US-China Secret Trade Negotiations Are Not Going So Well

Chinese President Xi Jinping celebrated Karl Marx’s 200th Birthday, which professor David Kotz attended in the Great Hall of the People in Beijing. We spoke to Prof. Kotz about US-China trade negotiations and the ‘Made in China 2025 Plan’

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Story Transcript

SHARMINI PERIES: It’s the Real News Network. I’m Sharmini Peries, coming to you from Baltimore.

Commemorating the 200 years since the birth of Karl Marx, a large ceremony was held in Beijing, China on Friday. President Xi Jinping held a speech on the occasion. He called on all party members to read Marx’s works, to understand Marxism as a way of life and spiritual pursuit, and added that Marxism remains totally correct for China today.

XI JINPING: Two centuries on, despite huge and profound changes in human society, the name of Karl Marx is still respected all over the world and his theory still shines with the brilliant light of truth.

SHARMINI PERIES: How does Marxism sit with the neoliberal ideology promoting free international trade? Can they, in fact, coexist? How does Xi Jinping envision his plans? This question becomes especially pertinent now, as the U.S. has laid down a list of trade demands with China. It wants to cut China’s trade surplus with the U.S. from $200 billion per year to $100 billion. President Donald Trump also continues to threaten China with increased tariffs, as it was done recently with steel. Despite the demands by the U.S. and the Chinese response remains measured.

On to talk about all of this with me today is David Kotz. He’s a professor of economics at the University of Massachusetts Amherst, and the author of “The Rise and Fall of Neoliberal Capitalism.” It’s a Harvard University Press publication, and the paperback edition has been issued in 2017. Thanks for joining us today, David.

DAVID KOTZ: I’m glad to be with you, Sharmini.

SHARMINI PERIES: So, David, you were one of the privileged people who were present when Xi Jinping actually gave that speech on the 200th anniversary of the birth of Karl Marx. Give us a sense of what it felt like to be there, and of course what President Xi Jinping actually said.

DAVID KOTZ: Well, it was a long speech, a bit over an hour. It covered a lot of ground to a huge audience, it must have been several thousand people, in the cavernous Great Hall of the People. He touched on Karl Marx’s life, on his ideas, a bit on China’s history, and a bit about China’s goals of building a, not only a rich society, but a strong country, of building a society in which there are good jobs for everyone. Access to health care, access to education. Those were some of the highlights of his speech, in addition to a constant emphasis on the importance for China to read the works of Marx and to apply them to everyday life.

SHARMINI PERIES: All right. Now, that was what was in his speech. What was the reaction to his speech? You are there currently at the University of Beijing, and you’re speaking to academics, and you’re speaking to students. What are they saying about this direction and this speech by Xi Jinping?

DAVID KOTZ: Well, I was at a two-day conference at Peking University marking the 200th anniversary of Marx’s birth. And virtually all the Chinese speakers at this conference cited Xi Jinping’s speech, praised it, and praised his role in China. This was a very uniform reaction. Usually there were not a lot of specifics. It was a bit difficult to tell from listening to the speech exactly what it suggested would be coming in the future in the way of policy for China. I think there is a kind of a people waiting to see how this will be developed further by the top leadership.

SHARMINI PERIES: And how are academics, economists, people that you speak to, dealing with this inherent contradiction of what Xi Jinping had said in his speech on the 200th anniversary of the birth of Karl Marx, and what is happening in terms of the neoliberal hypercapitalist economy of China?

DAVID KOTZ: Well, I actually don’t think China has a neoliberal economy that could be considered hypercapitalist. I think it has a sizable capitalist sector. It has many large, privately owned enterprises. It has billionaires. But to me, neoliberal, neoliberalism means a system in which the state plays a very limited role in regulating the economy. It certainly does not own significant economic assets producing things. In China there is a significant sector of state-owned enterprises, particularly in key heavy industries. And furthermore, the state is very active in guiding China’s economy. They follow an industrial policy in which the state attempts to guide the upgrading of China’s manufacturing sector.

Really, China’s mixed system with both planning and markets, with state and private sectors, is more similar to the forms of capitalism we saw in the West in the 25 years after World War II, usually called regulated capitalism, than we’ve seen in the neoliberal era since 1980.

SHARMINI PERIES: All right. So recently, as I said off the top of this interview, there has been a lot of murmurings from Washington about getting the trade deficit with China under control, in fact, cutting it in half. Trade negotiations are underway between a team of U.S. Trump administration folks and Beijing. What do you know about what’s taking place, and how it’s going?

DAVID KOTZ: Well, I don’t think it’s going well. There was an American trade delegation in Beijing Thursday and Friday of last week. They don’t seem to have gotten anywhere in the negotiations with their Chinese counterparts. From what I’ve read, the American delegation not only demanded a big reduction in the trade deficit with China, but also clearly implied that China had to give up its industrial policy. I don’t think that is a demand that can be put on China. Industrial policy has been crucial to China’s rise in the global economy, and they intend to continue to move toward the world technological frontier, and industrial policy is very helpful for that.

Frankly, if I were negotiating with the United States delegation on this, I would recommend that the United States adopt an industrial policy. That would probably be the best way to improve the U.S. economy’s position in the world, if the government more actively encouraged the upgrading and improvement of the American economy. Some real infrastructure investment, and so forth.

SHARMINI PERIES: And there such discussions taking place, or is that being put forward by the Chinese delegation?

DAVID KOTZ: Well, I don’t know what the Chinese delegation put forward. I’ve read, these were secret negotiations. You can read claims about who said what. It’s hard to know. But it does seem clear that the Chinese are not capitulating to what are very extreme demands by the United States delegation of China. And apparently they’re suggesting, they’re willing to make it easier to sell American cars to China, perhaps ease some other barriers to exporting and selling in China. But they’re, they’re not willing to just cave in to these rather extreme U.S. demands under the threat of big tariffs.

SHARMINI PERIES: David, you were speaking about China, the role of the state of China in terms of industrial policy, and perhaps other ways in which it regulates the market, and so forth. Give us a sense of how much of the sector is actually, how much of the economy, is actually regulated by the state, and what percentage of it is under state purview, as well as what sectors are being regulated.

DAVID KOTZ: I can’t give you a simple percentage. I think what is really crucial to this dispute is China’s recently-adopted plan, Made In China 2025, that has really gotten the Trump administration angry. And in the American media there have been, there’s been a constant drumbeat of claims that what China is planning to do is to try to dominate the world in all of the key industries of the near future. Artificial intelligence, self-driving vehicles, advanced medical devices, and so forth.

That’s the claim, that they have a plan to dominate the world. And it sounds pretty scary. So I thought I’d treat this Made In China 2025 document. I read an English translation of it. The word ‘dominate’ did not appear. It was a plan that called for the government to provide various kinds of support in the way of financing , and advice to help China’s industries upgrade, improve their technology, improve the quality of products. A lot of talk about improving environmental sustainability, with the aim of reaching the level of a developed economy, which they’re not yet, and having world class technology. I don’t see why Americans should consider that a threat to us.

SHARMINI PERIES: David, the 2025 Made In China plan that you read. Give us a sense of what it contains, and of course, how that is going to impact the trade negotiations that are going on.

DAVID KOTZ: I really don’t have any spies in the U.S. delegation. But my reading of the aim of the Trump administration is to try to get China to stop trying to become the economic equal of the United States, and the other leading Western economies. I think the plan is clear to keep China in an intermediate stage, something which is not realistic. China is the fastest-developing economy, major economy in the world. And I don’t think there’s any way that the United States government could stop them from pursuing a stronger economy. Nor should our government be doing that, mind you.

SHARMINI PERIES: And what is the Chinese approach to these discussions, in terms, in terms of the negotiations?

DAVID KOTZ: Their approach, as I have read about it, is to give up the idea that one country can only gain at the expense of another to adopt what they call a win-win view of world trade and investment, and to negotiate and cooperate, to try to find mutual understanding about the economic interactions between the U.S. and China. I think it’s a reasonable negotiating position.

I think one has to keep in mind that these days American industry is quite integrated with industry in many parts of the world, including China. You know, about half of the Chinese imports into the U.S. actually represent value added outside of China. So goods are produced in Japan and other countries around the world, South Korea. They’re exported to China, where they’re processed further. And then they’re sold in the U.S. This is the famous global production chain system. There are problems with this system for the welfare of working people. But that’s our current system. And that’s why American business is not happy with Trump’s threat of tariffs, which would really disrupt their activities.

SHARMINI PERIES: David, if you read the mainstream press these days, particularly the New York Times, all it is doing is talking about this trade war that’s taking place between the United States and China. And yet it doesn’t really talk about the geopolitical context in which these trade negotiations are taking place. The U.S. seems to be in a big effort here to isolate China. But when you actually look around at other nation states and Europe as a whole, they have no interest in isolating China. How is this playing out?

DAVID KOTZ: Well, I’m afraid the Trump administration’s trade policy is not isolating China, it’s isolating the United States. The British, the Germans, the French don’t agree with this trade war strategy of trying to pressure China into acceding to a long list of demands. The main U.S. allies favor negotiations to try to get China to be more open to imports from the West and to certain kinds of investment which have not been open. There’s a lot of pressure from the West for China to open its financial markets, which are not very open. But the Trump administration, isolated from its allies, I don’t see how they’ll have the leverage to have any effect China’s policies beyond minor concessions.

SHARMINI PERIES: All right. David, I will leave you for now, but we look forward to having you back on the Real News once you get back to your home base at UMass.

DAVID KOTZ: OK. Nice to talk with you.

SHARMINI PERIES: And thank you for joining us here on the Real News Network.