A panel of longtime U.S. trade representatives on Thursday offered a pessimistic take on the outlook for a productive Phase 2 trade deal with China, and a bleak view of the U.S.’s ability to counterbalance the perceived security threats to global communications infrastructure posed by Chinese telecom giant Huawei.
Speaking before a gathering of the Council on Foreign Relations in New York at an event titled “The Future of U.S. Trade,” panelists noted that the expected 2020 global trade growth rate of 2.75% reflects a meager premium to the projected underlying global GDP growth rate of 2.50%.
“Trade is generally the motor of our economic growth, and has regularly been twice the size of our GDP,” cautioned Carla Hills, who is Chairman and CEO of Hills & Company, and also a former United States Trade Representative, and Chairman Emeritus of the Council on Foreign Relations. “Trade is the horse that pulls the cart. So you ought not to be enthusiastic about the estimates, and we don’t know what they will [turn out to] be in reality.”
The panelists’ assessment came the day after newly released U.S.D.A. export figures showed China is on track to purchase far fewer U.S. agricultural goods than originally expected under the Phase 1 deal.
Dropping the ball
Jennifer A. Hillman, Senior Fellow for Trade and International Political Economy at the Council on Foreign Relations, said the Phase 1 deal failed to address longtime issues with China’s industrial overcapacity, its flooding of global markets with cheap steel, aluminum and chemicals, along with concerns over its lack of respect for intellectual property laws, forced technology transfers, the role of state-owned enterprises and subsidies, and the overall command-and-control nature of the Chinese economy.
Instead, she said, the focus of the interim agreement shifted to the bilateral U.S. trade deficit—getting China to buy more U.S. goods in pre-defined categories, and in “unrealistic” quantities.
”In the agriculture area they [China] are supposed to buy $34 billion worth of agriculture [product] from the U.S. Estimates that came out of the USDA…indicate that we’ll be lucky to hit $14bn,” Hillman said. “Same thing in energy: utterly unrealistic goals. China would have to be importing, according to the numbers, 1 million barrels of crude oil a day, 500,000 barrels of refined product, 100 tankers of LNG. There aren’t the facilities, either in the U.S. or China to engage in anywhere near that level of trade.”
Not enough leverage
Roger Altman, the Founder and Senior Chairman of investment banking advisory firm Evercore, who moderated the event, quizzed Hillman on the likelihood that an eventual Phase 2 deal would more directly address those key structural trade concerns with China.
“I don’t think there is enough leverage in the United States, even if we put tariffs on everything, to get China to make these kind of commitments,” she said.
”I think the whole world agrees that China has not done what everybody expected when it joined the WTO, that China’s actions are a problem for the world. There is universal agreement on that,” Hillman said.
This hasn’t worked with 5G
But the ability of the U.S. to rally traditional allies against China’s state-driven economic strong-arming has been conspicuously ineffective in its bid to persuade other countries not to use Chinese telecom equipment giant Huawei for their 5G infrastructure upgrades.
“What I find in the private sector among large, sophisticated tech companies is that they agree with the official assessment [of U.S. government, intelligence and defense officials],” said Altman. “When you consider the unknown ownership of Huawei, when you consider the massive financing and subsidies that the People’s Republic has provided to Huawei, they agree that Huawei is essentially, or could be used, as an arm of Chinese intelligence services, which…obviously poses all kinds of complicated questions as to what we do about it.”
With 5G and Huawei, as with trade talks, however, Hillman observed, the problem has been one of the U.S. Administration failing to take authoritative action despite widely corroborated misconduct on the part of China.
“On the one hand you saw Trump Administration early on move against ZTE, the other large telecommunications company, which was unequivocally found to have been violating all of our sanctions by installing very sophisticated telecommunications systems—I’m not talking about selling cell phones, I’m talking about putting up entire telecommunications systems—in North Korea and Iran,” she said. “And we arguably went after ZTE and then let them off the hook.
“Similarly, with Huawei, we, on the one hand, are saying, we’re going to sanction, and then on the other hand, we’ll continue to allow U.S. companies to sell to Huawei…So we are clearly giving very mixed signals to the world, and again, to me, where you see this really playing out is with what’s happening with Huawei’s 5G entrances, for example, in Africa, where something like 70% of the market is Huawei product, ditto in other parts of South Asia, where they are really owning that market.”
Altman added that part of the global dilemma is a paucity of other telecommunications infrastructure suppliers big enough to compete with Huawei.
“There is not, at the moment, a U.S.-flagged 5G infrastructure provider. You have Nokia, you have Ericsson, and not much else,” he said. “Because those companies [Nokia and Ericsson] are not as strong as Huawei, broadly speaking, that makes it hard for some countries like Great Britain to decline.”