Lawrence Summers, former Treasury Secretary and President of Harvard University
My Four Observations of Sino-US Relations
On March 22nd, 2019 the Harvard China Alumni Public Policy Forum & CCG Roundtable Seminar was successfully held at the headquarters of the Center for China and Globalization (CCG) in Beijing. Lawrence Summers, former Treasury Secretary of the United States and former President of Harvard University, delivered a speech at the seminar, presenting his observations of current Sino-US relations and discussing the trend of global trading policies and foreign relations. Following is the text of his speech.
Lawrence Summers: Thank you very much. It’s a privilege to be at this distinguished think tank, I am flattered by the remarkable caliber and seniority of those who are here. I think the kind of dialogue this think tank engages in, the kind of dialogue that I think we will have a chance to engage in briefly today, is extraordinarily important – especially at this challenging moment in global history.
I’m going to reflect very briefly, because I think we will have a more interesting time if I respond to your questions and comments rather than expound any lengthy set of views. So let me just make four observations.
Observation 1: the history of the first half of 21 century is intertwined with the rise of China
First, when the history of the first half of the 21st century is written, it likely to be substantially a history of what happens in China and how that affects the world. A fifth of humanity; nearly half the world’s economic growth; a redefinition in less than two generations from an impoverished nation to a nation setting the pace in crucial aspects of artificial intelligence; a nation going from being almost entirely closed to being the largest internet nation in the world…
Frankly, this is a change that makes the industrial revolution look small in terms of the fraction of humanity affected, in terms of the rate at which a society is being transformed, in terms of the ability of that society’s presence to be felt in every corner of the planet. As the industrial revolution changed virtually everything from gender roles, to art forms, to the nature of science, to places in which people live, to the way in which they conceived progress, to the way in which people thought of one another… The changes that are taking place in China are similarly important.
If the history is written that this was a positive and benign period for mankind, the remarkable progress in which China – which in two generations, went from a place where women’s feet were bound to a place where women were running the world’s largest tech companies, and what that meant for all the world - will be a crucial part of that history. If the history of the 21st century is a tragic one, it is likely to involve the conflicts and tensions associated with China’s dramatic transformation, and its difficulty and the rest of the world’s difficulty accommodating it - a story like the story that I suspect Professor Allison talked about of what happened as Germany’s relative position rose and Britain’s relative position eroded at the end of the 19th and the beginning of the 20th century.
Observation 2: there have been seismic changes in U.S. perceptions of China
It gives me no pleasure to make this observation, but I believe it is the task of friends to tell other friends what is true, even if it is not something that those friends want to hear or wish it to be true.
There has been, in the last thirty months, a seismic change in U.S. perceptions of China, and I suspect more broadly around the world. It would be a grave mistake for anyone to suppose this is merely a reflection of the last election and the preferences of Donald Trump. There is, in my judgment, a better chance than even chance that when democratic presidential candidates in 2020 are speaking about foreign policy, will criticize Donald Trump for being too conciliatory towards China, just as Bill Clinton criticized George Bush for being too conciliatory toward China, and to a lesser extent, Barack Obama criticized the other George Bush for being too conciliatory towards China. It is likely that if Hillary Clinton had been elected as president, in very different ways than we have seen, U.S. policy would have shifted towards much more assertive policies vis-a-vis China on economic issues and beyond. A principal source of support China has enjoyed in the United States has been the business community. That sentiment has been very substantially eroded. In business communities, there is frustration with what it perceives as unfair treatment when attempting to export to China and even more fundamentally when attempting to invest and partner in China. These concerns are magnified by perceptions in the United States that China has become, even as it has made economic progress, a significantly less open society than it was six years ago; that the scale of oppression and human rights abuses has increased substantially; and that the attitude towards the rest of the world that China, as perceived in the United States, has seemed much more nationalistic and aggressive.
That is a judgment based on military actions, and land filling actions in the near Pacific. It is a judgment about the kind of economic aggression that is thought to be taking place under the auspices of the Belt and Road program. It is a reflection of a sense that there is a breakdown and increasing movement away from the rule of law and toward the rule of the party, and of a very small set of people sitting at the top the party. All of that has led to the sense that benign coexistence, cooperating and hoping for each other’s economic success and resolving matters through relatively relaxed, traditional diplomacy constitutes an insufficient strategy for the United States.
You will notice that I chose my language quite carefully to describe the prevailing attitude in the United States, not necessarily to endorse the various analytical judgments that are contained within…
Observation 3: the U.S. needs to be careful in its approach to China
My third observation: the United States needs to be very careful with respect to what it wishes for. In important respects, the prevailing perception prior to a few years ago perhaps missed respects in which China and China’s development was threatening core U.S. interests. There are certainly elements of exaggeration in current discussions within the United States. There is no plausible argument that if China had acceded to every trade demand that the United States has made, that US GDP would be more than one percent higher today. The dominant reason for US economic failures is US economic decisions. It is not what has taken place in Beijing. It is not accurate to assert that China is the primary cause of deindustrialization of the American economy. Calculations such as the sobering ones that David Autor and his colleagues make regarding the so-called “China shock” are manifestly incomplete. They take account of extra imports. They do not take account of extra exports. They do not take account of the benefit of lower priced imports as inputs to subsequent American exports. They do not take account of the lower interest rates and associated economic stimulus that comes when there is induced slack in the economy. They do not take account of the higher real incomes which permit increased spending as a consequence of lower prices because of the benefits of imports. It is not an analytically accurate statement to say that China is the primary cause of economic suffering in the Midwest.
Nor is it likely analytically accurate to suppose that theft of intellectual property, as serious a problem as it is, and forced joint venturing, as serious problem as it is, is the primary reason for Chinese technological progress. The truth is that information is widely available in the modern world. The United States, when atomic weapons were our single most sensitive data, were only able to maintain a three year lead over the Soviet Union, at a time when there was almost no interconnection between the United States and the Soviet Union; at a time when nuclear weapons technology required sophisticated manufacturing capacity; and at the time when there was no publication of results having anything to do with it in any open scientific journal. It is hard to imagine these abilities of maintaining substantial leadership through secrecy or remaining closed in areas like artificial intelligence or in biotechnology. And so it is right to question some significant part of what is attacked in terms of Chinese practice.
And it is right to suggest the United States needs to think carefully about what it wants. If it were to succeed in reducing interdependence between the United States and China, if it were to succeed in getting China to pursue entirely autonomous and separate efforts in key sectors like information technology, if it were to deny itself access to large quantities of low priced steel, if it were to deny itself access to Chinese capital, which reduces the cost of capital and encourages investment in the United States - it is far from clear that this would serve American economic interests. And if America’s policies were to strengthen the hand of those least committed to economic reform, strengthen the hand of those least committed to political openness and most resistant to political openness and to confirm the fears of those in China most hostile to the United States, we run the risk of a self-fulfilling prophecy and might bring about the very conflicts and strains that they were seeking to avoid.
Observation 4: China needs to consider what it wants
My fourth observation: China too needs to very carefully consider what it wants. It is the task of rising powers to provide strategic reassurance. China is right to insist that it cannot be confined to certain areas short of cutting edge sectors. It is right to insist that it must, over time, take a place in global institutions and take a place in deciding what the global institutions are going to be, that is commensurate with its important in the global economy. It is right to say that its position is not simply to fit in as a responsible stakeholder in someone else’s design. But that is not to say it can expect to continue to live apart from rules in the way that it did when it was an economic adolescent; practices that were acceptable when it was poor are not acceptable as it gets rich. Whether those practices involve the expropriation of intellectual property, or the provision of subsidy, or the provision of inexpensive and cheap credit.
Fitting into the international system means accepting the rules of an international system after having had a chance to help shape those rules.
Collateralized lending that subordinates the credit worthiness of others and that is not subject to restructuring according to prevailing international norms, is not healthy financial citizenship. A sense that China wishes to be among those who lead the world is very different from a sense that China wishes to displace from a leadership position those who currently lead in the Pacific and globally. China has been fortunate in a sense in the last two years, because of the unwisdom of many aspects of American foreign policy and the resulting wedges and cleavages that have been created between the United States and its traditional Atlantic and Pacific allies. The kind of global coalition of concern that would otherwise exist with respect to China’s practices has not fully come into being. I do not expect the fissures within NATO and the fissures within the Pacific alliance, that currently exist as a consequence of things Trump has said and done, to be a prevailing or a long continuous feature of the international landscape. I think it is very much in China’s interest to think about recalibrating its foreign policy approaches before all that happens rather than after all of that happens.
I speak in so strong a way, because I see this as a moment of perhaps unprecedented possibility for mankind. Information technology and all that comes from it offers the prospect of mankind’s relief from jobs torturous and tediuous, which was never happened before in all of history. And progress in the life sciences offers the prospect of immense extension of life and reduction of pain and suffering. Material comfort without excruciating work, reduction in pain and suffering. This has the potential to be a century for humanity that is far better than any other has been. But if the U.S. and China are not able to find their way, if not to friendship and cooperation, to respectful and carefully managed coexistence, all of that disappears. That’s why I think the kind of discussions we have in the China Development Forum, the kind of research you do in your think tank and the kind of conversation that we’re having today is so vitally important for the future.
* This transcript is unedited and not verbatim; it may contain errors. The transcript was not verified with the speaker .