Responding to China's Belt and Road Initiative
Charles Boustany Jr., partner at Capitol Counsel and former representative from the state of Louisiana, and Jennifer Hillman, senior fellow for trade and international political economy at CFR, and Daniel H. Rosen, partner at Rhodium Group, will discuss the findings of the latest CFR-sponsored Independent Task Force report on China’s Belt and Road Initiative and implications for U.S. economic security, climate change, and global health interests.
Learn more about CFR’s State and Local Officials Initiative.
FASKIANOS: Thank you, welcome to the Council on Foreign Relations State and Local Officials webinar. I’m Irina Faskianos, Vice President of the National Program and Outreach and CFR. We’re delighted to have participants with us today from 36 U.S. states and territories. Thank you for taking the time to join us for this discussion, which is on the record. As you know, CFR is an independent and nonpartisan membership organization, think tank, and publisher focusing on U.S. foreign policy. CFR is also the publisher of Foreign Affairs magazine. Through our State and Local Officials Initiative, we serve as a resource on international issues affecting the priorities and agendas of state and local governments by providing analysis on a wide range of policy topics. We’re pleased to present to you today the CFR sponsored independent task force report on China’s Belt and Road: Implications for the United States. So we have with us, our project director, co-project director of the report, Jennifer Hillman, and two members of the task force, Charles Boustany and Daniel Rosen. And these task forces are independent, they are bipartisan and they are co-chaired by a Republican and a Democrat. So this task force was co-chaired by Jacob J. Lew and Gary Roughhead. So I am going to introduce our speakers today and then turn to them on to talk about the findings and recommendations of the report. And we are eager to hear from all of you with your questions and comments.
So in alphabetical order, I’m going to start first with Congressman Charles Boustany. He’s a partner with Capital Counsel. From 2005 to 2017, He served as congressman for Louisiana’s third congressional district. While in Congress, Dr. Boustany served on the House Committee on Ways and Means and was chairman of the subcommittee on Tax Policy, Oversight and Human Resources. He currently serves as a member on the National Committee on U.S-China relations and is a member of the Council on Foreign Relations.
Jennifer Hellman is a senior fellow for trade and international political economy at CFR. Most recently, she was a professor of practice at Georgetown University Law Center. And from 2007 to 2012, she served as a member of the World Trade Organization’s appellate body. Prior to her time at the World Trade Organization, she served as a commissioner at the United States International Trade Commission and as General Counsel at the office of the United States Trade Representative.
And Daniel Rosen is founding partner of the Rhodium Group and leads the organization’s work on China, India, and Asia. He has twenty-six years of extensive experience analyzing China’s economic development, commercial sector and external relations. He’s also an adjunct associate professor at Columbia University, and previously served as a senior advisor for International Economic Policy at the White House National Economic Council and the National Security Council.
So thank you all for being with us today. We really appreciate it, and thank you for this terrific report, which again we circulated in advance of today’s webinar. So Jennifer, if you could begin by giving us an overview of China’s Belt and Road Initiative and the recommendations of the task force that you outlined in this report?
HILLMAN: Well, thank you very much. Irina, I am delighted to be here to discuss this report, in part because I think China’s Belt and Road initiative is both huge in size and scope and has huge implications for the United States. But it’s often really hard to understand or to get your arms around, and so we really tried in this report to kind of peel back the curtain with respect to what is BRI, what it’s doing, and what its implications are. And I think it’s important to start with, there’s a couple of unique things about this report. First of all, it is very comprehensive. It covers all aspects of the Belt and Road and its implications in the economic arena, the political arena, and the geostrategic. The second thing to me that’s unique is it’s the first report looking at BRI in a post-COVID or potentially post-COVID world. And so we were able to really focus on how COVID has changed BRI, which it has clearly caused a major shift away from a lot of the big infrastructure projects that had been initially at the heart and soul of BRI, the building of ports and railroads and roads and power plants. And that shift has been to move BRI into being very heavily focused on technology, including telecommunications technology, financial technology, and healthcare, now moved becoming a sort of mass diplomacy and now vaccine diplomacy sort of aspects of it. Thirdly, to me unique was that this was a unanimous report, which has not always happened with respect to Council on Foreign Relations Taskforce reports, they’re often sort of dissenting or competing views. Yet we brought together a really wide set of experts, and nonetheless, were able to produce a report that everyone agreed with. And the last thing I think that makes it unique is it includes specific recommendations of what the United States should do to respond to the Belt and Road Initiative.
The report starts out by saying, look, BRI could have been a very positive initiative to fill the major need in many developing countries for basic infrastructure; for power plants and electricity grids, bridges, roads, ports, railroads, but that the way in which China has gone about implementing the Belt And Road has created significant risks for the United States and really for the rest of the world. And I’m going to touch on just sort of six of those clear risks. First, is it can really undermine macroeconomic stability, because it is likely to result in significant debt crises, because it has funded economically questionable projects in heavily indebted countries. It has done so on secretive commercial sort of plus terms, and it has not allowed much sort of debt sustainability analysis. Secondly, it creates risk because it has subsidized privilege market entry for state owned and non-market oriented Chinese companies. Third, it’s enabled China to lock countries in to sort of China’s ecosystems by putting Chinese technology and preferred Chinese technical standards in a number of these countries. Fourthly, it’s made it a lot harder for the World Bank and other traditional lenders to insist on high standards, you know, like environmental impact assessments and social impact assessments. Fifthly, it’s left a lot of countries much more susceptible to Chinese political pressure, where China is saying, okay, you’re now BRI country, we don’t want you to say anything about what we’re doing in Hong Kong or what we’re doing with respect to the Uyghurs, so again, leaving a lot more vulnerability. And the last clear risk that is identified is the fact that China is ensuring a lot of country’s dependence on carbon intensive coal fired power plants that are likely to be in place for 35 or more years.
So then what do we recommend, we recommend that the U.S. has to respond in a number of ways that may implicate the work that many of you are doing, particularly its recommendations that much of the United States response has to be to improve U.S. competitiveness, so that we have a genuine alternative to offer to BRI countries on the premise that, you know, you can’t fight something with nothing. So the United States is going to have to make some significant investments in our own competitiveness, so that we’ve got something significant to offer. And that is going to include a substantial boost to research and development spending, with some of that additional spending being directed very clearly to digital technologies, that we invest in the next generation of technologies such as artificial intelligence, 6G, clean energy and healthcare technologies. Thirdly, that we attract and retain talent to the United States by changes to our immigration and visa system and by continuing to welcome foreign students, particularly in the STEM areas, that we increase U.S. participation in the standard setting organizations. What we’re finding is that China is now leading the way at everything from the International Telecommunications Union, the Codex Alimentarius, the OIE, that are the ones that are setting the standards that are affecting our exports of everything from information and communications technology to agricultural and food products. We’ve got to get reengaged in making sure the standards are not written to the benefit of China and to the exclusion of the United States. And lastly, we recommend a very strong increase in support and additional flexibilities to our development Finance Corporation and our EXIM bank, so that they can do more to promote American exports. The report also has specific recommendations with things that we need to need to do to mitigate the economic risks of the Belt and Road, as well as to partner with our friends and allies and multilateral organizations, as well as specific steps that we need to do to protect us security interests in the BRI countries. But the one that I think it might be of most interest to you are the recommendations that I’ve highlighted, that really go to this issue of what do we need to do to make America more competitive, so that we can reach out to these countries in certain sectors, in certain regions, in a very strategic way to have a legitimate alternative to offer to many of these countries that don’t necessarily want to go down the China road, but who need a genuine alternative. So I will stop there and turn it over to my colleagues that served on this taskforce and whose expertise is what was very much relied upon in drafting this report. Thank you.
FASKIANOS: Thank you, Jennifer. So Dan, let’s go to you about to talk about the drivers of BRI and how is the initiative affecting the Chinese economy and the economies of recipient countries?
ROSEN: Thank you so much Irina. And while there were a lot of talented people who served on this task force, if we didn’t have Jennifer to put it all together into a coherent narrative, it would just be a bunch of interesting things lying around on the floor, like a four year olds play room, to be honest. But Jennifer, and the project leaders have done a super job putting it all together. Let me offer a few thoughts here, coming from the sort of global economic perspective around this. You know, Xi Jinping himself, the Chinese leader himself, the Chinese leadership, have postured the Belt and Road Initiative, as a game changingly important Chinese contribution to the international scene. They have defined this, as you know, an development of, you know, epic proportions. So it should not be a surprise to them or anyone else that it would require a lot of adjustment considerations, that there would be a big shock from throwing, as it is, up to like a couple 100 billion dollars a year of Chinese development, purportedly development assistance, into the international economy into the international system. So I think you know, as Jennifer said, it’s kind of a shame here, because it’s not as though there aren’t developmental needs in the world there are, but the manner in which it’s done is critical. And we learned that the hard way, in the advanced economies, right, in the liberal market economies. I have to say, we made a bit of a mess in parts of the world, in the post war era, we learned lessons the hard way about how to do development well, or not so well. China has essentially made a worst basket case out of Venezuela, already a basket case, very hard to do that. But you know, there were many times when the United States too, had a bad experience, trying to do development work. So if the if Beijing had only been ready to build in room for the need to adjust, the need to work with incumbent players in the development world more, as they rolled this huge thing out there really, you know, was the potential maybe still is to get a lot of good stuff done. Unfortunately, that that and that would have been true, even if Beijing did everything right, in how they designed this Belt and Road machine.
However, they have defined it as they’ve gone along. This was not super well-conceived, designed and rolled out right at the start, and it plays many roles. Officially, Beijing will describe it as a development undertaking, of course, meant to help solve the development problem, and many, many nations upwards of 80 or 90 or 100, depending on how you define it around the world. But the reality really is, it is multifunctional for China. China is has been at least as concerned about finding a way to export more of their overcapacity industrial production, at least is concerned about the geopolitical and geostrategic utility to China, of having this big program out there, as they have been about the development, economic development, impact and benefit of this program to so many countries. And I can say that, you know, without any kind of a hawkish spirit, honestly, it really is quite murky, exactly why they say yes, to putting so much debt in the hands of some officials around the world who clearly don’t know how to handle it without getting themselves in their countries in trouble. So the drivers what understanding what the Chinese motivation is, is key to our ability to engage with them to the extent that we want to, and many people in the United States and Europe and around the world have wanted to try to find the most good out of this as we could. And yet the nature of the thing is to actually it’s very hard to do that. Even if you come to it with a kind of good spirit. What is this thing really look like when it when it lands on the ground? On the one hand, it’s China’s policy banks, carrying the Belt and Road program, the imprimatur that gives him the right to offer concessionary low interest financing terms. But it’s also China’s commercial lenders now have the right to use the Belt and Road label to attach themselves to certain privileges and benefits that are available to them back home, that really allow them to compete better, even if they’re not really thinking about the development. And so the boundaries between what sort of Chinese institutions that ostensibly have a development mission, and what sort of Chinese entities that don’t even pretend to be development oriented. For example, China going out as a direct investor and buying Carnival Cruise Lines, and calling it a Belt and Road investment, one of my favorite just because that’s such a colorful notion isn’t it? Sort of, you know, give us a sense of the difficulty of saying, what, what is this and what isn’t it? And some of the smartest people around talking about this stuff would say, well, there’s really no practical use to talk about what’s Belt and Road and what’s not taught Belt And Road in China’s footprint around the world these days, right? It can be that label can or cannot find itself in almost any situation. Let me finish up 60 seconds in terms of the how it is impacted both the host countries and maybe China itself.
We learned, as I said a lot about what works in development to really be beneficial locally, right? And what is just kind of helping the center country in some way. And we’ve created rules within the OECD, for example, rules on tied aid that makes sure that when a nation offers to be generous, they’re not really just being generous to their own companies and their own interests, right? So the research shows, unfortunately, that in Belt and Road, lending from China to those countries, 89% of the value of that support is going to come back to Chinese vendors who are selling stuff into the program, right? Only 7% and a little bit more 7.6% I think a BRI money goes to local host country vendors, when China does a BRI financing facility. That’s versus well over 40% when it’s multilateral development banks that are putting money to work in the developing world. So that that’s not the whole story, in some cases, railroads China’s built in Addis Ababa, in Ethiopia, created a lot of economic benefit, I can point to other deals and worked out well for hosts, I can point to many that didn’t, but it’s very much a mixed bag. And in the whole, it sure seems to be benefiting the Chinese export or more than it does local vendors to develop that sort of crowding in of good economic activity in the developing country, that’s being assessed. As for China, there’s a bit of soul searching going on in Beijing these days. Belt and Road, in some ways, is getting China tangled up in the looming crisis of local debt implosions that Jennifer referred to, which, like it or not, they’re gonna own that, you know, they’re making this mess, in part after we did, as I said, we’ve had to clean it up over a year, see the Paris Club and otherwise trying to help create, like better government in the places we’re trying to help. China road in and basically squandered all that good governance work that a lot of really earnest people had been doing for a while by throwing too much money at the situation, I would say. And that, in turn is creating some sense of geopolitical mess that China is going to be blamed for in the not too distant future. Yes, they’ve exports more goods, they’ve gotten the ability to kind of put a wedge in there between some of these host countries and their friends in Washington or elsewhere. But in the long term, there’s some very hard questions they’re gonna have to be answered, I think, in Beijing as well. Thank you.
FASKIANOS: Thank you. And now we’ll go to Charles, can you talk about how the Belt and Road initiative is affecting U.S. competitiveness in East Asia and how the US might respond to increase competitiveness and love, both at the, you know, in at the federal level and some national level?
BOUSTANY: Okay, thanks. Thanks, Irina. And it’s a pleasure to join Jennifer and Dan on this webinar. And, Jennifer, I commend you too, for a terrific report and putting it all together as Dan said, this is really readable, a lot of valuable information in it. Belt road is Xi Jinping’s signature foreign policy initiative. And if you think about foreign policy, a big part of foreign policy is foreign economic policy of which there are two areas there’s development and development financing, typically debt financing, of which Dan mentioned both the positives and the negatives of what China’s doing with the debt financing piece. But there’s also trade policy and investment policy which drive foreign economic policy in general. And China’s using all of this to sort of advance its political aims, its geostrategic aims globally. By design, this whole program, if successful, will seek to reorient commerce away from the United States and Europe and put us at a competitive disadvantage, at least that’s their objective. Both Jennifer and Dan mentioned the potential debt risk in the macro economic instability that could occur with this. A lot of this has to do with the fact that there are no transparent rules for the operation of the Belt and Road Initiative and there’s no central governing authority for it. So it’s very difficult for outside companies, American European companies to come in and compete. And of course, Jennifer mentioned subsidies that privileged Chinese companies at the expense of American and European companies, but also IP theft and technology transfer issues, create competitiveness issues for the United States. One of the biggest concerns I have is how the Belt and Road Initiative will sort of, work in tandem with trade policy. Written just last year, at the end of last year, after lengthy negotiations, a very large trade agreement was finally signed, involving 30% of global domestic product with the countries in Asia. This is called the Regional Comprehensive and Economic Partnership. It includes China, Japan, South Korea, the ten Southeast Asian countries that comprise ASEAN, along with Australia and New Zealand. This is a very large trade agreement, it’s going to have a significant impact in the Asia Pacific region. It has rules for e-commerce, digital trade, competition, government procurement, rules of origin, many of the things you would expect in a trade agreement. But the overall impact of this, once implemented, it will drive supply chain development and consolidation of supply chain development in the Asia Pacific region with China, still holding its central position in the supply chains, and really having centrality in a regional value chain network. Plus, it will play a complimentary role with BRI because it will enhance the BRI’s transportation energy and telecoms initiatives as well as some of the healthcare initiatives that are in play there.
The problem is the United States has not mounted a reasonable response to this yet, it’s you know, we’ve been sort of in fits and starts, it’s been a decade since we had a really new trade agreement. The last one that was negotiated, and finally signed into ratification was a South Korean trade agreement during the Obama Administration. So the United States is not engaged in trade, we’re not involved in the Regional Comprehensive Economic Partnership. And we pulled out of the Trans Pacific Partnership, which is the other high value trade agreement in the region. And as somebody who was involved in policymaking, I’m hearing from ambassadors, others involved in governments and foreign countries in the region, that there’s a real demand for U.S. engagement in economic space, both in the development sense, and in the trade sense in this region, because we’re falling behind. And that’s the risk, that’s the significant risk to competitiveness that we’re facing in the region. Now, there are things that could be done. This report gives a signal a significant number of recommendations in various areas, whether it’s in trade, you know, dealing with the international multilateral bodies, standard setting bodies and so forth. But clearly, we need significant investment in research and development in this country. And that’s going to include federal dollars going in, but also investments in university and research institutions around this country, coupled with private sector incentives for investment. And this is where local and state communities will come in because A, they will benefit from federal dollars that would be invested in this area. But we cannot mount a competitive response without a full, local, state , and federal partnership to strengthen the American economy, to have a vibrant growing American economy with a good education system, both at all levels, and especially STEM education at all levels.
We also need to amend our visa and immigration policies to attract the best and brightest around the world. Whether we’re talking about students, researchers, scientists and engineers. Jennifer mentioned the Development Finance Corporation and the Export Import Bank of the United States. These are critically important. The development Finance Corporation was a consolidation of other development organizations within the federal government into one, that was a good step forward. But it has a paltry amount of money. And it needs reforms. It needs more money for one. But even that’s not going to compete with the Belt and Road Initiative and development projects alone. We need to allow it to partner with other likeminded countries to create incentives for private investment to follow the government dollars, because then we can compete with China in this in this arena, if private, direct investment comes through. But we’re also going to need to put pressure in a multilateral way on China to meet international standards with regard to the way it lends money, because those their practices are out of line with international norms. And this creates problems for U.S. competitiveness, we need to have a transparent playing field with standards that are adhered to, which means the US needs to push China on enforcement of these measures, whether it’s in trade agreements, or in lending practices, and hold China’s feet to the fire with regards to its commitments. And lastly, on some of these recommendations, we have to get back in the trade game, the United States can immediately start to negotiate sectoral trade agreement starting with digital trade, maybe healthcare goods and supplies, we could look at energy and green energy, good trade in those areas, as starting points, and use those sectoral agreements to try to eventually get back to a point where we renegotiate entry into the successor agreement of TPP, which is the CP TPP. It’s the Comprehensive and Progressive Trans Pacific Partnership. If we don’t get back into the trade arena, we’re going to be at a disadvantage in in terms of participation in supply chains and global value chains, particularly in the Asia Pacific region. And the two things that are going to drive investment and commerce and keep American companies competitive will be the development of these of these global value chains, and the standards that surround them. And if we’re absent in both of those arenas, will fall behind in in our competitiveness. So finally, the role for our state and local governments and economic agencies at the state and local level will be to really assist in creating a vibrant growing community in a 21st century with new infrastructure, education at the highest standards, especially in STEM and partnering with our federal government as part of an overall strategy to meet this competitive challenge for the 21st century. So with that, I’ll stop and then let’s move to questions.
FASKIANOS: Wonderful, thank you. So we’re going to go to all of you now, you can click on the raised hand icon to ask a question, or you can put your question in the Q&A box. And please also tell us who you are. If I call on you, please unmute yourself and identify yourself as well, so that we know. I’m going to go first to a written question from Kevin Haroff, who is the mayor of Larkspur in Larkspur, California. And his question is, he’s a mayor in Northern California active in supporting institutional efforts to promote renewable energy sources and storage technologies. The US has a lead in the sector, while China seems bent on promoting reliance on fossil fuel energy generation, how can we leverage our local expertise with renewables to help to promote these technologies in countries targeted by the Belt and Road Initiative? And I don’t think you all need to answer that, but who wants to take it right?
HILLMAN: I’ll at least start. First of all, thank you and it is a great question, and it is something that the taskforce spent a lot of time on, because the concern really is that that China is in essence trying to have it both ways. On the one hand, at one of the recent meetings of these huge BRI forums, China came out with this notion that they are now going to green the Belt and Road and put out a lot of statements about the greening of the Belt and Road. And yet what we’re seeing clearly on the ground is that China has already funded more than 260 coal fired power plants being built, you know, in these BRI countries and is basically allowing countries that often simply do don’t really understand renewable energy. I mean, we’ve tried to dig into why is it that countries are going to China for these coal fired plants? And the answer is many fold. But one of them is China is increasingly the only country out there that will continue to, to finance coal fired plants. Again, the United States and many other countries have completely pulled back and I’ve encouraged the multilateral development banks to back out of funding coal fired power. So you got to go to China, if that’s what you want. Why do countries want it? Again, a lot of the data indicating that for many in these BRI countries, they don’t really understand or trust renewable energy, they perceive coal as being cheaper. And that is, again, something China is promoting why because China wants to have an outlet for its coal. I mean, China is one of the largest coal producers. And again, as sort of Dan was saying earlier, part of the motivation for China is to have an outlet for its excess capacity, including in coal. And thirdly, there is a sense that the again, the alternatives are not well known and are not well out there. So one of the things that the task force is clearly recommending is that the United States, in essence, massively expand a program that was begun under President Obama called Power Africa, which is working to build renewable clean energy power plants throughout Sub-Saharan Africa. And it is unique because it brings together local officials in these countries and in the United States, bringing together technical expertise, you know, again, to help educate local officials on how to run a clean power plant, and bringing together financing and technology, again, from across the United States to invest in this Power Africa. And one of the things many things that we’re recommending is take that program global, and put a lot more money into it, and have the sort of Power Africa model of this public private partnership exist in all of the BRI countries, not just in Africa.
FASKIANOS: Does anybody else wants to add to that?
BOUSTANY: The administration put together, the previous administration put together something called the Blue Dot Network, which was focused on infrastructure and standards, but it’s not well defined. And one of the things we recommend in the report is to give this, you know, let’s refine and define this program is Blue Dot Network beyond just some sort of a branding approach, so that it could attract private dollars, private investment only from the US, but from other market based economies into green technology projects, and renewable energy. So we hope that this current administration will look at this and look at ways creative ways to do this and also to coordinate it with our development bank, our multilateral development banks to focus on renewable energy projects in these energy starving countries. They can model it after the Power Africa program, which has been very successful. That’s I mean, that’s a nice model to build off of, as Jennifer laid out.
ROSEN: Let me offer one more thought on this one. Our competitiveness in renewables will be fought and won at home. If in our home economy, we get serious about transitioning to clean, renewable energy systems and we use the scale of the world’s largest economy, otherwise known as the United States of America, to build that out, prove that out and get good at it, we will kick butt around the world, against the Chinese as well. But make no mistake, they are absolutely trying to do both. They’re not just about coal. China is also the largest installed solar capacity on the planet, for example, and are dumping, putting investing both smartly and in silly ways, massive amounts of money into winning the green energy future of the world, which is going to be 100 years, if not 500 years, or the great market to own, you know, so we’ve got legislative work as Charles could probably talk us all into the night to do here, which is just so challenging to make sure that we’ve taken care of our foundations here at home, that will make it credible, that America wants to be a renewable energy vendor globally.
HILLMAN: I’d only add that one of the sort of ironies that we really, you really notice when you when you study what China is doing here, is China is can has— if you look at the list of companies producing solar producing hydro, producing wind power, they’re all Chinese companies. The entire list of the most competitive companies in this space are Chinese companies. And yet what they’re largely exporting along the BRI, the majority of their exports in terms of building power plants have not been there, so they’re not exporting a lot of this renewal technology to their BRI countries there. That’s where they’re exploiting the coal fired plants. So part of the other part of what the report recommends is that the United States join with its friends and allies to get serious about saying to China, you have to live up to this green belt pledge. I mean, you have to stop funding coal fired plants, you have to stop funding a whole series of things that even China’s own criteria identifies as long term damage to the economy.
FASKIANOS: Thank you. I’m going to go next to Representative Matthew LoPresti. And he is the Hawaii representative. So if you can unmute yourself.
Q: Aloha, can you hear me? So thanks for doing this. I wanted to address something that Dr. Boustany had mentioned. And he’s talking about state and local governments being involved in assisting and creating, I guess opportunities, but I’m at a loss as to what exactly at the state level we can do. You know Hawaii, for example, has special cultural relations with many of the Pacific countries being, let’s say, targeted by BRI investments. But I don’t really, I just hope for a concrete if not maybe an abstract example of what sort of things we could do at the state level.
BOUSTANY: Yeah thanks, Matthew. I think that’s an open question and frankly, we want to hear more about what the needs are, and how state and local officials envision their role in this. But in a broad way, I mean, certainly sitting from Washington, clearly more investment is going to be needed in STEM education. And so it’s one thing to throw money at it, but second, but how do you create a really high quality program in, you know, high schools, middle schools that, you know, wet those students’ appetites to move on into college and in graduate degrees, to be the next innovators in the world. So education is gonna be, I think, a fundamental area, where there’s gonna be a major role for state and local governments to help us with our self-strengthening, building up our own domestic competitive economy so that we can so that we can compete globally and more broadly, I think that’s the number one area. I mean, the other will be infrastructure, because the federal government’s going to have is apparently on track to spend money on infrastructure broadly, as President Biden has laid out, and looking at how the states use that opportunity, to enhance their competitiveness will be will be critical. I know, those are still sort of on the high level, but again, I think it’s really going to be up to local officials and state officials to figure out how they can position their states to be extremely competitive in a global marketplace.
FASKIANOS: Go ahead.
ROSEN: No, I was just gonna say I’m tempted to point out again, that the our biggest challenge with China and BRI is ourselves ultimately, right? China is a formidable, formidable peer competitor out there for global competitiveness. But we can handle that, if we are aligned and together about our priorities here in the United States and there is a lot of catch up work we have to do to get our policy setting, right? And it’s ultimately it’s got to be built up from the local level, right? That sort of top down vision of what America should do, has left many, many, many Americans, you know, unconvinced that they should change how they think about granting a mandate to Washington to do things for them, whether it’s STEM investment, or, you know, some people still fighting for more coal investment, of course, in parts of the country importantly, right? So, you know, the, it’s got to be bottom up, ultimately, and I’m not sure Matt that answers like, what, what, what we can do for you. It’s more like what you can what we all need to do, wherever we’re sitting to try to work toward a shared vision for what it’s going to take to deal with the world we’re in.
FASKIANOS: Thank you. I’m going to take a written question from Commissioner Felix Lopez. He serves on the Las Animas County Board of Commissioners in Colorado, and he asked what is the Biden administration’s position on holding China’s feet to the fire? It’s a very broad question.
BOUSTANY: But you know, we’re waiting to see exactly how this is going to play out. So broad approach to China right now is on three fronts confrontation where there are certain red lines, national security, human rights, there will be competition on a broad range of areas, technology, economics, and so forth, and there’ll be areas of cooperation. But we have a phase one trade agreement, and I know that the new U.S. Trade Representative Katherine Tai has taken it upon herself to be very strong and looking at how to enforce that agreement, which so far has not met targets. Secondly, I think, where we deal with China in international bodies, we need to be very concrete with them, and very specific about where they’re violating international norms or rulings with regard to trade, and to build alliances with other countries to keep the pressure on them. And I think Dan mentioned earlier on the debt side, we, you know, along with Europe, the Paris Club and others, we can put a lot of pressure on China to adhere to the standards, but also the US working with allies can help other countries understand what they’re getting into before they sign on the dotted line, and help them build capacity on how to assess whether their projects are feasible and whether they should sign on the dotted line to accept the kind of debt that China is going to put them in. So I think there are a number of areas where we can do these things, to try to hold China accountable. But we need to do a better job in the multilateral organizations, and we need to be very firm with them, head to head, when we negotiate with them.
HILLMAN: I just really briefly add to that. As a result of this taskforce report, those of us that were sort of the authors and the co-chairs of it have been engaged in a very extensive series of meetings with both members of Congress, as well as the administration to just talk about the report and what we found and what our recommendations are. And what I can pass on to you is that we have met with your sort of very receptive ears. So I think it’s very clear that the Biden administration is trying to take this very, sort of, you know, comprehensive approach to rethinking how we are addressing the issues with China. I think no major decisions have been made yet on exactly how to approach all of the things that were done during the Trump administration. In other words, the imposition of the tariffs under Section 301, which obviously then garnered a lot of retaliation on the other side, exactly what to do about, I mean, a number of the things that were done, including increased export controls. So again, there’s more controls now on what can be lawfully shipped to China. Again, no decisions yet on exactly what’s going to happen there. There have been more again, investment reviews where there is a greater degree of looking at what China is doing when it invest in the U.S. market. Again, those controls are also under examination. Obviously, the Trump administration started the process that has to this date and continued by the Biden administration in terms of banning the imports of cotton and certain other goods that are coming out of Xinjiang Province on the theory that on the evidence that, that there is a lot of forced labor that is going on in those markets. So right now, those are among the many policies that are part of this very comprehensive sort of review and at the same time, over on Capitol Hill, there is a major bipartisan effort to put together a broad package of legislation that addresses again, the issues that we’ve had with China in a very comprehensive way. So the basic answer to your question is to be determined, but know that I think a lot of work is going on to come up with that comprehensive policy. And I personally think it’s the one of the things that is at that top of the list and is getting a lot of priority attention, both on Capitol Hill and within the Biden administration. And I at least am very pleased that they have taken a very serious look at what’s in this report and the recommendations that we’ve made.
FASKIANOS: Thank you. I’m gonna go to Commissioner John Gentry, who is serves on the Wilson County Commission, so if you unmute yourself, that would be great.
Q: Can you hear me now? Okay, yeah, I’m John Gentry. I live down just to the east of Nashville. I just want to talk about energy for a second. China continues to build coal burning plants even in their own country at an alarming rate as well, as well as exporting them. And at the same time, they are doing windmills and solars and all that. But a lot of what we import from China is, well, are those windmill blades and solar panels as well. And I’m just wondering, sometimes I feel that they’re getting a benefit of us going to green, which I think is the correct thing to do. And I think our companies in this country are not producing as much green energy equipment as we should. And how are we going to address that? Thank you.
ROSEN: Can I kick our first crack at that one? Yeah, this is, here’s, here’s the, here’s the trick. As a local official, if you’re trying to get the most bang for your bond, tax dollar revenue, China’s got something for you, right? You’ve got a refurbished school, you’ve got to build local power assets. And the Chinese products on offer, right, might be by far the most attractively priced for you locally. But in the long run, if we don’t sustain and build up American capabilities to be competitive in these industries, China’s not going to be an affordable monopolist in the world economy, which is the way it’s gone and solar panel there, I dare say predatory behavior in that industry, a few years back, knocked most of the players out of the marketplace, who were starting to put businesses together both in the United States and the European Union as well. And so this is an area where the sort of resetting the incentives and the tradeoff between the short term necessity facing the local official, and the long term necessity of protecting a competitive, American environment where good innovators and people put together businesses that can be, you know, without needing huge tariffs into the future competitive, that is the challenge the Biden administration has in front of it right now. Unfortunately, we’ve really squandered I would say the past four years to roll out a viable set of temporary industrial policy interventions that will set reasonable conditions for a period of time to ensure that in critical areas like turbine blades for windmill, what have you, the unnatural aspect of Chinese prices will not displace the opportunity to build good businesses among market economies that can serve the needs that local officials, at the end of the day, are tasked with finding the best product for their available prices without having to tell people they’re going to have to pay even more of their kids college funds or their Walt Disney World money in their local property taxes to buy, to buy a more expensive blade, right? So that is, it comes down to that, it comes down to money. And it’s going to take a big federal budget, frankly, to fix the distorted situation we’re in right now. And the more we do that, with other likeminded market economies in the world, the cheaper it will be. For us the less long term federal American debt there will be if we don’t do this, not just by ourselves, sticking our finger in the eye of every other market economy on the planet. But absolutely in partnership lockstep, I dare say, with our partners in the OECD and other economies. Jennifer, that’s a big part of the report really underscoring how much low hanging fruit there is for us to deal with this whole thing better if we do it in partnership, I think.
HILLMAN: The only thing I would add for what it’s worth is clearly the Biden administration is recognizing how important this is in that with respect to the issues of government procurement, the Biden ministration has said very strongly that they are going to adopt much more strict rules on buy America. So again, it is a little bit of the chicken and egg that Dan has just talked to, you know, it’s one thing to say buy America, it’s important to then make sure that there is American product out there to buy. And so we’re going to have to go through this balancing of making sure that we are creating enough American competitive product to buy at the same time that we are putting on stronger and stronger restrictions to encourage government procurement to be in that buy America space.
FASKIANOS: Great, thank you. Um, I am going to go to, we just got an upvote on a Manish Kothari questions, I’ll go that one next, a member of the Maryland Economic Development Commission. Perception in the host countries is China is willing to fund what they want, and U.S. and Europeans are not listening to what they, the host country wants, but pushing for their Western owned agendas. How do we counter this perception?
HILLMAN: I’ll just start by saying their perception is right on. And it is important that people recognize how significant this is. I mean, if we read a lot of the data coming out of Southeast Asia and coming out of Africa. Those are both regions in which the amount of U.S. foreign direct investment into Southeast Asia is far greater than the amount of Chinese investment, the amount of U.S. foreign direct investment in Africa is greater than Chinese investment. Yet, if you ask people in Southeast Asia and Africa, who is the most important, the most powerful economic player in fill in the blank your country? The answer is China, China, China, China, because China has done so much a better job, if you will, of branding, what they’ve done. And oftentimes, when American companies are competing in those markets, they’re at a subcontractor or sub subcontractor level in which that American flag is not hanging on that project. So again, there’s less awareness. But the other part of it is that China’s lending is being done without paying attention to the important standards that the World Bank that the United States, that the OECD, that many other countries insist upon. And so part of what the task force recommends, and I think part of what is going to be critical, is to do a much better job of providing technical assistance at the very beginning of a project to help countries understand the sort of pros and cons of using China as opposed to using a US or an OECD based approach. And again, when we have done this, we have been fairly successful, because among the many things that countries are starting to understand, is that if you do a BRI project, the vast majority of the labor will be Chinese labor, you will not get any kind of skills transfer to your citizens, you will not even get any jobs for your citizens because the labor is going to come out of China, and there will be little to no skills transfer, that’s one of the things countries are realizing. Countries are starting to realize that doing these BRI projects can also have detrimental impacts on their environment, and in other ways, and that they’re not always very financially a good deal. I mean, the United States went in early to provide technical support. So this is again, U.S. government, you know, economists, diplomats lawyers, in a single port project in Myanmar, and went in and said, hey, wait a minute, here, let us talk to you about it, let us provide you a little bit of technical assistance before you do this, the cost of that project was brought down from $7.3 billion to $1.3 billion as a result of that technical assistance. So part of what we’re also recommending is that we really gear up this kind of technical assistance that can help countries legitimately compare what does China have to offer and what does it mean for us long term versus what would a US offer or consortium of US, European, Japanese, Australian, you know, other countries actually look like in practice, so that we can put more weight on the things that the United States does well, which is to do good environmental impact assessments and to do labor skills, training, and a lot of the other things that need to be part of that overall package. So it is a lot of really, really upscaling our commercial diplomacy in this effort, among other things.
BOUSTANY: Right, to Jennifer’s point, beefing up our embassies, and giving them that charge, making sure they have the proper number of commercial Foreign Service officers who can provide that hands on technical expertise, working with the private sector entities that are trying to go in and do these projects. Because oftentimes, if we have on the ground commercial service officers in our embassies, who know the players in the respective government, they build those relationships. And then they can assist and expedite the technical assistance that needs to be brought to bear early rather than after the fact when the Chinese have already gotten the contract. So one of our recommendations is to beef up the embassies, with the proper personnel across the spectrum to help with, help the private sector trying to invest in these projects. And then secondly, making sure that the ambassadors and senior folks at the embassies have been given that charge from the very top of our government, that this is something they need to do.
FASKIANOS: Thank you. I’m going to go next to Chris Naff, Selectman Chris Naff. Chris, if you can accept or unmute yourself.
Q: Thank you very much. Can you all hear me? I appreciate everyone’s time. This is the second CFR Zoom chat I’ve been able to participate in and I always learn a lot, so I thank the CFR for putting this together. I think one of the things I’m most fascinated by in recent economic policy is the shift on how we think about trade. And I know, Representative Boustany, I apologize if I get that name wrong. I mentioned, you know, that is probably important to re-engage on trade and rethink our involvement with TPP. But what I really think is interesting is Paul Ryan and President Obama were probably more closely aligned on TPP, than your typical republican voter in 2020. So I think a huge segment of the voting base, particularly in the Republican Party, but also perhaps in the Democrat Party, with the rise of folks like AOC, and Bernie Sanders, probably are all very concerned about what free trade has done to the country. I live in New England. You know, we saw a huge loss of manufacturing jobs to the south about 50, 60 years ago. And I think, if you ask voters in the rust belt, or the quote unquote, flyover states, how they feel about trade, it probably makes them very uneasy. And I think, you know, my main question is, how do we how do we go about addressing employment for working class Americans of all walks of life throughout the country, but also framing it in a way that, you know, Steve Jobs went to President Obama. And I think, to his credit, Obama wanted to try to bring back manufacturing jobs, particularly for things like iPhones. Steve Jobs simply went to the White House and told the president that those jobs aren’t coming back. And shortly thereafter, the president, you know, repeated that to the public. I think you saw a very different approach between Tim Cook and President Trump, where Apple’s began opening more manufacturing plants, the United States not to say that that’s all due to the Trump administration, that probably was a lot of internal discussions at Apple, but how do we make sure that if we do re engage on free trade, were keeping up the progress the last administration made, and getting better jobs for working class and for a certain demographic seeing a true wage increase for the first time in 40 years?
BOUSTANY: Well, that is a complicated question. Trade, jobs related to trade and tradable goods typically played pay higher wages than those that are not in, in trade. I mean, there’s been a lot of work on that. Now, yes, a lot of jobs are displaced. So I think the key is to understand what is the purpose of trade policy? And purpose of trade policy is to basically have a fair playing field with the free flow of goods and services, which the United States can compete with. The issue of jobs gets back to the competitiveness issue. And so that’s what we need to do a better job with domestic policies in the United States, in terms of making our making us more competitive, so that we see good growth of jobs and wage growth as well, I think the bite administration is focused on this like a laser right now going forward, we’ll be interested in seeing exactly what policies they come out with. But for instance, for those who lost jobs related to trade, we had a program called Trade Adjustment Assistance, but it has never really met, met the goals of what it was intended to do. Many of us, myself included, tried to reform that program, but we’ve had a lot of political opposition, and it failed. But the bigger issue is going to be job displacement from technology. And that’s going to be a monumental task going forward in terms of coming up with the right kinds of policies to deal with the rapid change in advance of technology, which is, you know, whether it’s automation or artificial intelligence, which is going to have much more of a damaging effect on jobs and wages in the long run. So the key is how do you build human productivity, not just overall productivity? And that’s going to require a lot of domestic policy changes, as well as you know, looking at what is the purpose of trade? What, where does trade play a role, trade will open markets, but we also need to enforce our trade agreements to make sure that there is fair trade ongoing.
ROSEN: Yeah, I mean, I know, I know we’re at time, but as an economist, I have to applaud the way Charles just put it and underscore this. Trade can make the whole country wealthier in the aggregate, but there’s no joke about an economist who drowns in a river that’s only one inch deep on average, which if you get it means that one inch on average doesn’t mean that it’s only one inch all along, and the nation could be wealthier, and half the people could be poor and less well off. And so it’s not enough just to and, hey, please give the trade guys some credit, they did their part, which was to get, you know, distortions to commerce down. And that sounded pretty American, right? But it’s not the whole deal. We need to think about income distribution and equality of opportunity as well. And there, we are still fighting ideological wars, as though that’s not the right place where policy, the hell it’s not. Okay, if we don’t get everyone up to a certain degree of education, then even if we close the borders small trade, people are going to continue to get poorer within the United States, because the haves in this country are doing really well come good times and bad, they’re doing a pretty good job of keeping things on track. It’s people that don’t have education, don’t have access to health care, don’t have access to a lot of basics, that we have to figure out as a community as a nation, whether we’re going to address that, or wait for the next electoral upheaval, to teach us that people aren’t going to just watch themselves go down in flames. So it’s, it is a brave new world, compared to the one that that we were we were talking about just a few years ago. But trade is not really the problem. It’s the other side of the coin, that needs to be attended to, in my opinion, I say that as a. as a free trader.
HILLMAN: And I’ll, there’s so much I could add on this. But again, I only say I will certainly underscore and I think our report sort of underscores the acceptance of the notion that it’s relatively cold comfort to someone that’s lost their job to try to tell them, oh, no, you didn’t lose your job to train, you lost it to technology, you lost it to automation, I mean, that doesn’t work. And so clearly, one of the things that this report is saying is that the huge investment has to be in again, helping make America and American workers more competitive. But the second thing that I will say is that, you know, the task force makes it very clear that the clock is ticking. In other words, you know, it would be great if the United States could, in essence, stop the world and say, let us take the next number of years in order to do all of these investments, to develop our own technologies to be more competitive, but the rest of the world is not waiting. And one of the things that’s very clear that’s happening is the rest of the world is engaging in all of these trade agreements. Again, during the time that we were writing this BRI report, along came the regional cooperative economic partnership and agreement among China, Korea, Japan, Australia, New Zealand, and all ten of the members of the ASEAN. That covers a third of the people in the world and a third of the GDP in the world. And what it is creating is a huge draw into China, such that many of the supply chains and everything else in Asia are now being reoriented around China, and we are on the outside looking in. We are not a member of the CP TPP, that’s the other big trade agreement in Asia, we are not part of the RCEP, we are watching the BRI agreement, for example, result in major train lines that now run between China all the way through to London. So that we now are having thousands and thousands of freight trains moving goods from Europe in and out of China such that you know, last month for the first time Europe is sending and trading more goods with China than it is with the United States. So again, part of it is yes, we have to get our domestic house in order and yes, we have to understand what trade and trade agreements do for American workers. But at the same time, we cannot just sit on the sidelines, or it may be too late. By the time we ultimately decide that we’re ready to start reengaging in the trade space.
FASKIANOS: Well, with that, unfortunately, we are over time. Thank you all for being with us today for writing this report, deliberating and writing the report. I commend it to all of you, if you haven’t had a chance to read it, please do. And you’ll find on the website, additional infographics, blog posts and supporting materials. So it’s really rich, rich of offerings there. And I’m sorry, we couldn’t get to all the questions. There are a lot of questions in my apologies. We will send a link to the webinar recording and transcript soon again. Thank you, Jennifer Hellman, Charles Boustany, and Dan Rosen for doing this. We really appreciate it. We’re having our next webinar next Thursday, May 13, on countering extremism at the municipal level. So I hope you will join us for that we will send the invitation is going out now. And you can also follow State and Local Officials Initiative on Twitter @CFR_Local. We encourage you to visit CFR.org and ForeignAffairs.com for more expertise and analysis and you can always send us an email to [email protected] about other topics you would like us to cover or resources that you need, we’re here to be a resource for all of you a nonpartisan resource, so thank you all again, stay well, stay safe, and thank you.