise taxes, frankly, on the top, like, 1 percent or 2 percent of Americans.  It was a very tough series of votes in both the House and the Senate.  I think it passed by one vote in each body, but it passed.  Well, we lost the House and the Senate, as I recall, politically, as a consequence, but we did start to get at least our fiscal house in order. 

We just—you just need leadership.  And I don’t—I know that’s trite and it’s overworn, but it’s true.  Sometimes the most trite things are the most true.  And if—it kind of starts sometimes at the top.  I mean—so it’s—you know, if the administration really were to show it really means business, and it passes the smell test—this is real, not just political—then I think we could make some headway. 

As you know, the president’s talked a little about in the State of the Union of a commission, an entitlements commission, you know, bipartisan.  Well, on the face, that sounds good.  But frankly, it’s got to really be real; it’s got to address, you know, other spending as well as, frankly, some revenue.  Everything has to be on the table, and only then will the president get what he wants, namely, you know, political buy-in from both parties to sit down and work this thing out. 

It’s still a steep climb.  It’ll still be difficult in today’s, you know, political atmosphere.  But I do think it can be done.  But it takes real leadership, and by real leadership, I mean, you know, doing it for—not for political purposes, but for national purposes, then we can address it. 

But your point’s—given your assumption, I think the, you know, the conclusion is accurate.  But I don’t think that’s well understood 

right now, either, you know?  Right now, people see China—they’re the big boy on the block and really haven’t thought through the analysis that you described. 

ROY:  Alice? 

QUESTIONER:  Alice Young, Kaye Scholer law firm. 

With President Hu’s imminent arrival, two questions.  One is, what do you hope will be accomplished during this trip, if anything, or is this just going to be, you know, lots of talk but nothing accomplished, or whether you think there’s really going to be something accomplished? 

And secondly, you alluded to Congress and the need to have more knowledge or understanding of U.S.-China relations and the pros and cons and whatnot.  What do you see as the most effective means to that?  You’ve spent some time in China.  Many of your colleagues have not.  I’m just wondering if you think that’s valuable, or whether or some of the reports that the council does are valuable.  What do you find would be useful in educating your colleagues in Congress? 

BAUCUS:  Right.  Well, personally I think the president’s visit here is very important.  Well, at least it’s raised expectations.  So if nothing comes of it, that’s a negative. Something’s got to come of it.  

And the areas, to me, are, you know, well, the—it’s the procurement code—sign up to the procurement code.  It’s to—as promised a year ago, to enforce intellectual property, at least in government agencies.  For me in Montana, it’s beef, the price of beef. And there are a lot of things that can come out of this as positive. I don’t expect a big, you know, appreciation of the RMB right away, but at least some sense that they understand that and are taking some action.   

What’s most effective?  I think visits are effective.  That is, traveling to China, and the Chinese here.   

It may be bit dangerous here, but I think Senator Schumer’s visit to China was positive.  It was constructive.  I presumptuously will say I think, you know, my colleague, you know—I think that opened up his eyes a little bit.  It took some of the air out of the balloon. But I think that that air is going to—if he filled that balloon back up again—(scattered laughter)—no pun intended—(chuckles)—if President Hu’s visit in the aftermath of the JCCT isn’t productive—but there’s—I expect progress here, frankly. 

Visits do help.  They just help so much. 

ROY:  Yeah.  Let’s go back here. 

QUESTIONER:  Christina Davis, Princeton University.  Many of your comments today about U.S.-China relations remind me of the 1980s U.S.- Japan relations, as I’m sure you know from your own experiences.  But at that time, security cooperation was so strong that it often helped to restrain high tensions over trade/economic issues.  And my question is whether, with U.S.-China having security tensions as well as trade tensions, is there a problem of spillover? 

Do you see any of these trade problems making it more difficult to cooperate on North Korea or other important security issues? 

BAUCUS:  I do.  I think it’s—there’s some complication. And frankly, I think the administration—or our country could be a little more aggressive in both arenas.  Say—on, say, North Korea, to not—it seems to me it leaves so much to China in the six-party talks, they’re relying so much on China with respect to North Korea. I just think that we can be a little more forceful ourselves.  

And the same is true on some of these trade issues.  I, for the life of me, just have a hard time understanding why we didn’t earlier bring IPR actions against China.  There’s a lot of talk, but not lot of action.  Or more words about China living up to its commitments that I mentioned earlier.   

But still, you know, ordinarily one has credibility if one takes on one’s own problems, too, and that is our savings rates, you know, which—and our competitiveness.  And I think another is for our fuel here.  But you’ll have more influence—it’s kind of the Paul Kennedy thesis—you know that book he wrote about, you know, if there’s—you know, economic—you know, the bigger we’re an economic power, the more we can project political power worldwide, the more we’re respected and listened to.  We just have to, in my view, just really get going on education.  You know, on just health care, energy independence, you know, R&D tax credits, I mean just really focus hard on the one advantage the Chinese tell me we have today, and the Indians tell me we have today, and that’s innovation, it’s creativity. Man to man, I just think the more people around the world understand that we are really—we’re focused on this and we mean it, the more likely it is that we’re going to be able to deal with the trade imbalance and also with the security questions that you raised. 

ROY:  Mr. Sorensen. 

QUESTIONER:  Thank you. 

BAUCUS:  Good to see you, Ted.  I’ve been an admirer of yours for many years. 

QUESTIONER:  Oh, Senator, that’s nice.  I share your long-range hope in the answer to John Brademus’s question that opening up trade and the economy will, in time, make a change on the political and human rights questions.  But it’s a very slow, long course, as the last few years indicate.   

I’m just—I like to emphasize the security relationship, of course.  But in the meantime, does the United States have, given its ideals and background, some kind of moral obligation in the bilateral relationship to see to it that American consumers, when they get these cheap goods, aren’t buying goods that are cheap because they were made by prison labor or slave labor? 

BAUCUS:  I think we do.  I very much think we do have that moral obligation.  I think it’s probably why we have immigration laws and this big debate in Washington today, because, you know, Americans aren’t heading for the door to live in other countries; rather, people want to live in America.  It’s probably economic security, clearly, but it’s also, you know, opportunity, mobility, it’s independent judiciary, it’s protection for civil rights and civil liberties, compared with lots of other countries.  I think it’s very important to stand up and be forceful about it.   

A couple of years—a few years ago when I was in Beijing, and later in Tibet, I gave a list of names to—prisoners who were being held.  They, of course, said to me, “No, those people don’t exist.” You know, I got the brush-off.  But I pressed it, and sure enough, in about two, three or four weeks, they were all released.  So in various ways, you have to keep pushing there, too.  I think that’s critical. The moral standard of our country is critical, and that takes work, clearly, but we have to do things like you discussed, you mentioned. 

ROY:  Yes, ma’am? 

BAUCUS:  And I gave that list to President Jiang Zemin.  He said, “Oh, no, no,” and then when I was in Tibet, said the same thing. 

QUESTIONER:  Vicki Schmelzer, Market News.  In the Grassley-Baucus bill, you mentioned you would create a Senate-confirmed official at the Treasury to enforce trade agreements.  Can you give us any more details about this post and what kind of measures might be implemented to enforce trade agreements? 

BAUCUS:  Well, the thought is—this is a double-edged sword, of course, but to make the general counsel confirmable by the Senate; that is, not just USTR, but also someone who’s designated as the major trade enforcer.  On the down side, some would say, “Oh, gee, that just risks more political mischief, that people in the Senate confirmation hearing are just going to raise all these demagogic issues and really (not the heart of ?) the matter.”  But heck, we’ve got to trust ourselves a little bit, too, and have these discussions, frankly.  And the thought there is if this person is confirmed by the Senate, it gives the Senate an opportunity to talk with this person, man or woman. 

And it also is an opportunity for the USTR and him or her to sit down with the Ways and Means Committee and the Finance Committee just to kind of go over trade issues, because, you know, we’re so unique. We’re not a parliamentary form of government, at least that’s a given, and it has more benefits than I think liabilities, but at least that’s a given.  In other words, you kind of work with that, and therefore, it’s a better opportunity, I think, for the USTR to better reflect—to take more action that he or she should take. 

ROY:  Yes, sir? 

QUESTIONER:  Maurice Tempelsman, Leon Tempelsman and Son. 

BAUCUS:  Hey, Maurice.  Good to see you. 

QUESTIONER:  Nice to see you, Senator, and thanks for your leadership. Of course, it’s a long-term relationship that we’re talking about, but with the impending meeting, let me try to direct the question towards leverage, and in two areas:  leverage—external leverage, the ones that we might have in order to encourage them to move in a particular direction; and second one, the political leverage within China itself, because assuming that political leaders pay more attention to their own internal politics than to the exterior pressures, it would seem to me that if I were a Chinese leader the thing that would keep me awake at night would be the capacity to transfer some of those accumulated reserves to the benefit—for the benefit of the very large mass of people that is outside of the booming—that section of the booming economy. 

Is there anything you see that we can do to encourage that particular trend?  Is there anything that can be done in dialogue on that issue? 

BAUCUS:  Well, it’s interesting you raise that.  When I was in Chongqing, I was struck with the new big fancy highways out of Chongqing, new airport at Chongqing, and I even talked to the mayor about what’s going on here.  And he made that—not directly, but almost directly—your very point about the reserves being out to construction and to expand out into western China, away from the coastal provinces.  And he also said something interesting—somewhat in response to your question—there’s no American company here, and he listed other countries who were building that airport—that big fancy airport—but where’s America?  Where’s Americans?  And to me, it looked like that’s an opportunity.  We can help encourage what you’ve—and indirectly—what you just suggested. 

And this isn’t on point, but I was also very struck with—I asked the mayor, “Well, gee, with your population policies,”—because I later went to India, which is just the opposite; there are so many young Indians compared to younger people in China—“does this make sense because you’re going to face”—I said to the mayor—“you know, huge demographic problems in the next 10, 20 years.”  He said:  Oh, yeah, we know that.  That’s part of the plan.  We—currently now, it’s easier for us to develop or do what we want to do. We’ve intentionally postponed that problem off to the future, and we’ll deal with it then. 

But—and in India, too, I found just over and over again—where are the Americans?  You know, lots of infrastructure being built in India—airports, you know, ports, railroads and stuff like that—but where are American companies? 

So an opportunity is for us to be there, you know, to show up. You know, 80 percent of life is showing up.  (Laughter.)  And we can show up a little more, I think. 

ROY:  We promised to get you out of here by 1:45.  Maybe we have time for a 10-second question and a 20-second answer. 

BAUCUS:  Well, we can probably do a few more.  We have a few more. 

(Aside.)  Can we go longer, everybody?   

Yeah, sure, a little longer.  Yeah. 

ROY:  Yes, sir? 

QUESTIONER:  Hi.  Jeff Matsu, Morgan Stanley. 

Recently we’ve been having increased M&A activity both last year and heading robustly into this year.  And my question is, we’ve seen a lot of cross-border tensions both within Europe, for example, and here in the U.S. with Dubai Ports and CNOOC recently.  I’m just wondering, are we headed more towards a protectionist environment?  And is the U.S. sending a signal to the rest of the world that we really aren’t open for business? 

BAUCUS:  Well, I could ask you to answer that question. (Laughter.) 

I don’t think so.  You know, CNOOC was a bit of a shock to a lot of Americans.  There were questions of transparency—you know, who is this outfit?  You know, how much are they going to be subsidized, compared with an American private competitor?  There were just a lot of questions there that I think were legitimate. 

But Dubai Ports, you know, things happened.  You know, the CFIUS Committee didn’t really consult much with the higher-ups, let alone with Congress, combined with the, you know—gee, Americans realized to their chagrin that there aren’t very many American companies that 

operate port terminals.  And that was a big shock to a lot of Americans.  And—but, you know, that’s fine, that’s good.  That gets us thinking a little bit more about what’s going on in the world. 

And I—you know, the pendulum swings.  I think it’s—it swung a little bit, you know, nationalistic.  But, you know, it’s—we’ll work it out.  I’m hopeful that Shelby legislation on CFIUS will be reasonable.  I think by and large it is.  It’s not perfect, but I think it’s—it could be a lot worse.   

And then CNOOC raised questions about America’s energy security—you know, like we’re all going up such a rapid rate.  What can we do to make America more independent in energy?  I think there’s a lot of things we can do. 

Personally, I’ve introduced legislation to set up—I got the idea from others; it’s not my idea—(chuckles)—probably from Tom Friedman—but an ARPA-E. 

You know, DARPA worked pretty well for the Defense Department; you know, Internet, stealth technologies.  I would like to do something similar for Energy; harvest lots of bright people, change the Civil Service rules to get the best and the brightest, make it nimble, not top-heavy, and the research going not at the national labs, but, you know, to universities so there’s more (refreshing ?) in the companies, not hidebound, as it would be, I think, at the labs, and let’s see what we can come up with in new technologies.  We got to move.  We got to try something. 

ROY:  Senator, thank you very much. 

BAUCUS:  A little bit longer. 

ROY:  You’re willing to— 

BAUCUS:  Sure.  Yeah, sure. 

ROY:  Are people willing to violate council rules with the senator?  (Laughs.) 

BAUCUS:  Just real quick. 

ROY:  Okay.  Back here. 

QUESTIONER:  Thank you, Mr. Senator.  This is Yong Yuji (ph) with Sinovision, Chinese TV.  In your speech you mentioned the Chinese currency rate and imbalance in Sino-U.S. trade.  We all know that will need long-term work with both countries, but for this time, President Hu Jintao’s coming visit here, do you expect any positive result for those two issues this time? 

BAUCUS:  The currency; and the other one? 

QUESTIONER:  And the imbalance in Sino-U.S. trade. 

BAUCUS:  Oh.  Well, I’m hopeful, because if there’s no result, if nothing’s positive, then it’s a negative, because of expectations.  I’m hopeful.   

I also think—this is, again, not my idea, I think it’s Bob Zoellick—that, you know, here’s a real opportunity for China to be a stakeholder in the world community; you know, to step up and show that it’s being a very responsible stakeholder.  It’s a huge 

opportunity for China.  Even given all the problems internally that exist in China—I understand a bit—you know, its population imbalances, the income distribution imbalance, environment and so forth—still it’s a great opportunity for China to stand up and show the world.  And if so, I think it will go a long, long way to addressing some of these problems, and I very much hope to see it. 

QUESTIONER:  Liz Economy from the Council on Foreign Relations.  You know, as China watches and all these people here are engaged in—

ROY:  Liz, you have to stand up, under the rules. 

QUESTIONER:  I have to stand?  Okay.  Well—(inaudible). 

You know, one of the last things that we want to see is a new issue arise or a new potentially contentious issue arise on the U.S.- China agenda.  And it seems to me that one of those issues has popped up over the course of the last few months, and that’s sort of the Internet issue, you know, Google and Microsoft, Yahoo!  And, you know, Congress held these hearings, very contentious hearings.   

BAUCUS:  Right. 

QUESTIONER:  Where do you see this moving in terms of actual legislation?  You know, what sort of measures do you think Congress is going to put forward?  I know they have an act out there now.  But what’s going to happen that’s going to make it possible for these companies to continue doing business in China but doing it in a responsible way? 

BAUCUS:  That’s a very good question.  I don’t know what the answer is, frankly.  I asked some Chinese officials about that when I was there in January; I just got some non-answers.   

I, frankly, think a lot of—it’s very delicate, but, you know, Microsoft, Yahoo!, you know, all the providers, I think can do themselves well in the United States and China, too, by resisting some of the requests that the Chinese government has made, and not give in too easily.  I’m not at the table; I have no idea what discussions are.  But it just struck me that perhaps those companies could have done a little more, (as they know ?).  And that would be my sort of default. 

ROY:  I feel constrained. 

BAUCUS:  I do too! 

ROY:  I’d like to get you back.  I’m afraid if we keep you here too long, that we’ll wear out our welcome. 

BAUCUS:  I’m beginning to feel constrained too!  (Laughs; laughter.) 

ROY:  I think we better—we better wrap up.  But I want to thank you for your frankness and wisdom. 

BAUCUS:  And thank you for what—and thank you, Stape, for what you do.  I mean, this is a great forum, and I just encourage you to keep it up. 

ROY:  Well, this is very timely having you here— 

BAUCUS:  Thank you.  Thank you.  (Applause.)  Thank you very much. 

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