U.S. Economic Relations with China, With Evan Greenberg

Jim:
Welcome to the President's Inbox, a CFR podcast about the foreign policy challenges facing the United States. I'm Jim Lindsay, Director of Studies at the Council on Foreign Relations. This week's topic is, U.S. China Relations. With me to discuss how the United States should approach economic relations with China is Evan Greenberg. Evan is chairman and CEO of Chubb, the world's largest publicly traded property and casualty insurance company. Evan has spent 45 years in the industry, building and leading business operations across the global property, casualty, and life insurance sectors. He is also vice chair of the National Committee on United States- China Relations, and he serves on the board of directors of the Peterson Institute for International Economics, the Center for Strategic and International Studies and the Asia Society. Evan, thanks for joining me today.

Evan:
Thank you, Jim. It's nice to be here.

Jim:
Before we begin, Evan, I should note in the interest of full disclosure that I hold the Maurice R. Greenberg chair at the Council on Foreign Relations. Evan, I want to speak with you about the future of U.S. economic relations with China. But first I'd like to start with a broader question, namely whether international trade in investment is in America's interest. You opened a speech you gave back in June at the Economic Club of New York by noting a growing chorus of commentary that says, "No." I know that your answer is yes, but why?

Evan:
Well, a couple of reasons. One, I think that those who speak against trade are speaking against certain issues. On one hand, protection of workers that are left behind when we open our markets to competition. Number two, our intellectual property, and particularly those around security or sensitive supply chain where we think about protecting our interests from a military and security point of view, or a health security point of view. But you can protect your interests and at the same time advance our interests in terms of trade, which is wealth creating and has proven to be wealth creating for the American people and for our nation as a whole. And frankly, wealth creation is how you create money and wealth. And for our country to remain powerful and to do the things that we want to do requires a growing economy and requires greater wealth creation. Everything costs money. And trade is a proven vehicle for that. And number three, we need to extend and continue to extend our vision of trade and rules-based order, our vision of a market economy, and a legal system that underpins trade. And the only way we're going to do that is by promoting and at the same time opening our market to others. They don't want to hear us wag our finger about what they ought to do, all stick and no carrot.

Jim:
Well, let's talk about that, Evan, because the Biden administration has chosen not to pursue any formal trade agreements with potential trading partners. It has instead offered up things like the Indo-Pacific Economic Forum and the US-EU Technology Council. Why are efforts like that not sufficient?

Evan:
Well, for a couple of reasons. Number one, and by the way, they are signaling that we're really not serious about trade to those in Asia and other parts of the world where their economic interests are articulated very clearly by them as deeply intertwined with their national interest. And by the way, I don't know how you create alliances without caring about the other guy's interest and addressing those as you want to address your own. But those efforts are ephemeral. A trade agreement binds future administrations. The kind of efforts like a framework, that doesn't bind a future administration. So it is a commitment that is potentially transient. Number two, it doesn't provide access to our market. The net-net is there is very little incentive on the other side in negotiating with us when it doesn't include access to our markets. Particularly when we're asking them to embrace higher standards in terms of environmental or workers' rights. Those aren't issues that they naturally reach to want to address locally. But it's part of the negotiation that in return you receive access to our market. That's the underpinning of a trade agreement.

Jim:
Now a lot of the criticisms of trade focus on what happens to workers who are hurt by trade. You alluded to that a moment ago, Evan. But what's the flip side of the argument? What potentially do Americans and American workers lose by not engaging in trade agreements? I think it's pretty clear that while the United States right now is not interested in negotiating formal trade agreements, other countries, including many of our closest friends and allies, are busy doing just that.

Evan:
I think you just articulated it well. The world is not standing still and they're not waiting on America. And so we begin to lose out. Because trade agreements then include preferential rights and access that each extend to the other and that are not extended to our companies. And our manufacturing, our services, we lose out on those opportunities as those economies grow. Let's just think about it. In Asia alone there's where more than half of the world's growth is going to come over the next decade or two. Deepening our ability to access those markets in through our vision of trade and open markets. That creates opportunity for American manufacturing and services. Others are very happy by the way that we stand aside. They're happy to take advantage of that.

Jim:
And what do you make of the argument at the United States should worry less about trade? Because we've seen with the pandemic that long supply chains can be disrupted, so we should be engaged in on-shoring and friend-shoring.

Evan:
Well, I think it's expressed in a binary way. And it isn't binary. Right now we export two and a half trillion of goods to other countries around the world. I don't think instantly they're going to do without those. We have a bilateral trade agreement with China that's 658 or 59 billion dollars a year. The notion that we're going to decouple and that it's going to become binary, I think is a chimera that we'd be chasing. On the other hand, there are rational and legitimate issues to be raised around supply chain. Some of them are commercial and companies will make their own decisions around certainty of supply versus cheapest cost. And making those trade offs because the pandemic demonstrates the brittle nature of supply chains. Or they'll look, instead of so source multi source. It doesn't mean it's all going to be onshore. And then there are particular products that rise to such a level for our national wellbeing that we will consider to bring them closer to near shore or onshore. It may have to do with pharmaceuticals or computer chips, products in that nature.

Jim:
Okay, let's talk specifically about China. Now, I should note that Chubb, the company you lead does business all over the world. I think it's 54 countries. One of your markets happens to be China. Now, as you suggested in your speech to The Economic Club of New York, many people think that American companies operating in China are being unpatriotic at worst. And or gullible and naive at best. So how do you respond to claims that Chubb shouldn't be in China because relations between the United States and China are tense?

Evan:
I think that when we think about what's in our national interest and we think about our strategy, we have a number of priorities in that regard. And our economic strength and economic wellbeing are important elements of that, that sit along security and the promotion of our values and our vision of governance. And I think to have a national policy that doesn't recognize the importance of trade and economics, including with China, is against our interest. Does us a disservice. The fact is is that we have a co-dependence. Part of our coexistence with China. And I believe that the right approach to China ought to begin with a mental model that is clear. We have to find a way to coexist, because frankly the opposite of that is, what, one of us doesn't exist? So we have to find a way that accommodates each of our visions of greatness, that accommodates our core priorities. And we have to find a way to both compete and to view ourselves to a degree as rivals. And at the same time cooperate and understand that trade itself creates ballast in the relationship. I'm invested in you, you're invested in me, we're invested in each other's future to a degree. We're literally vested at that point. And the reality is, is China having a dependence on the United States and we having a dependence on them does create that ballast. Number two, China is the second largest economy in the world. And if American companies don't take advantage of the opportunities in China, which creates wealth for our country, others will take advantage that way happily. And number three, it's the ability to innovate and continue to innovate and compete makes American companies stronger. And the notion that we're going to cut ourselves off from major areas because we have political and diplomatic differences. I don't think that's a clear way of viewing it.

Jim:
Well, let's talk a bit more about that, Evan. As we moved from the era of strategic engagement where the United States was seeking to reach out and build better relations with China to this new era of geopolitical competition where Washington views China as a threat to America's core interest. One of the arguments that has been made is that switch came about because at the end of the day China wasn't interested in finding a way to coexist. That China is looking to supplant the United States, that it was essentially engaged in mercantilist economic policies, stealing lots of intellectual property. And at the end of the day we extended an open hand and it was essentially slapped away. What's wrong with that assessment?

Evan:
I don't think there's anything wrong with it in the main. But it's characterized in a very black and white way. China benefited and America hasn't. When in fact I think we have benefited tremendously from trade with China, first. Secondly, yes, we should defend our interests. We can trade and we can defend our interests. We should not allow China to steal our intellectual property. We should protect our intellectual property. We shouldn't allow China to have access to our markets when they deny us access to theirs in certain areas and sectors. Broadly speaking, not tit for tat. The notion of reciprocity ought to be a notion that we practice in trade. We don't have access on equal basis to your market, then in areas that are important to you we should deny you the same. So of course, we should balance that way. But at the same time, we shouldn't throw the baby out with the bath water. We should also recognize there are many areas that we trade in today between ourselves that are good for America. It's both in the import of goods and in the export of goods and services to China.

Jim:
What do you make of arguments that even when you strike a deal with the Chinese that they're going to abide by rules, that they end up defecting on those agreements? We had the very well known Trump administration phase one trade deal with China. And my understanding is the Chinese failed to meet the numerical targets. Is that because the targets were too ambitious? Is it because there's no real interest in Beijing today in trying to keep the U.S. Chinese economic relationship from being degraded something else?

Evan:
I think it's a mixed bag. On one hand, the pandemic hit right afterwards and I think that impacted to some degree the ability to meet the numeric targets. I'm not in favor of managed trade. I'm in favor of rules-based open trade.

Jim:
And the phase one trade deal was a managed-trade deal, because it said numerical targets.

Evan:
When you agree to a numeric target to purchase this or that from me, frankly I think that demeans our country. And secondly, that's not what open rules-based trade is about. That's managed trade. That's saying, "Buy your food from me, don't buy it from the other guy."

Jim:
And if the other guy happens to be a friend or ally, it makes them very angry.

Evan:
Well, it does have a way of doing that, doesn't it? And that's why I say it's a mixed bag. In the phase one agreement there was also commitments to open up certain sectors, particularly in financial services. And China has been doing that. Now, that's not some altruistic gift to America. They've been doing it because they see it in their own interest to do it. Plain and simple. The other part that I failed to say, Jim, that I think is very important here. I think when we talk about trade with China and we talk about blocking trade and decoupling. And you talk about the rise of China and competition, the reaction is a very defensive one on our part. We're very insecure about ourselves, and I'm not insecure about America.

Jim:
How are we insecure?

Evan:
We're insecure in that somehow we see China as 10 feet tall and that they're going to eat our lunch. Because boy, they have this command and control economy and they're so efficient. I don't buy that. I think a market oriented rules-based and an underpinned by democratic values is more resilient. Proven itself to create more wealth and more prosperity and more innovation than any command and control model has ever proven. And you look at China today as it doubles down on the command control, party controlled model of economic and all things social in China. I don't think that is going to benefit China's long-term prosperity and their ability to innovate and create. I'll compete against that model and I think American business will all day long. And we ought to feel more confident about ourselves that way. Frankly, let China pursue their model. It's their right to do it, and let them do it. We should just do a better job of running our own race. And part of that is being confident and promoting our model of economics. And that's where trade comes in around the world. Alongside security and alongside protecting our interests against unfair practices.

Jim:
I want to come back to the issue of how the United States can better run its own race, Evan. But first I just want to draw you out a little bit on your thoughts of how the United States should deal with China on the economic front? Where the Chinese are pursuing policies that we either see as predatory or in violation of agreements that the Chinese have signed. The Trump administration trotted out tariffs as a basically big stick to try to get Beijing to change its ways. We can debate how successful that was. Is that the way to go with sort of unilateral actions by the United States?

Evan:
I don't think unilateral actions. I think we have to also understand and that it isn't degrading our own vision of ourselves. That we have limits to our own influence and limits to our own power. And I think one of our greatest strengths when we even talk about running our own race better is our system of alliances and partnerships around the world is something that we have that China doesn't have. And that's a force multiplier, in terms of the throw weight it gives America. I think, to pursue it unilaterally while it'll have impact, it has diluted impact. And that's where we have to have common cause with our allies. And our allies are not interested in decoupling from China. And they're interested in taking a balanced view. It's protect your security interests, protect the commanding heights of new technologies. That mean your future economic competitive profile. And beyond that on a reciprocal basis, open up for trade between the two. And enforce agreements. It's not easy work. And by the way, I don't think we should overestimate the result or over expect of the result you get from it. On the other hand, I repeat, we have what's approaching a $700 billion trading relationship with China. It's not like we need agreements to begin. We've already got a lot going between the two of us.

Jim:
Do you think China wants to continue that trading relationship, or is it looking to scale down? I mean, much was made of the fact that President Xi Jinping released the Made in China 2025 plan. And the notion was that China was going to be trying to become self-sufficient, or at least that was how it was interpreted in some courts. Do you think the Chinese are interested in reciprocity?

Evan:
I think the practical reality is, is China no different then the rest of us, cannot become self-sufficient. And dual circulation, which is the moniker that that is under has great limitations. You can make the political statement, but executing that. Is China self-sufficient in food? Are they self-sufficient in energy or any other natural or most other natural resources? No. In the construct of products that they export to the United States, what percentage of the product is actually manufactured in China? Where is it imported for assembly? When you start dissembling all that, they are not self-sufficient. Though, China is predatory and it's trading practices. Can't ignore that for a minute and we can't be pollyannaish about that. They are predatory and as a country they do not want to look like us. And they don't want to pursue our model. Fine. But let's not be offended by that. And let's not be threatened by that. Let's protect ourselves where we're vulnerable. And on the other hand, let's take advantage in our own national interest like we do with any other country.

Jim:
So Evan, let's talk about how the United States can better run its own race. How would it do that?

Evan:
I think there's a number of ways. I mean, first we need to grow our economy more quickly. And so on one hand, I think trade and promoting trade and our vision of trade and not becoming more protectionist about it, while at the same time protecting workers' rights is important. Number two, we have to grow our labor force. And we could grow it significantly and a lot more quickly. Both with skilled and unskilled labor that wants to work in America. We have closed ourselves off to immigration and to immigration at scale. It's not politically correct thing to say today and it's not popular. But the fact is we have great unfinished business in terms of immigration and we need to deal with that. And improving the infrastructure of our country. The Biden administration has made a great down payment on that. And we have to continue to invest in infrastructure and R&D in the country. Those are a number of things that would improve. And finally, improving the skills of our workers. Not simply the education system in terms of general outcomes. But literally in a greater industrial policy that doesn't pick winners and losers, but matches skills that we require and skills-based training for workers. In our community college system. Use the system we've got and marry it with industries and corporations in the areas in the physical geography of those community colleges. Those are the kinds of things we need to be doing.

Jim:
As I hear you talk about how the United States should run its own race better, I can hear a lot of people agreeing with you, but I can also hear some people saying, "Yes, but." That if you look at China today, China is abusing human rights, particularly in Xinjiang, but not only there. And that the United States should take strong stance against Chinese human rights violations, even if it means disrupting economic relations. How do you respond to those arguments?

Evan:
Look, there is not a silver bullet answer that's going to be completely satisfying. But my view is this. In our national interest we have competing priorities. We have security, we have economic, and we have our values that we promote. I don't think that one subsumes the other. I think they have to be in balance. In the diplomatic and political arena I think that's to the greatest degree where we deal with human rights. In the economic, Congress and our administration at times things reach a point of such a grievous nature that they pass a law like they have with Xinjiang that then impacts the behavior of business. Beyond that, I don't know any American business leader who admires an authoritarian system of government who thinks that's the right path for humanity. That's their vision of humanity. It certainly is not mine. And when I'm doing business in China, I run my company like I do in every other country around the world. I run it as a meritocracy where individuals are recognized and rewarded for their own individual work. Where individuals are respected, where diversity and market-based principles are employed. That's how I do business in China. Am I at a competitive disadvantage against state companies? Yes, I'll compete against them all day long. Because you may have the advantage of the state, but I have the advantage of innovation, of a market-based method of approach, of how we empower individuals. I'm bringing, I'm a microcosm of an American system of doing business in the country. And I would say that every American company that does business there to agree is representing the private sector model. Well, that's infecting and undermining the model that the state promotes. It's our best way. One thing we do in insurance is we gather capital, long-term investment that we make into the country. I invest capital and those assets that we garner of Chinese people where it's going to seat the greatest return. I don't do it where I'm told to direct it to a state enterprise that they want to promote. No, it's not state directed. It's a market-based principle of directing investment. I think it's to our country's advantage that we are pursuing those kinds of methods in China. And that's what other companies are doing.

Jim:
Evan, you're optimistic. A lot of people I talk to about China are not optimistic. What are the pessimist missing?

Evan:
I'm not optimistic. I try to be realistic.

Jim:
Okay, but what is it that people who are pessimistic missing?

Evan:
Two things. Number one, just because you're pessimistic doesn't mean that it isn't in America's economic interest to do business with China. Okay, you're pessimistic. So what? Number one. Number two, I am confident in America's ability to succeed. I have many questions around China's ability to continue to create wealth, prosperity, and peace for its people on the path Xi Jinping is taking the country. I think a more party directed Leninist approach to authoritarianism is not a model that is going to continue to create prosperity for China and the Chinese people. And I believe not because they're going to change their ideological bet, but out of a practical reality they will be forced to moderate their policies in the future.

Jim:
So part of your counsel seems to be one of patience?

Evan:
Strategic patience. If you're confident in yourself, you can afford to be strategically patient. And I return to the mental model. We have to find a way to coexist.

Jim:
On that note I'll close up The President's Inbox for this week. My guest has been Evan Greenberg, chairman and CEO of Chubb. Evan has an op-ed in The Economist entitled, Championing global trade is in America's national interest. Evan, thank you for joining me.

Evan:
Thank you so much for having me.

Jim:
Please subscribe to the President's Inbox in Apple Podcast, Google Podcast, Spotify, or wherever you listen. And leave us a review. We love the feedback. You can find the articles mentioned in this episode, as well as a transcript of our conversation on the podcast page for the President's Inbox on cfr.org. As always, opinions expressed on the President's Inbox are solely those of the host or guests, not of CFR, which takes no institution positions on matters of policy. Today's episode was produced by Rafaela Siewert with Senior Podcast Producer Gabrielle Sierra. Rafaela was our recording engineer. Thanks Raf. Special thanks go to Margaret Gach for her assistance. This is Jim Lindsay. Thanks for listening.