President's Inbox: U.S.-China Relations

Monday, February 13, 2017
Kim Kyung Hoon/Reuters

C.V. Starr Senior Fellow and Director for Asia Studies, Council on Foreign Relations

Matthew P. Goodman

William E. Simon Chair in Political Economy and Senior Adviser for Asian Economics, Center for Strategic and International Studies

Evan S. Medeiros

Managing Director and Practice Head, Asia, Eurasia Group

Evan L. Osnos

Staff Writer, New Yorker

Experts discuss the issues the Trump administration can expect to encounter in its interactions with China, from tensions with Taiwan to the future of trade agreements.

The President’s Inbox series examines the major issues confronting the administration in the foreign policy arena.

OSNOS: Great. Good afternoon, everybody, and welcome. I’m Evan Osnos. I’m a staff writer at The New Yorker and a fellow at the Brookings Institution. I’m thrilled to be joined by three distinguished experts, who I’ll introduce in just a second.

This is part of, as you probably know, a series that the Council is doing on foreign policy issues that the Trump administration is—can expect to encounter. And today we’re going to be talking about China—not just about the bilateral relationship, but also about implications for the region, implications for trade and investment, and for the rapidly evolving role that China and the United States are playing now in the global system. So that’s it. We have nothing else to talk about. (Laughter.)

By the way, if anything changes while we’re up here—(laughter)—just flag me and I’ll address.

A couple of housekeeping notes very quickly. Please not only silence your phone, but please turn them off because it’ll interfere with the sound system. We’re taping today. And also, our meeting today is on the record. And if you need to use your phone or your iPad, you can please just step outside. And we’ll have a chance to—a good long session for questions. We’re going to do 30 minutes up here, and then we’ll turn to you, and we’re looking forward to it.

We have a superb panel. To my right, as many of you know, is Elizabeth Economy. She is the C.V. Starr Senior Fellow and director for Asia Studies here at the Council.

Evan Medeiros, at the end, is the managing director and practice head of Asia at the Eurasia Group. He spent six years in the National Security Council focused on Asia.

And Matthew Goodman, who I think many of you know, is the William Simon Chair in Political Economy and senior adviser for Asian economics at the Center for Strategic and International Studies. Matt was the White House coordinator for APEC for the East Asia Summit, and also was in charge of international economics at the National Security Council. So he was preparing the president for the G-20 and the G-8.

Let’s get right into it. We’ve talked in advance about what we want to cover today and we’ve got a lot of ground, so what we’ll do is just begin by asking each of our panelists to say a few words, if you will, about the relationship as you see it today. We’re going to try to cut through some of the noise and figure out what matters most right now, what do you think is actually changing, and what is actually staying the same from life before January 20th. Liz will start.

ECONOMY: OK, tall order.

OSNOS: Yeah.

ECONOMY: Thanks, Evan, and it’s great to be here.

So I guess when I—I would say right off the bat that I think the contours of the U.S. policy toward China are just emerging now, right? We’ve already seen that a lot of the more radical rhetoric of a few months ago, on the campaign trail in the early days, the administration has stepped back from some of that. So I think we need to give them a little bit more time to see exactly what a U.S.-China policy is going to look like.

But, as I see it emerging, I guess I see three things. First, that there’s going to be an increased emphasis on reciprocity. I think there’s a sense within the administration that the U.S. has gotten the short end of the stick on issues like trade and investment, and that they want to redress these inequities. I think it also holds true on the political front that there is some interest in revisiting issues related to things like visas and Confucius Institutes and thinking about, you know, how open our system is to China, and perhaps how closed their system is in some regards to us. So I think one strain is reciprocity.

I think also, from what I’m hearing, there maybe is a little bit of rebalancing or reconfiguration. You know, I haven’t heard anything from the administration in terms of what our foundational principles are going to be with regard to Asia. You know, I don’t hear talk of freedom of navigation, free trade, and, you know, good governance and human rights. But I think there’s an element where it’s sort of these bilateral trade deals that are going to be superimposed upon more of a continuation, perhaps, of our regional security. But it’s not clear to me how those two things are going to interact and how they relate to each other, and what it means for, like, what will the U.S. role in the region be. I guess we’ll talk about.

And then, finally, I guess maybe initially at least a retreat. And I think a retreat from the idea that, together, the United States and China form an essential partnership in terms of addressing issues of global governance, right—climate change, or could be refugees, or Ebola, or, you know, Iran—that somehow not only is our partnership essential, but also that in times when trade and security may be problematic, that working together on these issues is actually important for the foundation and the stability of the relationship. And I think, you know, it probably speaks more to the U.S. role globally—how do we see ourselves globally? Do we see ourselves continuing to be a leader of—you know, in the globalized world of the, you know, liberal international order, or are we stepping back from that? But I think it has big implications for our relationship with China.

OSNOS: OK. Going down the line.

GOODMAN: Thanks, Evan. Thanks, CFR, for having me. It’s great to be up here with such a dream team of China pros here.

So I think Liz has said it well. I would say as an econ guy I think that, you know, for now I think we were kind of on a—were on a sort of continuum in the sense that even if—well, even in late Obama administration, our trade and investment relationship was getting more tense, more difficult, both, you know, because of trade and investment. And I sort of look at those differently. The trade issues of overcapacity in China that were being—with a lot of production of commodities like steel and aluminum and things being, you know, allegedly dumped in our market and a lot of cases being filed. On the investment side, you have U.S. investors increasingly uncomfortable in the Chinese market for a variety of reasons that we can talk about. And over here, a wave of Chinese investment coming in that’s starting to raise some concerns. And so I think that you were—I think we were set for a period of more challenging, rocky relations on the trade and investment side.

You know, the Trump rhetoric during the campaign and during the transition, and a little bit during his presidency, has been another factor of potentially feeding anxiety and tension, real tension in the relationship—certainly, his statements on currency—on currency manipulation, on the possibility of imposing unilateral tariffs on Chinese imports. The fact that he hasn’t done anything on those fronts yet is interesting, and I think raises the question—the only thing—he has done one thing that’s relevant in this space, which is to walk away from TPP.

OSNOS: Right.

GOODMAN: And I think that people sort of forget. There has actually been one significant action which I would put in the China policy basket—which, again, I think is a self-inflicted wound, but—vis-à-vis our China policy. But we can talk more about that.

But why haven’t we seen action yet? Partly people maybe are not in place, like the Treasury secretary, unless it’s literally happened in the last few minutes. (Laughter.) Hasn’t been confirmed, and technically he’s the guy who’s going to determine currency manipulation. So it may just be a sort of calm before the storm. But I think this is an interesting—I think it’s coming. I think the storm is coming. But, again, we can talk in more detail about that.

OSNOS: And we’ll talk a little more about these new structures that may be in place, too, beyond the S&ED and so on.

Evan, over to you, please.

MEDEIROS: Great. Thanks, Evan, and thanks to CFR for having me.

So I’ll begin by underscoring a very important point that Liz made, which is it really genuinely is early days, as we all know. And, as somebody that joined the NSC in the summer of 2009—and it felt early days as of, you know, July of 2009—I can only imagine what it’s like three weeks in.

But, that said, what does the data tell us? What do we—what do we know from the decisions that have been made? A couple things.

Number one, there is a shift going on in China policy. As Matt rightly pointed out, on day one China was not named a currency manipulator. I don’t know why that’s the case, but that decision has been made. Maybe it’ll be overturned in April, when the Treasury secretary releases the biannual foreign exchange report.

Number two, the administration has walked back what was pretty robust language on the South China Sea. Secretary Tillerson in his confirmation hearing, you know, sort of threatened to potentially blockade the South China Sea.

And then, of course, famously last week the reversal on “One China” policy.

I think those were all smart, wise decisions. I don’t know if they represent a trend, but it’s interesting nonetheless. And so it raises the question sort of: Who is driving these? Are they episodic? Is there a group of voices in the administration that’s looking to find stability in the U.S.-China relationship? But the data tells us that there is a certain movement in China policy.

Point number two: I think that the administration needs to pay a lot of attention to three things.

They need to have internal debates about priorities. There’s nothing more important or more difficult in the U.S.-China relationship than to have the knock-down, drag-out, bloody fights about priorities because there are so many multiple and competing interests at the heart of the U.S.-China relationship, and they really require leadership from the very top.

Number two, they need a process. And the only way that you adjudicate effectively among these competing priorities is to put in place a really good process.

And I would link that process to the third piece, which is communication. You’ve got to get the communication channels with China right, and that has multiple different dimensions to them. Obviously, the most important one at the very top is establishing a relationship between Xi Jinping and the U.S. president. So I was glad to see the phone call and the letter last week. That’s good movement. But that’s not enough. I mean, you really need an architecture at the heart of the relationship. And I’ll be looking very carefully to see what do they do with structures that used to exist, like the Strategic and Economic Dialogue, really essential mechanisms like the JCCT, things that the Obama administration built—the Strategic Security Dialogue. I mean, look, you don’t have to take the names and the exact structures of what was used before. Change is always a good thing, as long as there’s a logic to it.

And so I think communication—setting priorities, putting in place a process, and communication is essential.

My final point is paying attention what’s going on in China. 2017 is a really difficult and important year in China because of the 19th Party Congress. This is the last and the best opportunity, probably, for Xi Jinping to put in place the Standing Committee and the Politburo that he needs. And it’s going to be a big one. It’s going to be a big one because there’s a lot of change: 70 percent turnover in the Standing Committee, probably about 60 percent turnover in the Politburo. There will be a nearly 100 percent turnover in the economic leaders. So if Xi Jinping wants to stack the deck with people via his leadership priority.

And then, lastly, on the economy, China’s ability to manage this transition from the old model—investment and exports—to the new model, investment and consumption. It’s proving problematic. I mean, simply put, their ability to sort of manage the impossible trinity of open capital controls, a flexible exchange rate, and maintaining decent foreign exchange reserves is proving very, very problematic for them. Downward pressure on the renminbi is substantial. And if there’s a rise in the dollar, if we see interest rates go up, that’s going to present significant macroeconomic challenges for the Chinese which have huge political implications.

So what’s happening in China this year matters, it’s particularly challenging, and it will directly affect the U.S.-China relationship.

OSNOS: So, Liz, as Evan points out, you know, we talk about our own political season over here. We see it in our own dynamic terms. In China, this is as busy, as active a moment of preparation as it was for us a year ago. They’re thinking about what’s going to happen in the 19th Party Congress. How do you think the—all of the items that we’ve talked about so far, how do they look to Beijing at the moment? What’s your sense of how this very fast-changing, uncertain environment in Washington is felt at Zhongnanhai?

ECONOMY: So I think there are a range of views within China when they look out at the Trump administration and what’s transpired just in the first few weeks or month of the administration. I think for some, clearly, this is an enormous opportunity. And I think we saw that with President Xi’s speech in Davos, that there is a sense that perhaps the U.S. is going to retreat, right? “America first” does not necessarily mean that America is going to be the leader, the preeminent power anymore. And, you know, Xi Jinping would like to step into that breach. Personally, I don’t think that China is, you know, properly equipped to play the role that the U.S. has played, but we can talk about that later, I think. But that is—they see it as an opportunity.

And I think you’d already begun to see, even before the U.S. election, regionally that the Chinese leadership had taken a step back in Southeast Asia and started to try to mend fences with the Philippines, with Vietnam, go back a little bit maybe to some of the policies of the mid-2000s—you know, win-win and sort of say to the Philippines, you know, as long as you don’t talk about the arbitration, you know, we can start talking about investment and tourism and all these other things that, you know, we’d like to do for you. We can—we can make things work. We’ll talk about a code of conduct. So I think that they’re trying to smooth the waters regionally and assert themselves globally. And the Trump sort of administration and their kind of step back affords that opportunity.

I do think, though, that there is some concern about the unpredictability of the administration, the uncertainty on issues like Taiwan. I think—what I’ve been hearing from the Chinese repeatedly is their concern about Russia, and whether or not the Trump administration is going to develop a closer relationship with the Russians, and what is that going to mean for the Chinese, that somehow that triangular diplomacy where China sort of occupied the best position is no longer—it’s no longer going to be the same kind of triangle and that, you know, maybe that relationship between China and Russia is not quite as robust as is often portrayed. So I think there’s some concern about that.

And then I think just the range of trade and investment issues that, you know, Matt ticked off. There’s just—they don’t know what the administration is going to do.

OSNOS: And just one note from last week. You know, the big news that came out of the Trump-Xi call was the idea that he has—Trump has now reinforced his commitment to the “One China” policy. Does this mean that this period of turbulence in the U.S.-China-Taiwan dynamic is now clarified? Is this over, or no?

ECONOMY: No, I don’t think so. I mean, I think—(chuckles)—I think it was certainly important, you know, and that is one of those foundational principles of the relationship. But I think there are a number of people in this administration that are going to be looking to enhance the relationship with Taiwan militarily/politically in ways that I think are going to continue to roil the waters.

But let me—one more point about what I think this Trump administration might mean for China in terms of—and how the Chinese are going to feel it. And that is an area that we don’t really talk about much, and that is within civil society, because I do think that, you know, for the past eight or more years, you know—historically, in fact—the Chinese civil society—you know, dissident community, human rights activists—have looked to the United States for support, both in terms of calling out, you know, when China does something bad very directly—you know, advocating in favor of the Feminist Five—but even more than that, just being a beacon, right, of best practices. Not that we’re always perfect, but by and large the kinds of values that we stand for I think many Chinese citizens, they look to the U.S. for that. And, again, to the extent that this administration, A, isn’t even talking about those issues; and, B, may not be representing those values moving forward, I think is very—is going to be detrimental to Chinese civil society.

OSNOS: Related to that, you know, Matt, Liz mentioned this quite startling scene of Xi Jinping at the World Economic Forum basically staking out its—staking out China’s new role as the voice in favor of globalism. How does this look in the region? You’re a great Japan expert. How does this prospect of a China-led globalization feel? How does that look?

GOODMAN: Look, I don’t think too many people are buying that at a fundamental level. I mean, I think China is—has a long way to go to prove its credentials as a champion of globalization for a lot of reasons that we all know, in terms of, you know, the way they deal with their own internal market, their—the increasing focus on indigenization of a lot of technology, of manufacturing, of, you know, making it more—championing the state-owned sector, and—while also committing to the market, but really seems that they’ve stepped back on that reform effort. So internally, you know, they don’t have a strong case. Not to mention, you know, their economy and society have so many challenges that I think, you know, until they’re in a position to kind of be—I mean, they’re not a developed country, first of all, and they’ve got, you know, sort of half the population still living in poverty. And I just don’t think they have the internal conditions to be the kind of leader that we have been.

And then, externally, their behavior has really scared people. I mean, it’s frightened people in a lot of ways, so—whether on the economic or the security front. So I don’t think anybody’s buying it on that level.

But on another level, obviously everybody trades with China. Fourteen countries are neighbors of China—I mean, have land borders with China. And even the—you know, then you add Japan and others who are nearby. They’re all in the sort of broad neighborhood of China, and I think they don’t want to—they don’t want to have a bad relationship with China. And I’d say they—you know, they if anything want to strengthen their economic relations.

And then, on top of that, there’s been an assumption that the U.S. would always be there as the kind of champion of the rules-based order in the Asia-Pacific. And that assumption is coming into question, and so people are, I think, looking somewhat in desperation, perhaps, at somebody else to step into that. I mean, they’re looking for the U.S. to come back into that role, and I think there’s still a hope that we will, but also looking for somebody else. And, you know, you look around, and China’s certainly a candidate to be—to be—to fill that void. So I think there is—you know, I think that there’s anxiety in the region, a lot of hedging going on, and a lot of desire to try to not—you know, not aggravate China, but to—and even, as I say, to deepen relations in some ways. But I think—nobody’s, I think, really ready to follow China is my bottom line.

OSNOS: Right. And one quick question on the U.S. side. Do you get the feeling that the structures that have been important to the relationship, the U.S.-China relationship and more broadly, like the S&ED, are those going to be the centers of action in the next few years? Or how do we—what do we make of the National Trade Council and sort of the informal structures representing—

GOODMAN: Yeah, I mean, I usually try to not go right to those process questions, because they are important, but I think for us in Washington they’re maybe—you know, sometimes they look like sort of we’re just interested in the boxes and how they all interrelate to each other as opposed to—

MEDEIROS: I love boxes. (Laughs.)

GOODMAN: But they—but they are important. And, I mean, I’ve often said, you know, really, the success of an administration is based on, you know, three Ps, you know—and you named two of them, priority policies and process. And then people/personnel is the other one that really is determinative of how an administration works and succeeds. And so process is important, and these new structures internally in the U.S. are, you know, yet to be fleshed out in terms of how they’re going to actually work.

So you have this new National Trade Council in the White House, a non-Senate-confirmed position, so Peter Navarro is up and running, and very close to the president—I mean, physically close. (Laughter.) And yet to be determined how close he is on policy.

You have Wilbur Ross over at Commerce, who’s been given an unusual—I mean, with no disrespect to anyone in that position, I think most of us would have a hard time naming, you know, the last five or 10 commerce secretaries because in policy terms they haven’t had a huge impact on issues like this. But he’s declared that Wilbur Ross is going to have a significant role in policymaking.

You don’t even have a U.S. trade representative in place yet. Bob Lighthizer hasn’t been confirmed.

And so how all of this is going to interrelated, and how Gary Cohn of the NEC is going to be playing—and, by the way—I’m a former Treasury guy, and by the way I started in the Trade Office at Treasury 25 years ago—Treasury cares about trade, too. State cares about trade. There are a lot of players. And trade is done, you know, in—you know, statutorily it’s done as an interagency process, led by USTR. And I think it’s just going to be interesting to see how this actually plays out.

Now, with the—just quickly on the thing with China, look, the S&ED, or the SED when it was originally conceived by Secretary Paulson, was a good, necessary step forward in the relationship to establish this high-level context. I mean, when I was, you know, learning all this stuff in the—in the first Bush term and we—just before Paulson came in, and we tried to elevate the existing JCCT because we had to get to the senior policy folks over there and to vice premiers, not just to Cabinet officer who were really sub-Cabinet in our terms. And so that value alone of the S&ED is worth preserving in some form.

I’m not just convinced that the S&ED per se is really the best vehicle. It’s proven unwieldy and not as productive as it could be. I’d prefer to go back to in spirit to what Evan said, which is to have the presidents having a direct line of contact, having people in their orbits—I mean, real decision-makers: the NEC director and the NSC—national security adviser, and similar people on the Chinese side—having a regular dialogue, and then having each of the Cabinet agencies do what they do. I mean, I personally think you can go back to a JEC, the Treasury Joint Economic Commission, and have Treasury do its stuff there, with the Treasury secretary designated as President Trump’s guy and wanting to have a counterpart who’s appropriate, which would probably be somebody more like Liu He than the finance minister, right? But—

OSNOS: In a few minutes—sorry. We’ll go to questions in a second.

But before we do, Evan, I’m sure you’ll want to respond to a couple of things that have been said. But if you can, I know you’re just back from the region, back for a couple weeks, but we’ve gotten this range of very conflicting signals, as we’ve gone over here, about, for instance, the commitment to trade or not. Is the region taking China literally or seriously, or some version thereof?

ECONOMY: You mean the U.S. Taking the U.S. literally or seriously?

OSNOS: Sorry, taking the U.S. Exactly right. Thanks, Liz. (Laughter.)

ECONOMY: It could be either, but yeah, yeah, yeah.

OSNOS: Yeah.

MEDEIROS: Sure. So, with the appropriate caveat that the Asia-Pacific is a big, diverse place and it’s difficult to generalize, of course, I need to generalize.

So, net-net, it’s a—there’s an enormous amount of anxiety and trepidation. Now, that’s sort of the base case for what Asia is—how Asia views the U.S. on any given day, but there’s no question that it’s qualitatively at a higher level for a couple of very specific reasons.

Number one, the withdrawal from TPP was a punch to the gut. There’s no other way to look at it than that. Simply put, the reason why TPP was so important for much of Asia was the strategic value of it—that it was WTO-plus, that it got at the behind-the-border barriers, and that the idea was that it would really change the rules of the game for how countries would proceed with trade and investment, especially in all sorts of new areas like the digital economy. So, if you’re a Vietnam or a Malaysia, that’s gone, and that simply cannot be replaced by bilateral FTAs, even if you were able to get a bunch of bilateral FTAs off the ground immediately, which history will tell you is highly unlikely. So the loss of TPP.

Number two, the threat of protectionism. For a part of the world whose economies are pretty rapidly growing—Asia is a real growth center. Even if you take the big guys like China and India out of the equation, the Philippines, Indonesia, and Vietnam are all growing at +5 percent as of the end of 2016. And so, for economies that are pretty dependent on growth—I’m sorry, exports as a growth driver, the prospects of protectionism from the U.S. looks pretty scary to them. And so the uncertainty associated with protectionism.

Number three, China policy. It’s trite, but true that nobody in Asia wants to choose between the United States and China. It’s just a strategic reality that’s an outgrowth of the imperative of sort of strategic autonomy. And so the concern about Trump having a very aggressive approach toward China and being dragged into that dynamic is worrisome. The fact that the “One China” issue was taken off the table is good because that’s a proximate concern. I was in Singapore in particular, and the Sings were being harassed by the Chinese on a variety of sort of historic dimensions of their relationship with Taiwan, which they perceived as a(n) outgrowth of Trump sort of pushing the barriers on the Taiwan issue. So taking “One China” off the table helps, but nonetheless I think they’re looking for where the center of gravity on China policy is going to be.

Three would be—I’m sorry, four would be sort of: Is the Asia policy orientation of the administration going to be military first? I would say that’s more of a question than an answer. But, as we all know, the region doesn’t want to see a policy toward the region that’s all about sort of alliances and the military aspects of those alliances. They would like to see a diverse policy. Again, it’s one of the reasons why TPP was so interesting.

And then, lastly, it’s the uncertainty—the economic uncertainty associated with Trump’s domestic policies. So the concern that there would be a huge fiscal expenditure that would drive up inflation, interest rates, and send the dollar rising, which would likely mean, you know, for a lot of them the potential risk to their overall financial stability because you would just see hot money flows going out of equity and debt markets across the region. It’s happened before, but they worry that there would be—it would sort of be more robust. Now, there are some policymakers in the region that look at the possibility of enhanced aggregate demand from the U.S. as a result of the Trump bump in fiscal expenditure, but they don’t really know about the extent to which more infrastructure expended—expenditure in the U.S., for example, would actually lead to greater demand of durable goods from Asia. There’s actually a very interesting debate going on among economists of Asia about whether or not growth in developed markets—the U.S. and the EU in particular—is leading to a decoupling of demand for exports from Asia, because for the last 20 months or so there’s been a reverse correlation between growth in developed markets and demand for Asian exports, which have been flat or even declining.

So that’s why, net-net, there’s a lot of trepidation. And it’s not sort of uncertainty trepidation; it’s like real genuine trepidation, pretty broadly held.

OSNOS: We’ve got microphones here on the side and in the back of the room. Please raise your hand and wait for a mic and we’ll make sure that one comes to you. Right here. Sir.

Q: Thank you very much. Hani Findakly, Clinton Group.

North Korea was not mentioned in this discussion. And in this regard, I’d like to ask the panel’s views about the points of leverage that each side could exercise in terms of the dynamics between the U.S. and China.

MEDEIROS: Sure. I’ll take that one.

So I spent a lot of time working on the North Korea issue in my time in government, and there’s no good options, and in fact the space to influence the situation is declining. Basically, as a policymaker, you have three different tools in your toolkit: you have diplomacy, which has been tried and failed multiple times; you have sanctions; and you have sort of deterrence and military force. And every administration chooses a different mix of those three.

The challenge, as we all know, is that the North Koreans are consistently expanding and improving their nuclear and missile capabilities. The window of opportunity to influence them presumably is closing, because as they get closer to perfecting the technologies for a long-range missile and delivering a nuclear weapon on that long-range missile, the less amount of time a policymaker has to actually influence their calculus.

As frustrating as it is, China has to be part of the solution. And trust me, I have sort of banged my head on that wall multiple times. And, you know, you would like to be able to pursue a solution that doesn’t rely on difficult, complicated negotiations with China, which they will appropriately leverage for their own interests.

You know, one interesting aspect of this will be whether or not the Trump administration seeks to change the dynamic by sort of suggesting that Kim Jong-un is not the unpredictable, uncertain, volatile—volatility inducting variable—(laughter)—but perhaps the United States is that part of the equation.

OSNOS: So you say we’re going to out-Kim Jong-un Kim Jong-un on that? (Laughter.)

MEDEIROS: But here’s the real—here’s the real crux—of course China is—getting quality cooperation from China is hard—South Korea. In the Obama administration, we were very fortunate. We had President Lee and President Park, super-high-quality interlocutors. That simply is not—is very unlikely to exist in South Korea. South Korea is in political crisis right now. My assessment is the Constitutional Court will probably uphold the National Assembly’s impeachment vote. We’ll probably have an election in South Korea in sort of the mid to late part of the second quarter of this year, and it’s likely that a center-left government is going to be elected.

Connectivity between Trump and a center-left South Korean government that has been in the political wilderness for 10 years is going to be very, very difficult, and North Korea is going to exploit all of this. A well-timed provocation that creates frictions between the U.S. and South Korea, the United States and China, China and South Korea makes managing all of this particularly difficult.

OSNOS: Right over there, please.

Q: Thank you. John Hauge, Global LPG Partnership.

Can I sharpen Hani’s question with regard to China’s perspective on North Korea? Do you think they are consciously not encouraging significant progress to save it as a chip later, say for a better U.S. understanding on their role in the South China Sea? Or do you think they fear that they don’t ultimately have the hammer on North Korea, even with economic sanctions, and they don’t want to try and fail?

OSNOS: Liz, do you want to take that?

ECONOMY: I guess I would say I think there are, again, within China, different interests. Over the past—I would say beginning in 2011 you began to see articles written by Chinese scholars and think-tank analysts saying that North Korea is a millstone around our neck and we want to do something about it, we need to be more proactive and more aggressive. And I think ever since then, when you meet with the Chinese, you’ll find many, many Chinese who will say, look, we’ve—over the past several years we’ve certainly ratcheted up our cooperation with the United States. We’ve increased the level of our sanctions. We, too, want to see a change in North Korea’s policy. You can look and see that, you know, Kim Jong-un and Xi Jinping have yet to meet, right? So there’s no love lost, I think, at the very top between these two leaders. But they will use that to say that we don’t have as much leverage over North Korea as you say we do.

So, you know, what are those outstanding levers? I mean, there’s, you know, food aid. There’s energy. There’s trade. There’s investment. There are—there are still many. There’s can we, you know, do secondary sanctions? Yes. There are—we have still tools that we can use.

I will say in the early part of the Trump administration—and I don’t know whether this has been your experience as well—the Chinese delegations that have come through have all talked about the potential for more cooperation on North Korea, that this is an area that they see as still something that we can work on and do more on. You know, so I think there’s some room there. You know, I think they are frustrated as well. But, yes, they have a set of additional concerns that we don’t have related to their economy, related to the collapse of North Korea. They are occupying in a slightly different space. But I’m not completely pessimistic on it.

OSNOS: I’ve also—you know, a lot of people have noted there was a big difference in the way the Trump administration responded to Iran’s recent launch of a missile versus the North Korean launch. That, you know, when they came to Iran they were very clear. They said you’re now on notice. There’s going to be sanctions as a result. With North Korea it was a very terse statement that may have sort of left open the opportunity for, perhaps, a moment to take advantage of.

MEDEIROS: If I could comment.

OSNOS: Yeah.

MEDEIROS: I think the essential challenge at the heart of the North Korea issue is the very pressure that the United States and its allies believe is necessary to bring North Korea to the point where it makes that strategic decision to consider giving up its nuclear weapons, is the very point at which the Chinese fear we bring about regime change. So it’s very difficult to sort of identify where that line is. And as Liz rightly pointed out, the Chinese are so concerned about pressuring bringing about social and political instability that would create a humanitarian crisis that would lead to opening up that huge can of worms about the future of the Korean Peninsula. Because nobody can tell you where that line is, the Chinese are incredibly reluctant to go up to it. The North Koreans know that. They exploit that. But it’s probably only going up to that line that will actually bring the North Koreans to anything approaching a sort of strategic decision to get at denuclearization.

OSNOS: Let’s go towards the back. Right there, the second row from the back.

Q: Thank you very much. Donghui Yu with China Review News Agency of Hong Kong.

My question is for Evan. You’re talking about a shifting China policy. And President Trump seems to be backing down from his previous position. So you also touched upon the driver. What’s your analysis? Who is the driver and what element drive this kind of, you know, shifting trend? Thank you.

MEDEIROS: So I simply don’t know and would prefer not to speculate. And there’s so many different personalities involved. Presumably, I would like to think, that these kinds of decisions are based on a clear assessment of U.S. interests. What serves U.S. interests in the U.S.-China relationship? In other words, does it make sense to try and use the “One China” policy as a bargaining chip? The administration, through their decision last week, I think recognized that that wasn’t a good approach. And I think that that was a wise decision. Similarly, that blockading China’s seven artificial islands in the South China Sea is not likely to yield, you know, a sort of positive result in that part of the world. I think that’s important.

Look, for any administration there’s an enormous amount of discovery and learning that goes on. And that’s—you know, that’s true for any president. So I presume that’s the process that’s going on. And as more officials join the administration through confirmation and other processes, as I said, I hope that there’s a serious process that exists. They come up with a sort of smart architecture for how to communicate with the Chinese. And that allows us to sort of get to cruising altitude in the U.S.-China relationship. But as Matt pointed out, importantly, I don’t think we’re out of the woods. I mean, we’re going to—there are going to be big debates, and I would expect some pretty aggressive actions on trade. As Liz said, I think we’re likely to see more actions, you know, on Taiwan. So, I mean, you know, we’re in the previews. I’m not—I don’t even think the movie has started yet.

OSNOS: Matt, why don’t you—

GOODMAN: Yeah, I was just going to say, I mean, it is just—it’s been so rapid-fire in the last three and a half weeks, I think we’re all trying to sort out whether there’s any sort of patterns in any of this. I mean, in some level I almost feel like this is policy by biorhythm. I mean, it’s just—you know, on one day we feel good and we do one thing happy and then the next day we’re kind of ornery and we’re critical.

MEDEIROS: Right. And that will be on the CSIS website next week, policy by biorhythm. (Laughter.)

GOODMAN: Ah, yes. There will.

OSNOS: The psycho-strategic model of U.S.-China relations. (Laughter.)

GOODMAN: But, yeah, I mean, it may be that there are—the adults are starting to, you know, move in and take over. So that’s one thesis, that you’ve got, you know, Mattis and Tillerson, and a few select folks in the White House who are trying to get things onto a more stable track. There’s some evidence of that. But there’s also some contrary evidence that that isn’t really happening. Let me just take one small example. I’m a Japan guy and was watching the Abe visit last week pretty closely. And, you know, it’s interesting to me that either the secretary of state nor the senior—Evan’s successor as the senior director for Asia was at the lunch here, which is sort of strange to me. So, if the adults are moving in, they’re not being invited to all of the—all the parties. (Laughter.)

And then—you know, then there’s also possibility that this is—you know, in some way maybe this is by design and it’s sort of tactical. And this may be—I mean, another popular metaphor is—that often people get wrong—is the dog that didn’t bark. If you’re a Sherlock Holmes fan then you know that doesn’t just mean that something that you didn’t expect to happen actually happens. It’s actually more specific than that, that something that doesn’t happen raises suspicions that there may be something else going on. The dog didn’t bark, but it should have. So what’s going on? And so I think that there’s a possibility that this is some sort of, you know, preview to some hammer dropping on trade. And so we wanted to balance it. Who knows? I mean, I think it is so fluid that it’s very hard to assess.

OSNOS: Liz, one question to follow up on this. The Chinese side has said for years that they would basically prefer a single point of contact, a sort of single author of the relationship in the administration. Without—you know, at this point it’s too premature to know if that’s going to happen, if there’s going to be somebody. Do you get a sense of whether that’s a popular idea on the U.S. side or not, whether that’s even in the cards as a prospect?

ECONOMY: No. I was listening to all this and just thinking how glad I am that I live in New York, and we don’t ever talk about all of this kind of stuff. (Laughter.) So when I think about, you know, personnel, I haven’t heard any discussion of that. I heard that for a potential Clinton administration. I haven’t heard it for the Trump administration. That doesn’t mean that it couldn’t come to pass. But I mean, frankly, I think whoever that person—it would have to be a pretty spectacular person. And so, you know.

OSNOS: Well, you may need to move to Washington in that case.

ECONOMY: Yeah, no, no, no. Thank you, Evan. (Laughter.)

OSNOS: All right. We’ll go right there, yeah.

Q: Jim Gilmore.

I want to come back to Taiwan. It sounds like the panel was saying that, well, President Trump’s pulled back and has reaffirmed the “One China” policy. Therefore, the future of Taiwan’s off the table. But the president of Taiwan has been saying the opposite. She seems to be saying that, no, we want to be more independent. We want to get away from this notion that our future is already settled and that we’re going to become a part of China. What do you think the future of Taiwan is going forward?

ECONOMY: I think maybe the lines that you drew are a little too sharply drawn. I think, you know, what we have said is that we recognize—you know, we support the “One China” principle. We recognize China’s position that Taiwan is part of China. We don’t take a position that Taiwan has to integrate with China. That’s not what we support, and that’s certainly not what President Trump is saying by supporting the “One China” policy, right? And I think when we’re—I think Tsai Ing-wen has been extremely modest and moderate in the way that she’s approached foreign policy since she took power last spring.

I think—yeah, she wants to be more independent, to the extent that she wants to diversify sources of investment and trade and sort of try to find a way to be more active in international organizations, which is something that, you know, all Taiwanese presidents have tried to do. But I actually think she’s been pretty responsible for how she’s pushed forward. And I think to some extent it was the Trump administration that go out ahead probably of where—I shouldn’t say this, I don’t know for a fact—but perhaps got out ahead of where either Taiwan was comfortable in some of his early tweets.

So I don’t think Taiwan’s future is off the table at all. This is really about, you know, maintaining stability in the relationship, both the cross-strait relationship and in terms of our own relationship with both China and Taiwan. But I fully expect that the Trump administration will seek ways to help Taiwan expand its presence in international organizations. Maybe there will be some shift in the type of military hardware we provide to Taiwan, I don’t know. And also maybe some increased activity on the economic front.

OSNOS: Over here. Right in front. Thanks.

Q: Hi. Alyssa Ayers, Council on Foreign Relations.

We talked a little bit about North Korea and the idea that cooperation with China may be made more difficult if we begin to have a more adversarial relationship with China over trade issues. How do you see the general basket of cooperation with China, including on issues like Afghanistan, where they have been an important interlocutor? China is now becoming an enormous provider of infrastructure assistance across all of Asia, frankly. The Belt and Road. We’re not even competing on this front. We made a decision not to compete on this front. And now it seems as if we’re stepping back. So what do we do about cooperation on some of our toughest issues, where I haven’t yet seen anything coming out of the Trump administration in terms of a strategy or step forward, but where China has been an important interlocutor, and one that that will continue to play some kind of role in a solution?

ECONOMY: No, I was—

MEDEIROS: No, it’s all right. Please.

GOODMAN: Go to it, please.

ECONOMY: I think you need to take a turn. No, I mean, I think to some extent that was the point I was trying to raise early on, was that we haven’t seen the administration step forward on issues of any sort of—on global governance, right? And so the question remains, you know, are they going to see the kind of cooperation that we’ve had with China on issues like climate change or maybe Afghanistan or, you know, other tough issues. Are we going to see this administration step forward and try to work with China? Are they going to seek out opportunities even on issues like this to work with China? Do they see it as an important element of—a stabilizing force within the relationship? Again, that presumes that we ourselves want to play that role. But if we’re stepping back from issues, like what to do about refugees or climate change it’s hard for me to imagine that we’re going to then seek out cooperation with China on these issues.

GOODMAN: Yeah. And I think that the first big international thing that the president’s going to do is the G-20—well, the G-7 summit in Italy in May. He hasn’t yet said whether he’s going to go. He did tell Angela Merkel he’s planning to go in early July to the G-20 summit. And there are—a lot of those cooperative elements are discussed there—climate change, Afghanistan on the margins, not in the room, infrastructure, growth itself. I mean, I think the U.S. and China have done a lot over the last seven, eight years to work together on global growth. So I think that’ll be a test of whether we actually are, you know, interested in that kind of cooperation with China.

We should be. But the indications—like, you look at the inaugural speech, there wasn’t much enthusiasm for these sort of multilateral undertakings. So I think that’s the—that’s the presumption, that there’s not going to be much interest. But, you know, again, the president’s going to the G-20 and there may be an opportunity to talk about a lot of these things with Xi Jinping and other leaders. So that’s what I’m watching.

OSNOS: I think we also—we sometimes sort of casually assume that China would regard the U.S. pulling back as a sort of easy opportunity. I think in a lot of these cases they think of it as fairly destabilizing. That they’ve come up with a basis for cooperation and now we may be absent. So they may not be as welcoming as some people might assume.

We’ll go way into the back there, at the far end of that aisle. Yeah.

Q: Hi. I’m Loan Nguyen (sp) from Voice of America Vietnamese Service.

I have a follow-up question on TPP. Mr. Medeiros talked about the loss of TPP being a huge blow to export-driven countries, like Vietnam or Malaysia. My question is about Vietnam. Do you think Vietnam has other options? And does this development push Vietnam ever closer to China?

MEDEIROS: So, number one, yes, Vietnam does have other options. And in particular, Vietnam is negotiating right now an FTA with the EU, which I think is clearly an indication that they’re looking to diversify their trading partners. And number two, does it push Vietnam closer to China? I tend not to think of international relations in win-lose terms or highly mechanistic terms. In other words, you know, U.S.—reduction in U.S. influence increasing Chinese influence. The history of Vietnam is the history of constantly hedging between and among great powers.

I think that the reasons for Vietnam to be concerned about overdependence on China, vulnerability to economic coercion, the disputes in the South China Sea, none of that has been eliminated by the election of Donald Trump. So I don’t think that—I think the concerns and prohibitions in Vietnam for getting closer to China remain. I think Vietnam is sort of, like many in Asia, in a wait and see mode, hopeful that they’ll be able to get up to cruising altitude with a new U.S. administration, similar to the sort of level and quality of the previous administration, but at the same time doing what everybody else does in Asia, focus on diversification and focus on resilience. I think those are the two dominant sort of strategies that you’re going to see domestically and internationally in the region—diversification and resilience.

GOODMAN: Can I say that I think, you know, Vietnam is by far the biggest loser from the—from the loss of TPP. I mean, just in the econometric studies that were shown, it was the country that was going to get the biggest bang to its GDP growth—10 percent of GDP or something—by the time that TPP was fully implemented. And that goes way—actually, all three of the things that I often cite about why TPP was powerful, which was that economic argument, they lose that. They lose the rulemaking part that Evan alluded to, which was, you know, they were one of the reasons that we moved forward on SOE—state-owned enterprise disciplines, because they themselves wanted to control their own state-owned enterprises. They’re a real problem for them. And they lose that sort of discipline now. So in rulemaking they lose. And on—and the strategic interest of having the United States embedded and engaged in the region, they’ve also lost at least for now. And so I think it’s a terrible blow to them.

I still think Vietnam, in addition to those other options—and, you know, there are others as well, APEC and, you know, RCEP, and various other things they could do. I also think they have an interest in keeping TPP at least in content and in spirit alive, even if not in name. And so I think I would expect, and certainly hope, that Vietnam, Japan, Australia, Singapore, others who see the power of TPP in all the ways I just described will want to keep it alive in some form. And there are different variations on that theme. But Vietnam I still think wants the 30 chapters of TPP, whether it’s called TPP or not.

MEDEIROS: And we’ll—if I could just—

ECONOMY: I just want to say one thing quickly.

MEDEIROS: Yeah. Go ahead, Liz. Yeah.

ECONOMY: Which is, I’m not quite as sanguine as Evan. And Evan and I had this discussion earlier in New York. I’m not quite as sanguine as Evans about the potential for not just Vietnam, but also other actors in Southeast Asia, to resist the gravitational pull of China. I do think it will depend a lot upon our position in Asia and what we do, because I think you could see from the article by Hugh White—and putting aside that we all know what High White’s views are—in The New York Times, about how Australia may, in fact, start to look more toward China and away from the United States. I think if we really do withdraw in some significant ways from a leadership position in Asia, we are leaving a vacuum. And maybe Prime Minister Abe will step into it to some extent, but I think China stands ready, and willing, and able, as the largest trading partner for most of the countries in the region, not necessarily the largest investor. But I’m not quite so certain that—

MEDEIROS: So I think a really—I mean, this is an interesting debate, that I think, you know, will go on for a while. But I think the gravitational forces from China are changing, that China’s economy is slowing, the Chinese economy is rebalancing. You’re seeing a lot of on-shoring of manufacturing in China. In other words, the economic pull of China for the region is changing. And actually, for many economic policymakers in Asia, China’s looking increasingly like a source of uncertainty rather than we can tie our economic future.

But to get back to Matt’s very good point, we’ll see—we’ll get a really clear indication this year of what’s going to happen in U.S.-Vietnam relations. APEC is being hosted in November of this year in Vietnam. I’m hoping that one of the conversations that Trump and Abe had over hole number 12 in Mar-a-Lago was you need to come to Asia and you need to come to APEC and EAS. If he doesn’t go, obviously that’s going to be a big blow to the relationship.

OSNOS: Mmm hmm. We’re going to go right here to the third row, and then we’ll go back right there. Yeah.

Q: Good afternoon. Esther Brimmer, now at NAFSA, the association for international educators.

I want to go back to your opening statement, Elizabeth, particularly your point about visas and the Confucius Institutes, and exchange of people as scholars. As you well know, Chinese students make up the largest number of foreign students in this country. The exchange of scholars and ideas are also an important part of this relationship. What do you expect?

ECONOMY: So I think in terms of—well, I would separate out the issue of the students coming to the United States. I think there may be some concern that—you know, with an administration that seems less welcoming, just in general, of foreign students, that perhaps we’ll see a slight drop off. Maybe some will start to go to the U.K. or to Canada or other places. So I think that’s one, you know, possibility. I haven’t heard of any administration, you know, impulse to reduce the number of Chinese students coming here. What I’ve heard is, really, you have America Corners not welcome in China; why should we welcome Confucius Institutes here? If we’re granting blanket visas to Chinese scholars to come here, why are some of our scholars sometimes prevented from going to China?

GOODMAN: Journalists.

ECONOMY: And journalists as well, yeah. Right, right. Both, yeah.

OSNOS: Yeah, this is a—I think you do get a growing sense in the China community, both in the scholarly side and also among journalists, that there’s concern about what appears to be an absence of reciprocity, that Americans are having trouble getting into China. And I think there’s a growing consensus that perhaps that may need to be revisited.

We’ll go right back to that last row.

Q: John Zang with the CtiTV of Taiwan. Hi.

Both Evan and Elizabeth have said—have welcomed the fact that President Trump seems to be coming back to the track of “One China” policy. You both also have mentioned that the administration is set to improve relations with Taiwan anyways, you know, with or without “One China” policy. I’d like to know what exactly, you know, the kind of things that President Trump can do to improve U.S.-Taiwan relations. I would also like Matt to comment on the prospect of a future U.S.-Taiwan FTA, which President Tsai has called for. Thank you.

ECONOMY: Well, that was—

GOODMAN: Liberty first if you want to pursue that. (Laughter.)

ECONOMY: So U.S.-Taiwan FTA would be—would be one thing. I think also enhancing our mil-to-mil relations. More frequent visits with political leaders between Taiwan and the United States I’ve heard mentioned. You know, whether or not we can—if we had signed TPP, we could have potentially looked to Taiwan to help with their accession to TPP. Whether or not we can actually make more space for them, I know we’ve tried in the past in terms of international organizations without much success. I think that’s, you know, something else we can continue to try to do. So these are the kinds of things that I’ve heard the administration discuss.

OSNOS: Matt, do you want to say anything?

GOODMAN: I was just—on the direct question.

So, I mean, I actually think—and now that I’m on the outside, I can say this a little more freely—that, you know, when I was in the administration, we always had to be careful about this topic of a bilateral FTA because—really because of the economic problems in doing that. I mean, that, you know, China—Taiwan has not shown the level of ambition and the willingness to take on some of the longstanding issues in our trade-and-investment relationship, and if only they would then, you know, maybe we could entertain things. I don’t think people maybe were—if Taiwan had called our bluff, I think it would have been quite a challenging dilemma for the Obama administration.

I think for the Trump administration, they may be more inclined politically to do this, but they’re still going to run up against those trade problems. And so I do think the ball is ultimately still in Madam Tsai’s court. She has to decide she’s going, you know, take on her own constituencies, you know, particularly in agriculture, and move forward on some of these things, and demonstrate a level of ambition that Korea showed before we entered the KORUS FTA, that Japan showed when we joined—when they joined the TPP, demonstrating—not putting everything on the table—well, putting everything on the table, not conceding everything at the beginning, but saying we’re willing to take on even these very difficult issues. And there hasn’t been yet that sign from her. But if she did that, I think this administration might be more willing to go down that road.

OSNOS: We’ve got time for one last question, and we’ll go right here. Please.

Q: Thank you. Paula Stern.

Abe just came, and left I guess, but we haven’t really discussed what Trump’s policy is and ambitions are for Japan, particularly with regards to China. Do we expect that Japan will be taking a more forceful role or a more active role to fill whatever vacuum that has been created, for example, by the U.S. by Trump’s dropping the TPP on the first day? Where does Japan-China-U.S. play in this?

GOODMAN: I mean, there are a bunch of questions embedded in that, and one of them is about what Trump’s Japan policy is. And to be honest, I still don’t know. I mean, after what happened over the last weekend, on one level, I mean, I think Prime Minister Abe must have gone home feeling relieved that there was no—that all the basic, you know, cornerstone of the relationship or cornerstone of our engagement in the region—that, you know, we’re going to do the right things on the alliance; weren’t sort of trade and currency complaints. So he sort of—all that went well, and he basically moved in—he and Akie-san moved in with the Trumps, it seems, for the weekend. So it was all a lovefest on that level.

But on another level, it was—you know, I don’t feel like it laid out a clear vision for how the U.S. and Japan should move forward on any particular set of issues. And, you know, I just still have questions about what the Japan strategy is, and it’s partly a function of the people aren’t there, you know, we need a little time to shake this out. But there was an opportunity there with that visit to, I think, lay out more of a joint vision, and I didn’t see that.

You know, another part of your question is about Japan taking a role. I think Japan should step forward, and I hope will, in the rulemaking area, whether by keeping TPP alive or keeping the contents of TPP, the rulemaking parts alive, and maybe in non-economic areas as well. It’s difficult for Japan. They’re not used to playing this role. In another forum I used another movie metaphor that, you know, it’s a little like in “The Lord of the Rings” when Frodo gets tied up by this spider up in Mordor, and Sam has to pick up the sword and the Ring and carry forward. And that’s what Japan really needs—Japan is Sam. (Laughter.) And it’s an uncomfortable role for them, but I think that’s what—I’m looking to see them step forward in that way.

OSNOS: All right.

Evan, you want to give us a final word?

MEDEIROS: Yeah. I think that there’s—

OSNOS: And, please, a “Lord of the Rings” reference, please, I would hope for, too, yeah. (Laughter.)

MEDEIROS: So I think there’s two big variables here.

Number one is the extent to which what we’re seeing on China, Japan, and North Korea becomes part of a coherent Asia strategy. That’s the big question. How long is it going to take them to articulate a coherent Asia strategy? I think any administration deserves more than three weeks. I think the world’s not—

Three and a half.

MEDEIROS: Three and a half. (Laughter.)


MEDEIROS: But the world’s not going to give them a lot more time. So let’s see how these independent actions do or do not converge on a strategy.

Number two, I agree with Matt that one of the big variables to watch in Asia—and this gets back to the debate between Liz and I about the extent to which the big Chinese tractor beam will suck in the region or not—is the extent to which other actors play a role. I think it’s pretty clear to me that on economic and security issues, Abe has and will play more of a role. I think that, now that he’s been able to consolidate the U.S.-Japan relationship, that sort of politically and psychologically gives him the backing to do more. I would expect we see India do a little bit more, and that will be interesting to watch. This will play out most immediately, probably in 2017, in RCEP negotiations, so that will be an interesting variable to watch. But, you know, again, it’s a region that’s—it’s going to have a difficult time digesting the uncertainty of Trump and the perception of pullback and the perception of building walls with protectionism.

So that’s—I think those are the big questions.

OSNOS: All right. I think we covered an admirable percentage of our intended topics. (Laughter.) I’m grateful to all of you. And please join me in thanking our terrific panel today. (Applause.)


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