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Interview: Robert Hormats on Why China is Not to Blame for US Domestic Problems




Robert D. Hormats (CSIS/Flickr)

Robert D. Hormats (CSIS/Flickr)

On March 6 at Asia Society New York, U.S. Under Secretary of Economic Growth, Energy and the Environment Robert D. Hormats will reflect on how the U.S.-China relationship has evolved in the 40 years since Richard Nixon's historic visit to the country in 1972. Hormats, who served on Henry Kissinger’s National Security Council during Nixon's visit, is currently a key participant in the U.S.-China Strategic and Economic DialogueHe will appear on stage with Orville Schell, Arthur Ross Director of the Asia Society's Center on U.S.-China Relations.

Can't make it to the event? Tune into AsiaSociety.org/Live at 6:30 pm ET for a free live video webcast. Viewers are encouraged to submit questions to [email protected].

Asia Blog spoke to Hormats by email.

Forty years ago, how did you foresee the U.S.-China relationship developing?

Today, when we have so many trade, financial, and business ties with China, it is easy to forget how difficult it was to get started. Prior to the Nixon White House, there was no trade, no formal diplomatic channel for communication, and no commercial relationship between the United States and China.

And even as we tried to open a dialogue with China, there was a feeling often expressed that trade ties were not a priority. In addition, there were the practical difficulties of opening to U.S. trade, which were illustrated by the limitations of our early economic signals.

But I think we all understood that President Nixon’s visit to China would “open the door” to the many ways in which the U.S.-China economic relationship would accelerate over the ensuing decades, and we were hopeful that this bilateral engagement would be beneficial to both countries — but we never dreamed that it would expand so dramatically.

How do you think U.S.-China relations would have progressed had Nixon's visit not taken place?

I think the Nixon visit to China was an important signal to the people of both of our countries that it was OK to have a bilateral relationship with a counterpart that had, up until that point, been considered an antagonist. In the United States, our view of China changed after the visit, and I think the same can be said for the Chinese public’s view of the United States. It would have been more difficult to promote business and cultural ties later in the decade without this initial signal from our two governments.

I also know from my time on the National Security Council staff how difficult it was for us to get our economic relations on track even with the political support offered by the President’s visit to China. I don’t know how we would have done it if the visit had not taken place.

What have been the most unexpected developments in China over the past 40 years?

Well, certainly, no one could have anticipated the dizzying pace of change. Bilateral goods trade was less than $100 million in 1972 and it is nearly $400 billion today.

But the key developments were China’s domestic economic reforms in the 1980s and 1990s that both produced dramatic growth in China — raising hundreds of millions of people out of poverty and dramatically increasing their economic well-being — and facilitated stronger bilateral economic ties. China’s economic reforms in the 1980s opened the Chinese market to foreign investment, allowed entrepreneurs to launch private businesses, promoted agricultural reforms, lifted price controls, and closed many state-owned companies. And under Premier Zhu Rongji’s leadership, China launched another set of economic reforms in the 1990s in an effort to join the World Trade Organization.

I think it’s important to highlight here that both Deng Xiaoping and Zhu Rongji were able to push domestic economic reforms at home because of the enormous benefits they knew China would derive from being a full participant in the international, rules-based, economic system. In fact, Zhu leveraged the requirements of integration into the global trading and financial system to push for dramatic changes in China.

You were formerly Vice Chairman of Goldman Sachs and worked in the private sector for nearly three decades. What role do you see for the private sector in improving U.S.–China relations, both economically and culturally?

We knew at the very beginning that the private sector would play a critically important role in U.S.-China relations. Following President Nixon’s visit to China, in the spring of 1973, Commerce Secretary Frederick Dent and I worked with the business community to establish the “National Council for United States-China Trade,” an organization which changed its name in 1988 to the U.S.-China Business Council (USCBC). The USCBC is a great illustration of the importance of the private sector in the relationship, as the council now has offices in Washington, Beijing, and Shanghai, and it represents approximately 240 U.S. companies.

To give you an illustration of how far we’ve come, in 1971-2, U.S. exports of aircraft and locomotives to China was prohibited, but during President Hu Jintao’s visit to Washington in January 2011, we were able to announce deals for Boeing to sell 200 aircraft to China for an estimated $19 billion and GE Transportation to sign a $1.4 billion contract from China’s Ministry of Railways, including $350 million for export of locomotives, locomotive sub-assembly, service support, and signaling systems. The exchange of business and commerce between the United States and China has been a tremendous boon to our economic relations, and it has also allowed more people in both countries to have a better cultural understanding of the other. For business ties to continue to expand, it is important to reaffirm this understanding.

What are you greatest hopes and fears with respect to the U.S.-China relationship?

My greatest hope is that we will see the rise of China as a challenge that will unify our country to address our own difficult issues and take advantage of the opportunity to create a structure of cooperation with China — and other emerging countries — that will provide material benefits, as well as create enduring institutions that contribute to deepening bilateral cooperation with a focus on global rules and norms.

My greatest fear, though, is that Americans will be inclined to blame China for a wide range of the economic problems we face at home. While I have been a critic of some of China’s policies that I believe are harmful to American economic interests, I do not subscribe to the notion that the economic difficulties we are facing here are primarily or largely due to China’s policies. And if we adopt such an attitude, it will divert us from addressing the changes we need to make at home — dramatically improving our educational system, particularly in math, science, and engineering, significantly upgrading our infrastructure, investing more in research and development, and putting our country on a sound financial footing — in order to rise to the competitive challenge posed by China and other countries.

China’s Vice President Xi Jinping visited the U.S. last month. How did his visit help set the tone for U.S.-China relations in the coming decade?

From the perspective of the economic relationship, I think Vice President Xi’s visit was an important opportunity in two areas.

First, Vice President Xi’s stops in Iowa and California showcased the rapid increase in U.S.-China bilateral trade through a USDA-sponsored U.S.-China Agricultural Symposium in Des Moines and a Department of Commerce- sponsored event in Los Angeles.

Second, Vice President Xi’s meetings at the White House and State Department provided President Obama, Vice President Biden, and Secretary Clinton the opportunity to clearly and consistently deliver the message that China needs to “play by the rules” in the global economy, which was a message I believe China’s leadership understands.

Throughout the visit, we underscored our commitment to building a positive relationship with China in the coming decade, and I’m confident that we can work with Xi Jinping — who presumably will be the next President — to continue to move forward with our bilateral economic relationship.

And the visit contributed to progress on a number of bilateral economic issues, including expanding access for U.S. auto insurance companies in the Chinese market, increasing the number of American films that can be shown in China each year, and agreeing to a dialogue on development finance, as well as the conclusion of several trade deals that will increase U.S. exports to China and help create jobs here at home.

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