China, Trade, and Local Economies

Jessica Bissett, senior director of government engagement at the National Committee on United States-China Relations, examines how subnational engagement shapes U.S.-China relations and what these dynamics mean for local economic resilience amid ongoing trade tensions. Zongyuan Zoe Liu, the Maurice R. Greenberg senior fellow for China studies at CFR, discusses recent developments in bilateral trade policy, including the effects of U.S. tariffs and China’s retaliatory measures.

TRANSCRIPT

FASKIANOS: Thank you. Welcome to the Council on Foreign Relations State And Local Officials Webinar Series. I’m Irina Faskianos, vice president of the National Program and Outreach here at CFR. 

CFR is an independent, nonpartisan national membership organization, think tank, educator, and publisher focused on U.S. foreign policy. CFR generates policy relevant ideas and analysis, convenes experts and generates policy and policymakers, and is also the publisher of Foreign Affairs magazine. As always, CFR takes no institutional positions on matters of policy. 

Through our State and Local Officials Initiative, CFR serves as a resource on international issues affecting the priorities and agendas of state and local governments by providing background and analysis on a wide range of policy topics. We appreciate your taking the time to be with us for today’s discussion. We have more than 400 confirmed from forty-seven states and U.S. territories. 

So, again, the webinar is on the record. The video and transcript will be posted on our website after the fact at CFR.org, and we will share it with you as well via email. 

We are pleased to have Zongyuan Zoe Liu and Jessica Bissett to speak on “China, Trade, and Local Economies.” We’ve shared your bios—their bios with you, so I will just give you a few highlights. 

Zoe Liu is the is Maurice R. Greenberg senior fellow for China studies at the Council on Foreign Relations. She is also the author of two books: Can BRICS De-dollarize the Global Financial System? and Sovereign Funds: How the Communist Party of China Finances its Global Ambitions. Dr. Liu was formerly an instructional assistant professor at Texas A&M’s Bush School teaching global economy, economic statecraft, and Chinese foreign policy. 

Jessica Bissett is a senior director for government engagement at the National Committee on U.S.-China Relations, where she focuses on congressional and subnational initiatives. She previously led their Next Generation Leadership programs, including the Schwarzman Scholars Partnership, Young China Professionals Program, and Diplomat Orientation Program. 

So thank you both for being with us today. 

Zoe, I thought we would begin with you to give us a high-level view of the current state of U.S.-China trade relations and the major developments behind the latest round of tariffs and how tensions will—these tensions will shape the economic outlook for local economies across the United States. 

LIU: Thank you, Irina, for inviting me. And many thanks for those of you who tuned in for today’s State and Local Officials Webinar. 

I guess one sentence to describe the current status of the trade tension is that the tension is back up. And in fact, I’d say the U.S. and China has been—the two countries have been engaged in a de facto low-tension, low-pressure trade war since 2018, and then starting from the liberation day tariff of course tension is back up. After three rounds of negotiation in Geneva, then London, then Madrid, it seems that there was a short period of ceasefire. But now, with—following the U.S. tightening export controls against China by adding more Chinese companies on the entity list, China fight back by unveil a more refined export control regime, and then President Trump threatened to raise tariff by 100 percent against Chinese goods exported to the United States. And the effective day would be November 1 if no agreement were to be reached. 

So I guess this is to say that for U.S. companies and U.S. states who export a lot to China, especially with regard to—with regard to soybean farm agricultural products, a lot of these—a lot of—we are probably going to anticipate China impose—China further weaponize its dominance or its purchasing power, specifically soybeans and to some extent LNG import from the United States as well. But the hurt probably would be less compared with before because China already stopped—de facto already stopped purchasing U.S. soybeans and diminished purchasing U.S. LNG by a large amount up until—up until now. So from that perspective, tension is—further damage to U.S. agricultural states probably is not necessarily going to be as painful as before. And on top of that, President Trump has been discussing potential farmers bailout. So from that perspective, there is additional—anticipated additional domestic support coming from the Trump administration.  

And I’ll just close by saying that, so far, despite that the tariff tension has been high, despite that the trade and export control uncertainties have been high, both U.S. economy and the Chinese economy have been quite resilient. You know, on the one hand inflation pressure in the United States have been building up, but we haven’t really seen tremendous amount—like, a price hike, at least not necessarily for now. Part of the reason can be explained by, yes, there is always going to be a lag in terms of—in terms of how inflation transmit—and how tariff pressure is transmitted through the supply chain. But a very important aspect of that is U.S. companies have been front-loading their inventories. And then on top of that, Chinese companies have also been systematically giving a discount to U.S. export—to U.S. buyers. And you see this reflected in the data. And, of course, the third reason probably is also because of Chinese companies have been rerouting or transshipping export to the United States.  

So, so far, I’d say—just close by saying that a lot of these uncertainties have not—haven’t really—haven’t really been devastating so far. But anticipate, you know, the resilience of the economy to be worn out if the trade tension doesn’t get resolved by later this year. So probably won’t be—assuming everything like now, than by the first quarter of next year local economy in the United States as well as in China probably will see even more signs of fragility. 

FASKIANOS: Thank you, Zoe.  

Jess, let’s go to you to talk about how the trade dynamics and export controls are playing out at the subnational level, and the trends you’re seeing among state and local governments as they work to navigate this shifting landscape. 

BISSETT: Sure. Thanks so much, Irina, Zoe, and the rest of the CFR team for having me.  

I’m not an economist like Zoe, but I can share some of my own observations from the work that the National Committee has been doing at the subnational level. This past spring, we spent a lot of time in the southeast. We were in Charlotte, Chapel, Hill, Greenville, Atlanta, talking to various stakeholders. And unfortunately, I think almost every facet of, you know, state, regional, and local economies are exposed to the competition that’s playing out between the U.S. and China.  

From agriculture, as Zoe said, obviously, soybeans have in the news—have been in the news, but I think, you know, corn and sorghum sales to China are down as well. You know, farmers throughout the country have spent years working with their local chambers of commerce and state economic development agencies to create these markets around the world. And although they may go away overnight, it takes a really long time to get them back. And we see that China has, you know, invested so much in Brazil and in other parts of the world to try and diversify its own access to soybeans. And so I think U.S. farmers are taking a heavy hit. And I really do hope that, despite the government closure, that there are plans in place to help the farmers across the U.S.  

But in addition to agriculture, people at the state and local level are seeing implications in manufacturing too. And when we think of tariffs, obviously that can affect many inputs that are coming from China. I think since the first trade war and pre-COVID, I think state and local governments have been thinking strategically about how they can diversify their supply chains, how they can potentially source from other countries. And they did that. I think a lot of companies were starting to look to Vietnam and other countries in Southeast Asia, even turning to India, maybe Bangladesh.  

But the reality is China has a supply chain ecosystem like no other in the world. And it’s going to be really hard for other countries to develop the know-how and have the same level of expertise in terms of the supply chains, especially in high end manufacturing, that now exist in China. And if you think of the population too, just the proportion of people in China who are engaged in manufacturing, you know, that just can’t be replicated in a country like Vietnam. So there’s just certain advantages that are always going to be held in China in terms of sourcing inputs and other high-end manufacturing. And I think that that’s the reality that, you know, we’re going to be faced with for the mid to long term as well.  

But every industry is exposed to this. You know, in the southeast there’s a lot of car manufacturing, not just inputs but now also, with these new restrictions on other critical minerals—critical minerals are in all sorts of, you know, products, whether it’s chips to missiles to the motors in your car seats. So those types of restrictions can have widespread reverberations as well. And I think as we all know at this point too, China has a chokehold on the critical mineral supply chain, for a variety of reasons which we can talk about. And although we are making important moves now in the United States to bring some of that—reshore, some of that back home, that’s going to take years to establish 

Same thing now we’ve heard the most recent responses to some of the U.S. restrictions that China is responding to within the battery supply chain. And it’s not just the components going into batteries. It’s also the technical know-how. Obviously, you know, the United States, we’ve been focusing on reshoring and bringing some critical manufacturing back to the U.S. A lot of that involves batteries, both for EVs and for energy storage. And that’s going to—you know, that type of uncertainty is really going to do a number for states and local economies who are either already in the process of creating deals for investment into these industries back in their states or future deals.  

So I don’t envy people in the state and local governments right now. They’re dealing with many, many concerning issues in the relationship. And they’ve done a really good job at trying to diversify as best they can over the past few years. But what happens between the U.S. and China isn’t truly just bilateral. There’s global ramifications. And it affects a lot of the countries that they’ve been trying to work with, in addition to China. 

FASKIANOS: Fantastic. Thank you so much to both of you. We can go to all of you for your questions and comments. 

(Gives queuing instructions.) 

So we have the first question from Council member Doug Taber who’s in Washington state. This is a question for Dr. Liu: Would a successful BRICS alternative create a more multipolar monetary system or lead to fragmentation and instability? Would it overall be positive or negative for the global economy? 

LIU: Yeah, thank you, Doug, for this question. I guess, first of all, the BRICS alternative currency or monetary system is in development. We wouldn’t—we would not describe it, at least numbers as well as in reality, is not necessarily a viable alternative to the U.S. dollar-based system. That being said, BRICS countries, including China, India, and Russia, these three—these three members, and to some extent Brazil as well—these members are very enthusiastic to develop alternative, not necessarily to bypass dollar—not necessarily to reduce the—to challenge or to dethrone the U.S. dollar, but what do they really wanted to achieve is to strengthen their resilience and their—and reduce their vulnerability to America’s financial sanctions.  

So from that perspective, I’d just say, if, through the broader use of renminbi and the broader use of local currencies in international trade settlement, in the pricing of a commodities, from oil, to Korean soybeans, to LNG and even critical materials, this—even this—in every development like this is chipping away the U.S. dollar’s dominance. Now the real challenge is that right now we are a global system operating primarily, you know, bringing the power—the source of the power, the energy—or, economic development is from hydrocarbon, primarily oil. And oil is traded globally and is priced, and it’s denominated in U.S. dollars. So but as the world simultaneously going through two transformations.  

The first one is the energy transformation. You know, relying more on green energy, which is less—which is not traded internationally, and the U.S. dollar certainly is not the dominant currency in pricing green energy. It’s not even the dominant currency in pricing the individual materials. And on top of that, the United States so far does not have absolute advantage in all either the supply chains of the critical materials or the renewable energy. And the U.S. does not necessarily—the U.S. dollar does not necessarily have the comparative advantage when thinking about how the Chinese government has been systematically trying to increase the renminbi’s pricing power in major commodities, especially in critical materials.  

So from that perspective, you know, as the world becoming more fragmented in—not just in terms of energy system, but also in terms of how government tries to seize the opportunity to promote the use of local currencies, I do see the currency system becoming more multilateral. And this is the—whether this is going to be a good thing or bad thing, I’d say is unclear. Because one thing that we do know is having a single currency for international trade is good to reduce transaction—to reduce the—to ease transaction. It’s like speaking language. If I didn’t speak English and you didn’t speak English and we both speak our own languages, then we end up not being able to communicate or exchange.  

Now, the role of the dollar, having a single currency facilitating international trade, that’s great. But if the currency system becomes more fragmented, then our global trading system is probably going to become increasingly more fragmented as well. And this is putting aside all these geopolitical tensions. Now, of course, the geopolitical tensions is going to further incentivize countries like China, Russia, Iran, North Korea, and countries that trade a lot with China, to participate in China’s renminbi-based payment system.  

And then finally I’ll just conclude by saying that right now we are also seeing the rise of the stablecoin. And now the U.S. is rushing through the dollar-backed stablecoin. And China has—in response to that, China has been trying to experiment offshore Hong Kong dollar-backed stablecoin and offshore renminbi-backed stablecoin. The idea is that China does not—China does not want to allow the dollar-backed stablecoin to set back some of the progress that China has made over the past few years in developing an alternative payment system. 

FASKIANOS: Thank you. 

I’m going to take the next question from Steve Holifield, who’s in Indiana, La Porte County, Indiana, board vice president. If you could—there you go. 

Q: Yes. 

I’m a lifelong farmer. Started farming the 1980s when there was an actual, real crisis. This is not a crisis, by my standpoint. We had a grain export embargo then, which is similar to tariffs. The farmers that I know of that survived back then and are trying to help the next generation, we would grow other crops. But we can’t grow as other crops because of the subsidies and the bailouts being offered to the poor and inefficient operators who become accustomed to this lifestyle. Why does the government feel the need to step in when it’s only going to affect the farmers who are just mismanaging their operation? 

BISSETT: I can take a stab. This is—it’s an excellent question. I am, admittedly, not an agriculture expert, but I—my understanding is the stepping in is really, I’m assuming, for political reasons, in terms of thinking about the next election cycle and recognizing that, although there are farmers around the country, many farmers are located in the Midwest in various areas that are red states. And I think President Trump and the Republican Party are looking to shore up votes for the next midterm election.  

Your points are really interesting. I don’t know enough about agronomics to give you a scientific answer. But I do think it’s a good question. I don’t know, you know, if the—kind of the organizations that represent farmers—I know there’s different crop organizations and other, you know, large national organizations—you know in terms of the feedback mechanism—the feedback loop that you have with the Indiana congressional delegation or others. But I think it’s a really excellent question. And I hope that you’ve pushed it up the channels to the people that can actually perhaps give you a much better answer than I can. 

FASKIANOS: Zoe, anything to add? Or should we take the next question? 

LIU: I guess, just very quickly, I would agree with Jessica in terms of shoring up a voter base. It’s less about the—I guess if you look at the economics and the resilience, or for that matter the cash flow of American farmers—American farmers cash flow—it doesn’t really have a cash flow problem, right? So from that—but I do think the politics here, it matters more. And if you look at the last trade war, the last trade war after Trump imposed tariff on 200 billion (dollars) Chinese goods import, what he eventually did was to bail out and pay off some of U.S. farmers. So I think there is a pattern here as well. 

FASKIANOS: Thank you. 

I’m going to take the next written question from Jack Heinemann, who’s a trustee in Waunakee Village, Wisconsin: Do you see Chinese companies looking to move manufacturing into the U.S. to get around the current trade war between the countries? 

BISSETT: From what I’ve heard from various state level economic development officials, Chinese—they’re still looking to invest in the United States. I think there’s—it’s much more under the radar these days. And I think at the state and local level they’re still being welcomed to come in and invest. They’re just not necessarily receiving the same type of subsidies and incentives that they may have previously received in the past. So, look, the United States is still a viable market. Chinese companies want to make money. And if they see an investment opportunity in the U.S., they’re going to pursue it. Obviously, the political situation in the United States right now makes that challenging. And, you know, with other potential restrictions coming down the pike, whether it’s related to, you know, critical minerals or batteries, that makes investment in those industries particularly challenging. But, yes, I do think the Chinese are still very much interested in coming to the U.S. And as long as states and regions are open to Chinese companies coming in and investing, I think if it makes sense in terms of profit they want to do it. 

LIU: I guess I agree with Jessica. And through my conversation with Chinese businesspeople, they do still want to invest in the United States. However, they also recognize that at this—at the current stage, they are facing pressure, both from inside of China, the Chinese government, as well as the U.S. government as well. On the one hand, the U.S. government for the past few years have been strengthening investment screening against the Chinese entities. And the Chinese companies sometimes find themselves caught in this investment screening process. And sometimes there are also local national security concerns or just—or, local perceptions, and the local anti-Chinese investment for a variety of reasons. I think Gotion and its battery investment in Michigan—in the state of Illinois is one example.  

And then on the other hand, you know, Chinese government has also been systematically trying to incentivize the Chinese companies to invest at home, to strengthen China’s industrial policy—industrial base. And I just say, from companies’ perspective, while we do seek to invest in the United States, we are also very, very realistic. So knowing that investment in the United States is becoming more difficult politically, and the risk is also high, the idea that if you invest in the U.S. today, you know, after a few months maybe the project would not even complete. Or, for that matter, because of all sorts of policy issues, because of the higher labor costs and not familiar with local political environment, Chinese companies have been seeking to invest elsewhere.  

And you see this in Chinese narratives, both in government documents and scholarly narrative. We are incentivizing companies to think creatively, to think beyond the market of the West. So I think going forward we are going to see continued Chinese investment push to countries that have perhaps a free trade agreement with the United States and European Union. On top of the list would be countries like Morocco. So I think from this perspective, for our local economies, especially America—like, local-based, small and medium sized business, do not count on the resurgence of Chinese investment in the U.S. But instead, thinking beyond what China—to what extent China may may help, and potentially set up a joint venture elsewhere so that you can have a supply chain with China, still have your—have your business with a China component, but not in China—not in the United States, but in a third country.  

Because once you are—once you have that, you know, third country, you are trying to reduce bilateral tensions. But at the same time, trying to sell to market not just inside the United States. But all this is still under the premise that China does not put additional export control restriction. Right now, the case is that even if it’s—even if it’s a joint venture, as long as it involves any iota of Chinese technology or Chinese ingredient, especially with regard to—with regard to critical rare earth minerals, your joint venture would have to apply for export license. And that really won’t work. 

BISSETT: Yeah. I would just add, as Zoe said, I think companies—Chinese companies are much more risk adverse. I mean, they’re aware of the reality in the United States. In best of times, you know, we’re looking at every four years there could be, you know, radically—you know, radical changes in terms of policy. You know, under the Biden administration it was CHIPS and Science and the IRA. That’s no longer a framework that investors are really using. And that’s in good times, when it’s not total, you know, political chaos. I think because of, you know, CFIUS, the Committee on Foreign Investment in the United States, you know, their mandate has broadened. So much more can fall under it now, but I think a lot—it’s still kind of unclear as to what the stipulations are.  

So I think a Chinese company, if they’re worried that their potential investment could even, you know, trigger that, then they’re going to say, no, it’s not worth it. It’s not worth the cost and the—you know, the time and effort that would go into it. And then again, you said, Zoe, I mean, at the state and local level, you know, there are, you know, thirty states across the country now that have laws related to, you know, Chinese restrictions of land—whether it’s farmland or if it’s land within a certain number of miles of a military installation. You know, potentially valid national security concerns. I’m not saying that that’s not a real thing. But I think all that just adds to, like, the is this worth it, if I could go to another country and not have to deal with the same type of potential restrictions?  

FASKIANOS: Thank you. 

I’m going to go next to Mayor Britt Moore, mayor of High Point, North Carolina. 

Q: Good afternoon. And let me be clear, it’s mayor pro tem. My young, thirty-three-year-old mayor would not like this sixty-three year old man being called mayor across this Zoom platform.  

But I feel—I don’t know—let me—I’m all over the place with this, because I’ve followed it for my sixty-three years. Let me quickly say High Point, North Carolina, if you do not know, has been known as the furniture capital of the world in the ’40s up through probably the ’70s. Ninety percent of all case goods that were distributed in the United States were made within ninety miles from my house. And prior to that as well we had twenty-nine textile mills in High Point, with a population less than 60,000 people, and made more blankets and socks for World War I and II than any other region in the world. So we have a rich history in manufacturing.  

And next week, we have our semiannual High Point International Furniture Market, where we welcome people from all over the world to twelve million square feet of showroom, which when I was younger was filled with manufactured American-made product, as well as some export. That has totally flipped in my thirty-five, forty years of business life. So to you younger folks, I want to apologize for us losing that strategic advantage, because it’s not a strategic advantage when you outsource it. I view this along not only economic lines, but sovereignty lines. And, as I said, I could go all across this. I’ve been in a family that had some dealings in furniture manufacturing as well as textile manufacturing.  

But my concern, or maybe some response from the doctor and Miss Bissett would be, from your younger perspective, you know, ’94 we had NAFTA, which was more—just narrowly passed. I think it was a road to good intentions that went vastly off the rails in 2001, when we allowed China to come in to the WTO with a favored nation status. And I wondered what your thoughts are as to the accusation of not following along the WTO rules—that China doesn’t play by the rules, et cetera, et cetera, whether it be dumping, intellectual theft, and all that kind of thing. Sorry for the rambling. 

BISSETT: Not a rant. I was just going to say, two of my closest friends have worked at Ralph Lauren Home for many years. And they often went down to High Point. So I’m very familiar with your region. But I’m going to say that’s a Dr. Liu question. I’m going to let—at least let her start. 

LIU: I think this is a complicated question because what you are really touching upon is winners and losers from globalization or international distribution of labor, right? And I think it just so happened that as China rises and benefited from international trade, what we are—what we—for a lot of people in America, especially people who used to have manufacturing jobs, they realized that—they realized that they are losing their jobs maybe to China, maybe to automation. But I just say it’s a mix of both. There is definitely the automation aspect of that over the past—over the past thirty years, in terms of manufacturing. 

But I do—I would agree with you that, you know, like, outsourcing, especially manufacturing job outsourcing, may pose in some—in some aspect a national security concern. I am sympathetic to this kind of argument. If the world is full of American allies and nobody is going to weaponize their dominance in supply chain, I guess that’s not necessarily a concern. But I’d say the old school of economics, you know, like, the economy of the scale is good for—good for profit, that is no longer the lens through which business or governments view how economics work. Because we are no longer thinking about economics through pure profit, but instead we view economics and trade through the lens of economic security. And the moment you touch upon economic security, you realize that that’s a finance 101. You don’t want to put all your egg in one basket.  

When all this combination of supply chain diversification, exacerbated by the desire—or the anxiety, and the concern that one single country might just shut down their supply to the rest of the world, and then the entire global supply chain might face the danger of collapse. But I would say, a lot of this—I tend to be—I’m trained as a free trade economist. And I acknowledge that I might need to go back to school and relearn economics—(laughs)—because the more countries seek economic security for themselves, it might be the case that companies will find it become increasingly more difficult to practice business in a way that can simultaneously be in compliance with different jurisdictions. It couldn’t be the case that if you are in compliance with the law in the United States, such as export control, then you are, by definition, violating Chinese anti-sanction law. And then that basically means you are going to either give up your market in China or you change your behavior.  

So increasingly, I’d just say, this just makes business increasingly difficult to operate. So onshore, nearshore, friendshore might be the solution. But that also means this is going to significantly drive up prices for land, for labor, for utilities. And don’t even forget that we are undergoing the global race of AI, and with data centers and all this. A lot of these are going to drive up prices. And guess what? Construction need material, need drywall, need furniture, and office furniture. And by the way, China now—China’s most export-dependent industry is actually furniture. And they do export a lot of furniture to the United States. Assuming that our industries stop buying from China, then we are going to experience construction delays. So I’d say, it’s complicated. (Laughs.) 

BISSETT: Yeah. I would just add, I think, as Zoe said, free trade economics, although it clearly emphasizes efficiency and profit which we benefit from as a country, there’s also a huge cost. And a lot of that is, you know, economies, local economies, have been hollowed out. And they haven’t recovered. They didn’t receive—you know, and we knew this was going to happen, both with NAFTA and the WTO, but I don’t think there was enough government support following both of those deals to economies that were going to be affected. But I think even just at a personal level, there’s a loss of know-how that comes with that type of outsourcing. And now when we do want to reshore or bring some sort—some manufacturing back to the U.S., we don’t have that—the know-how.  

We don’t have those linkages. We don’t have the pockets of workers who are in these economies to kind of, like, start doing this again. We have to bring in other workers to train us. Or, oftentimes, if companies do want to come in and invest in the United States, open up some sort of manufacturing plant, we don’t have the type of workers here who are trained to do that. And they—you know, then there has to be—so there has—there’s just—there’s effects within, you know, the education system, the vocational system, the labor that’s available. Like, we don’t have those to, you know, just readily restart. And that’s a huge disadvantage.  

And in terms of other, you know, kind of critical manufacturing in the U.S., I mean, we saw this in COVID. When you outsource everything it can be a huge problem. And I think we saw that, obviously, with masks. But now we’re still seeing it in pharma. And although I think we are trying to bring back some pharma manufacturing to the U.S., there are still only certain raw inputs that are only made in China. There’s an article today, I believe it was in the New York Times, talking about amoxicillin and other drugs where key ingredients for those drugs are still only manufactured in China. So obviously, although I still believe that free trade has many benefits, there clearly are obvious disadvantages and risks that come with it. And I think we just, as a country and a society, need to be much more clear-eyed about it. 

FASKIANOS: Thank you. 

I’m going to take a written question from Gary Strong, who works in the Office of Texas State Senator Zaffirini: How long do you anticipate China will persist with their decision to continue their embargo on rare earth exports? 

BISSETT: Zoe, go ahead if you want to first. 

LIU: I just feel like this time around China is probably more willing and the less hesitant to weaponize their dominance in critical mineral, including rare earth materials. The supply chain, the ingredient of the technology. And the reason is that China’s dominance and China’s advantage is, right now, at this moment. As the rest of the world build up their own refining and processing capacity, or, for that matter, as the rest of the world new technology being developed to find alternatives to the—find alternative to the existing rare earth materials, China’s advantage would be diminished in the long run. So this is why I think in the first—in the first—in this round of trade tension, China is definitely more willing to continuously weaponize its dominance of rare earth minerals, in particular.  

But this rare earth mineral, I’d say, is not the only lever that China can pull. And by using rare earth mineral that China now dominates, China—what China is gaining is a test of what are the pain points for U.S. economic system, or, for that matter, where we try to gage what China’s dominance is in the global supply chain, and what kind of—through what kind of mechanism China can refine its export control regime. So it’s about rare earth material, but it’s also about China building its long-term coercive armor against Western or U.S. economic coercion. 

BISSETT: Yeah. And I think it’s signaling. You know, China—it’s been very clear that the China during trade war 1.0 is not the China now in trade war 2.0. A lot has changed over the past six years. And China has much more leverage than it did under the first Trump administration. And it knows how President Trump likes to operate in terms of negotiation. They know that he’s going to come to the table and immediately hit hard, as he did on—you know, with tariffs on, you know, a myriad of countries. Liberation day. They see those tactics and they think, OK, well, we’re going to respond accordingly. You know that we have a pain point in terms of access to the most advanced semiconductors. And we know that you have a pain point in terms of critical minerals. So let’s get ready for these negotiations at the end of the month, and see what we can both bring to the table. I think it’s just signaling we’re here to fight, you can’t push us around anymore, like you used to be able to. 

FASKIANOS: Thank you. 

I’m going to go next to Nashon Key. 

Q: Hi. Are you guys able to hear me?  

FASKIANOS: We can. If you can identify yourself, that’d be great.  

Q: Hi, thank you. My name is Nashon. I’m a graduate student in public policy at Temple University, and I also work for the state legislator David Delloso here in Harrisburg.  

My question is, so with, like, our economic and security allies in the Pacific and the South China Sea, like, in Indonesia, the Philippines, Japan, Korea, and Australia, to an extent. Zoe, you touched on it, with countries looking to secure, like, economic security within these uncertain times, the importance of these nations, you know, geographically and security and economically-wise—with that uncertainty that they face, what’s the—what is the impact of that going to be here for us here domestically in the U.S., with—you know, are these allies that we can rely on, when they don’t know they can rely on us? And if you could just touch on that a little bit more. 

LIU: Yeah. I think, Nashon, that’s a great question. I think, yeah, I have friends working on dissertation thesis these days explaining a very simple idea, actually, but using quantitative method to explain a very, very simple idea. The United States needs to treat your ally nicely. You need to respect your ally, rather than think that your ally is disposable. I think, you know, Southeast Asia, European Union, Japan, Korea are all good examples. But that being said, I’d say our—in terms of economic and trade issues, there have been a long-term mismatch in terms of how our regional allies economically are more dependent on China, whereas on the security front they are more dependent on the United States. I think, you know, since you mentioned Southeast Asia, I’d say Southeast Asia, using that as an example.  

Now, Southeast Asia has been—for the past three years—has been the largest trading partner, as bloc, for China. And as now—today, as we are talking about it now, like, the latest data showed that the importance of direct export to the United States for Chinese entire export has significantly diminished. Now the U.S.—exporting to the U.S. is only 10 percent of Chinese total export, whereas, like, around 2007 that number was about 20 (percent). Now who accounts for 20 percent of Chinese export? That’s Southeast Asia. Now here you see a lot of—you see different—you see different—a different mix of different feelings, if you will. On the one hand, Southeast Asian economies, like Philippines, Vietnam, they certainly do not want to be bullied. South China Sea issues and all the clash of boats. And on the other hand, they also do not want to lose the opportunity of Chinese manufacturers and Chinese companies set up operation in the region.  

So from that perspective, I’d say our allies are still security—on security issues, they are still very much hoping that the United States can be counted on, despite the current administration might have—might appear to be not sure. (Laughs.) But then on the other hand, on the security—on economic issues, just don’t count on our allies to build a coalition against China. That just wouldn’t work. It’s not going to work. I mean, so far China has been more successful in diversifying its trade, or rerouting its trade through Europe, through Southeast Asia, Latin America, Africa and all these places, than America or the Trump administration’s desire to build a—I don’t know, like, an anti-China trading bloc. You know, like, Chinese export to the U.S. declined six months in a row, but a Chinese export is still at record high. So, again, this all goes to show, at least on economic front, our allies are still very much depending on China as much as we do.  

FASKIANOS: Thank you. 

I’m going to take the next question from Doug Taber, who—this is for you, Jess: What are the best practices or frameworks your organization recommends to local officials who want to build or maintain international partnerships responsibly? 

BISSETT: Yeah. That’s a great question. I think a couple pieces of advice—and following this call there is a great report out there that was done with the Truman Center for National Security in D.C. with two scholars who look at U.S.-China relations at the subnational level. Their names are Kyle Jaros, who’s at the University of Notre Dame, and Sara Newland, who’s at Smith College. And they lay out a great framework. So this is by no means my own original work. This is—they visited different areas of the country and interviewed many people, like yourselves and other stakeholders, and came up with this.  

But a couple of them are, one, recognize you have agency in entering a deal with a Chinese partner, or any international partner. You know, in terms of signing an MOU, or coming up the terms of the deal, you have just as much agency as the other partner. So if you don’t like certain wording in the deal, you think this MOU seems pretty superfluous, why are we doing this, you can say no. You can push back. If you’re uncertain—I know oftentimes in doing deals with China in the past there would be languages about—language about Taiwan, or language about the one China principle versus the one China policy. You know, you should seek out resources to help you understand some of the fine details in this language or other portions of the deal, so you know that you’re making, you know, decisions in the best interest of you and your constituents.  

Unfortunately, the subnational unit within the State Department, which was created under the previous administration as a resource for people such as yourself, that no longer is active. Most of the team has been dispersed into other parts of State. But State Department is still a good resource for that. I would say organizations like the National Committee. I mean, we’re here to serve as a resource. We put on events around the country and can help connect you with experts to help you navigate some of these questions. I think there was a lot of, obviously, news and headlines about the case in New York State with former advisor to Governor Hochul, Linda Sun. I think that case is a good reminder that when engaging with the Chinese diaspora community in your own communities that you should have a diverse set of contacts. Those relationships shouldn’t be going through one person. You really want to make sure that you’re hearing a variety of voices and that you have many different access points to that community, and you’re not just getting advice and access through one person.  

Yeah, I’m happy to share that report. I think there’s—it’s really hard, because I think there has been a hollowing out of resources. But there are other, you know, larger, national-scale organizations—such as the U.S. Conference of Mayors, the National League of Cities, other nationwide institutions who I think, you know, these are important issues. And I think having you work with colleagues, like who are on this call and other people in your community, sharing best practices and experiences that you’ve had—what made this deal work out? How did I navigate most successfully dealing with the PRC and Taiwan? You know, it’s really important, I think, to share those stories and case studies with one another and to work together to stand strong. And, you know, if, you know, you think it’s important to include language about human rights or other things in any type of deals, like, you have leverage, and you shouldn’t be afraid to use it. 

FASKIANOS: Thank you. 

I’m going to go next to Burt Thakur. There you go.  

Q: OK, can everyone hear me?  

FASKIANOS: We can. 

Q: Dr. Liu, Jessica Bissett, Ms. Faskianos, thank you so much for this incredible opportunity. My name is Burt Thakur. I’m the first Indian American elected to the City of Frisco, and the first Indian veteran elected to any office in the U.S.  

But I happen to be an expert in the construction of hyperscale AI data centers, specifically for liquid to chip cooling. And I have a background in nuclear power as well. And for me, AI data centers, and specifically here in Texas, I think we are leading the edge of the next generation of liquid cooled AI data centers and artificial intelligence, and creating the backbone of the AI infrastructure here and a couple other places. My question has kind of a more philosophical ask. So 1944 American leadership at Bretton Woods, they didn’t just rebuild an economy. They rebuilt an idea, a faith that prosperity and peace could coexist. And eighty years later, I think we’re at the precipice of an idea that—it’s no longer bullion. It’s electrons, essentially—energy, data, computation—that’s going to drive our civilization.  

So I suppose, between all these talks, do we need a new Bretton Woods once again, where America has a prominent seat at the table, where American innovation and values kind of set the tone where nations will cooperate with electrons, not just tariffs, and where energy security, intellectual property, they form the moral architecture of the world? And with that, as China expands its industrial reach, how can the U.S. ensure that we export our trust in markets, our capacity to innovate, protect our IP, but also figure out a way for cooperation? And when there is a detente, we get Chinese investors and American investors to sit at the same table, because, look, I mean, at the end of the day, what do you think the best policy forward is to make cooperation great again? 

FASKIANOS: Who wants to start? 

BISSETT: Zoe, I’m going to let you start. Since anything talking about Bretton Woods, that’s your lane. (Laughs.) 

LIU: I think this is a great question. And I like the philosophical angle of that. And I also appreciated that from, if I heard you correctly, you’re based in Texas. And I’m glad that you are—you are still upholding American values. Increasingly, I guess, what I have experienced and what I’ve seen, especially with the rise of, I guess, right wing politics and the fragmentation of American politics, increasingly we started to hear less about burden sharing, less about American values, less about America’s global leadership. And this is sort of why we are here now. The concern that I have now is, you know, we all know that there is going to—there will be a next global financial crisis. And it could be that, again, even America’s dominance in international finance, international economics, it’s very likely to start with the United States, especially now we have the great deregulation going on in the U.S.  

So, from that perspective now the question is, does the American government have the capacity to bail out not just American companies or American banks, but the entire world? Just like they did during the global—you know, the 2007-2008 global financial crisis. And I’m not even asking to what extent America can lead another Marshall Plan. Apparently, America is not necessarily having—part of America is fed up with the global—they use the term “over extension.” Some people would compare America today, a global America, like the old-time overreach Roman Empire. And the overreach of the Roman Empire eventually led to the disintegration of the empire. So people started to talk about the need to look inside. And we also started to see our values are not in—that we are no longer—especially now, in the way that we treat our allies. We seem to don’t really care about the values. We seem to don’t care about democracy. We tend to don’t care about human rights. We don’t care about free trade.  

And instead, we are—you know, some part of American politics is treating raw power as the go-to approach for global competition. As a result, I guess we are losing a lot of not just economic ground, but also moral ground. So this is where I started to ask myself, if we were supposed—we if we wanted to continue to sustain America’s global leadership, what kind of leadership do we want? And what do we have to offer to the rest of the world? Because, again, leaders need followers. And right now, as America seemingly is retreating from part of the world, you started to see people making the argument that maybe China can take some part of the claim of global leadership. And you do see in the recent the U.N. speech Premier Li Qiang talked about China’s solution to global challenges.  

So from that perspective, I guess we need to think about foreign policy. You know, the saying is always that foreign policy starts at home. I guess we probably need to systematically think through to what extent America wants to lead the world, and to what extent we want—we need to rediscover our strength. I’d say America still is a great country. We don’t need to make America great again, because America is great. You just look at the numbers. If, you know, we just compare per capita GDP. Europe, Germany’s per capita GDP is about 80 percent—less than 80 percent of America. China is less than 15 percent of that of America. So from that perspective, I feel like we—as a country, as a nation, we need to just be more confident and less anxious about ourselves. 

BISSETT: Yeah. That’s an excellent answer. I would just—I would just add, yeah, I think we were able to make the Bretton Woods systems in a way that greatly advantaged the United States because we came out really ahead at the end of World War II. I mean, we were relatively unscathed, compared to many other countries. And I think, you know, setting up Bretton Woods, IMF, World Bank, et cetera, the U.N., I mean, we were able to mold that to fit the way in which we saw, you know, a U.S.-led global system. So I agree with everything that Zoe said.  

I think the issue today is that although I think we can still say we have some advantage over China in the U.S. AI competition, that advantage is not that great, and it’s shrinking every day. So I think it would be harder for us to say that we have the leverage and the cache to necessarily create the same type of, you know, global system for AI governance. You know, China is really—I think we, our two countries, look at AI differently. We’re very much focused on generative AI. China is very much focused on AI applications. They just came out with a new policy called AI Plus, and it’s infusing AI throughout society and the economy. And when you have a top-down authoritarian system, you can pretty easily—not easily—you can much more effectively do something like that than in the United States.  

You know, they’re looking at things—a minimum of five-year plans. I mean, we’re looking at things maybe every two years, when there’s a new—you know, a new midterm election. It’s just really hard to put forth, sort of, you know, grand, long-term planning policies like China does. So I would agree with Zoe. We need to lean into our strengths. Innovation, you know, we’ve—that’s why so many, you know, thousands of students from around the world, not just from China, want to come here. We have an ecosystem and the world’s best education system that still attracts the world’s top talent. And we need to lean in on that and encourage people to come here so they can hopefully contribute to us coming out on top on some of these really important competitions that will be with us for the next few decades.  

FASKIANOS: Wonderful. Well, we are at the end of our time. And thank you all for your great questions. And my apologies for not being able to get to all of you. We still have raised hands, written questions. So we will just have to have you both back and continue this conversation. But Zoe Liu and Jessica Bissett, we really appreciate your being with us. We will share out a link to this video and transcript as well as the report that Jess mentioned, and anything else that came up during this conversation.  

And we also encourage you to visit CFR.org, ForeignAffairs.com, and ThinkGlobalHealth.org for the latest analysis on international trends and how they’re affecting the United States. We have a special trade hub on the CFR.org website, which is covering lots of the trade and tariff issues as well as the China Strategic Initiative Hub as well, that is focusing a lot on China and the competition there. So I hope you will make use of those resources. And, of course, share your suggestions for future webinars or additional things you’d like us to cover by emailing [email protected]. Again, thank you Zoe and Jess. Really appreciate it. 

BISSETT: Thank you. And thank you, everyone, for your wonderful, thoughtful questions. It was really enjoyable. Thank you. 

LIU: Thank you for having me. 

FASKIANOS: Thank you. 

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