Cable From U.S. Embassy In Beijing Reveals U.S. Perspective on Trade Relationship

For all of the tough talk coming out of Congress as the United States and China embark on a high profile trade summit today, a confidential memo sent by U.S. Ambassador Jon M. Huntsman at the beginning of 2010 illustrates how the fortunes of the two countries have changed in modern times, and how the leadership of the United States is scrambling for innovative ways to readjust as its economic clout fades.

The memo, dated January 28, 2010, appears to be addressed to various arms of the United States government, including White House advisors David Axelrod and Larry Summers, who at the time was the Director of the National Economic Council.

The document acknowledges that China’s market was the only source of growth for many American companies in 2009, and ponders the wisdom of aggressive retaliatory measures against China for not strictly protecting U.S. intellectual property rights, and for implementing policies that favor Chinese companies at the expense of American ones in China.

Huntsman, the memo’s author, makes clear that maintaining a healthy U.S.-China relationship is a difficult balancing act and that the results of this week’s trade summit in the U.S. will be a key marker in the ongoing and increasingly rocky trade relationship between the world’s two most powerful nations.

“We face a challenging year ahead in U.S.-China relations,” Huntsman wrote this January. “Ten percent U.S. unemployment coupled with our huge trade deficit with China, China’s increasing use of industrial policies to restrict market access, and an undervalued RMB, will bring greater tension to bilateral ties. The Google case adds fuel to the fire.

“In this context, it is critical that we find ways to better advance our bilateral economic policy. This will require sustained, focused interaction on a daily basis with the Chinese, but also serious thinking about what can be best accomplished in the run-up and at the key meetings like the S&ED and JCCT. We need to find ways to keep the relationship positive, but even more important to ensure the American worker, in particular, reaps the benefits of our bilateral economic engagement.”

“S&ED” refers to the U.S.-China Strategic and Economic Dialogue, an annual meeting between the U.S. Secretary of State and Treasury Secretary with their Chinese counterparts. It was established by U.S. President Barack Obama and Chinese President Hu Jintao to address key issues between the two countries such as trade, currency policy, the U.S.’ borrowing obligations to China, climate change and global monetary policy and politics.

“JCCT” refers to the US-China Joint Commission on Commerce and Trade, the commission that is meeting today to discuss and iron out trade issues.

Huntsman’s memo, made available online via Wikileaks late last week, presents Obama Administration officials with various policy options and their risks, and proposes practical ideas on how to engage the Chinese government, business sector and Chinese citizens with the United States.

Huntsman sketches out several areas in which the U.S. government can smooth the way for U.S. businesses to expand their operations abroad, and for the Chinese to expand their operations and to invest in the United States.

He suggests, for example, expanding public-private  sector partnerships modeled on the Aviation Cooperation program. The program now has 40 U.S. corporate members and has sponsored training for more than 100 Chinese aviation professionals, and has introduced U.S. firms and technology throughout China’s aviation industry and regulatory structure.

He also suggests reaching out to U.S. state economic development programs during the National Governors’ Association annual meeting and connecting those programs to their counterparts in China.

In addition, the U.S. government should make more information about business opportunities available on the internet in Chinese, he said.

“We should create many more Chinese language web sites that are directed at key secondary and tertiary cities in China,” Huntsman recommended. “The more we facillitate access to information about American business opportunities — whether through a national database or enhanced state and local databases — the better. We believe thinking local, start-ups and grassroots first is the preferable way to go in using the Internet.”

Huntsman also made a list of recommendations on expanding tourism and educational  travel for Chinese citizens in the United States, as well as relaxing export controls for “commercially-important technology.”

These are just a few of the many ideas the former Republican governor of Utah laid out for Obama Administration officials back in the United States as he contemplated the politics of the U.S.-China trade relationship.

“Recent issues related to indigenous innovation, express delivery and online-music content, for example, underscore that USG complaints about discrimmintory policies — absent a credible threat of retaliatory action or other leverage — are falling on increasingly deaf Chinese ears,” he reported in the January 2010 cable. “China’s relatively strong economic position in the wake of the global financial crisis has intensified that trend, as has Chinese hubris that it can call the shots and determine the playbook under which it operates without disclosing the same to foreign firms. While WTO dispute settlement has worked well when applied, many of the problems we face in China’s market do not fall within WTO disciplines.”

The ideas in the document, and the alternative path and tone it offers as a way to engage the Chinese, provides a striking contrast to the harrying rhetoric on Capitol Hill. U.S. lawmakers are growing increasingly impatient with the Chinese government as it unilaterally forges ahead with its growth in the global economy.

The U.S. Congress in 2010 has commissioned various in-depth fact-finding reports that are severely critical of the way China has impeded access to its market for U.S. companies with its indigenous innovation policies. The reports also document China’s efforts to require U.S. companies to share and ultimately transfer their intellectual property to local Chinese companies in joint ventures.

Last week, a group of 30 U.S. senators sent a letter to Chinese Vice Premier Wang Qishan to urge him to make progress in resolving some of the issues at today’s trade talks.

The Obama Administration’s approach of engagement rather than enragement is the only one that will ultimately bear fruit, argues Denis Simon, a long-time China hand and professor of international relations at Penn State University.

“I believe that we are going to be embarked on a trade war with China – I believe that it’s almost inevitable unless cooler heads do not prevail,” Simons said.

“The problem is that the United States is not prepared to recognize that the landscape, that the global innovation system is changing, and that the Chinese position in this system is not where it was 30 years ago,” he said. “China is in a much stronger position, it has much stronger market leverage, and we have to accept that we have to accommodate China in a way we have been unprepared to.

If we don’t understand how to develop a better working relationship with the Chinese, then we’re going to have absolutely no leverage whatsoever with China, and I would argue that we’re putting ourselves in a corner in which we’re not going to be able to call their bluff.”

Editor’s Note: The Intellectual Property Breakfast Club will hold a February 8, 2011 breakfast panel at Clyde’s in downtown Washington DC on China and IP. To register for this FREE event, click here.

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