From Mao and Nixon to Xi and Trump: A history of China-US trade

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1:14Will Bain:The Documentary, home of the best documentaries from the BBC World Service. Hello and welcome to the documentary from the BBC World Service. I'm Will Bain. Today, as President Xi gets set this week to head to Washington DC for talks with President Trump, we're going to chart the history of US-China economic relations from opium bans to joining the World Trade Organization. Yes, we will chart the sometimes rocky journey between what are now the world's two largest economies and how what's gone before perhaps informs what might go on this week. That's coming up on Business Daily, exploring how work and money impact people around the world.

2:00President Nixon's departure for China. South Lawn, 17 February 1972.

2:06Will Bain:President Nixon prepares to leave Washington for China for what he would call This was the week that changed the world. As President Xi prepares to fly in the opposite direction for an expected meeting with President Trump in Washington this week, what's happened in the intervening period in the trade relationship between China and the United States? They've really taken advantage of our country for a long period of time. We're faced with opportunities never seen before. We both understand that the capabilities and requirements of our two countries complement each other. The American people are a great people.

2:40The Chinese people are a great people.

2:44Will Bain:We have great differences today. What brings us together is that we have common interests which transcend those differences. The modern trading relationship between the US and China starts around that moment in 1969 and that's where most of our focus will be. But it's not the complete story. So let's go back, way back, 1784 back.

3:14Will Bain:The Empress of China became the first ship to carry goods across the Pacific Ocean directly between the US and China. It was just a year before that trade between the two countries and being allowed under the Treaty of Paris. Tea, silk and porcelain would be sent from China. Going the other way were things like silver, sandalwood and furs. The first really big trade dispute, well you would have heard of the rouse recently over the importation of the illegal drug fentanyl into the United States. Well, back then, the Chinese were upset about the amount of opium being sent from foreign countries, primarily Britain.

3:47Will Bain:But the US had also got in on the act. It led to the first treaty on trade between the countries in 1844. And tariffs? Well, they're not a new issue either. At the time of the American Civil War, the US government needed to raise money. How to do it? Yep. Sorry, President Trump. But the word tariffs was also a favourite of those politicians back then, with import taxes of 50 % in some cases. After the Second World War came the founding of the People's Republic of China and trade. Well, it almost ceased until 1969 and President Nixon and that inaugural address. During this administration, our lines of communication will be open.

4:30Will Bain:we seek an open world open to ideas open to the exchange of goods and people well joining us is chad p bound he's co-author of the book how to win a trade war and a senior fellow at the peterson institute think tank in washington dc he also served in two different democrat white house administrations at that stage china was really so underdeveloped that there was really very little technologically that China could do with the exception of really labor-intensive manufacturing. And during that era, and so we're talking about footwear and clothing and textile, sewing, things of that nature. In 1972, President Nixon arrived in China to meet with Chairman Mao and his premier, Zhao Enlai.

5:27The peoples of our two countries have always been friendly to each other.

5:32Will Bain:But owing to reasons known to all, contacts between the two peoples were suspended for over 20 years. But what we have said in that communique is not nearly as important as what we will do in the years ahead. We have been here a week. this was the week that changed the world. Trade quickly increased between the countries, growing from$13 million in 1972 to$992 million by 1978. And at that time, it was the US who held most of the chips with a trade surplus. That soon changed, though. Trade rocketed in the 1980s. Ronald Reagan visiting China in 1984, first addressing Chinese community leaders of the Great Hall.

6:22Will Bain:When it does come, China will rapidly become a powerful and rich nation. The population is industrious, frugal, intelligent and quick to learn. Well, today, China's economy crackles with the dynamics of change. And then staff at the Shanghai Foxborough Company. Your pioneer efforts demonstrate that a promising future beckons for expanded cooperation between our people. China had asked to be entered into the formal trading system at the time, the General Agreement on Tariffs and Trade, I believe in 1986, right? And so that was the formal process. Anybody that wanted in had to do a lot of preparations, talk about how you're going to change your economy, what you're going to do, how you're going to get rid of your own tariffs and other kinds of trade barriers for the rest of the existing membership to allow you in.

7:18And it was on sort of a path to be brought into the trading system. And then in the late 1980s, you had the Tiananmen Square incident, right, and massacre and the human rights concerns that popped up, which undoubtedly slowed the progress of China's entry into the Western-dominated system, right? At this stage, it was the United States, Europe, Japan, right? It was really, you know, these Western allies holding the keys about whether or not China was going to be allowed to get in. And Tiananmen Square was really a black eye and made it very difficult politically to allow China into the system for a long period of time.

7:59Will Bain:You're listening to Business Daily from the BBC World Series.

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9:41Will Bain:I'm Will Bain and today we're looking at the history of trade between the United States and China ahead of the expected summit in Washington between Presidents Trump and Xi later on this week. Well, by the 1990s, trade between them was booming, helped by President Clinton signing a bill which normalised trade with China. I guess I ought to point out that our work's not over when I sign the bill, for China still must complete its WTO accession negotiations and live up to the agreements it has negotiated with us and our partners before it can join. But when it happens, China will open its markets to American products from wheat to cars to consulting services, and our companies will be far more able to sell goods without moving factories or investments there.

10:25Will Bain:In 1997, President Jiang Ximin gave this speech in the States to a group of U.S.-China-based business groups. In front of developing our economic relations and trade as well as expanding the scientific and the technological exchanges between China and the United States, we're faced with opportunities never seen before. China's market is open to you all of course an open market is a competitive market. Let's go back to Chad Bowne from the Peterson Institute and co-author of the book How to Win a Trade War. You have broader trade liberalization happening certainly in the United States and then China just became you know a bigger and bigger part of that in the late 1990s when the talks you know got really serious with the Clinton administration and then finally it's allowed in in 2001.

11:22Will Bain:And zooming right in there then as well, the Clinton administration, what is the rationale to speed up that process with China particularly? Are they seeing a benefit, I guess, on the home front from cheaper what? Electronics or is it they're trying to ride some kind of boom, right? What is it? Yeah, I'm not sure. I mean there was obviously domestic political pressure from industry that wanted China formally into the rules-based trading system. By then, you've got a lot of Western companies that are invested in China, that are – got plants in China. China is on a trajectory in and of itself of engaging in a lot of market-oriented reforms.

12:08And I think the general feeling was, well, if you can get China into the WTO, This is going to further those domestic reformers' efforts. You're handing them tools that's going to help their system become more like ours and less like the traditional state capitalists where you've got all kinds of price controls and a lot of government interference. But even looking back in that era at President Clinton's statements and speeches on this, I don't think anybody was naive to think even in that era that China was somehow going to become like us in any sense. But there was this real question of, well, China seems to be opening up.

12:50Is it better to have them doing this within our system, right, the system that we've designed, this thing called the World Trade Organization, or have it do so outside of the system and not abiding by any rules that we might have access to?

13:05Will Bain:And with the backing of President Clinton and then George W. Bush, China joined the World Trade Organization in 2001. In accordance with the decision-making procedures under Article 9 and 12 of the World Trade Organization Agreement, agreed in November 95, WT -L-93 to adopt the draft decision on the accession of the People's Republic of China. the minister's ministerial conference so agrees.

13:51Will Bain:And in those next few years then, were there obvious to your mind, sectors, companies perhaps that come to mind who were winners and losers straight away? Initially, right, it probably went as one would expect, right? China continue on really dominating, you know, what we would refer to now as low end manufacturing, really labor intensive manufacturing. Where we see China dominating to this day, right? The type of stuff, if you went into your local supermarket, you went to a Walmart and you bought, I don't know, some new tongs for your barbecue, right? Or a new spatula for your kitchen, that kind of stuff.

14:26Will Bain:Are we talking about that kind of thing? Yeah. I mean, you had what was happening in China at this time is also you got, you know, tens of millions of people moving from rural areas into the city and looking for jobs, right? And looking to be put to work in manufacturing and in assembly and without a whole lot of skills during that era. And so it was a lot of that type of work. But that being said, it did start to obviously have an impact on communities outside of China, right? In the United States and other countries around the world. But also alongside that, presumably, it's good for US consumers in that moment, right?

15:02Will Bain:Right. Absolutely. That's where it looks like this is a brilliant kind of political decision when stuff, you know, everyday household objects are becoming cheaper very quickly, presumably. Absolutely. That, you know, it is, you know, economists have documented, you know, the significant sort of deflationary effects it has had on China's entry into the global economy had on prices. Right. And moderating prices over that era. And at the same time, that is also the period, right, where we're talking about Apple as the standard bearer, if you like, but American businesses hitting on this idea that moving lots of their manufacturing to China is bluntly good business.

15:44Yeah, absolutely. It was access to much lower cost labor and in terms of scale, the number of people that you could find that were willing to do very, very difficult work at very low cost was unparalleled for anywhere in the world. The emphasis that the Chinese government put on building out the infrastructure to be able to support international trade. And so what that means is if you want to build these factories, then you've got to have the big port facilities to be able to get it out to other consumer markets all over the world. And China just did all of these things. Right. They really offered companies the full package of items necessary to really lower their costs of manufacturing and trying to convince the public that there's a lot of cheaper goods.

16:42And so you're better off because of that. Oftentimes, it's not a political winner, even though you're exactly changing before your eyes.

16:48Will Bain:Yeah, exactly. It is the kind of story of our times, isn't it? So when do people start seeing that, Chad? When does the China shock start to be, I don't know, being really realized? I think individual local communities were definitely seeing it during that era. But I think as a broader political phenomenon, you know, it didn't didn't get aggregated up and to you seeing, you know, politicians bundling together lots of communities all being adversely affected by this one big thing until probably the, you know, the middle of the 2000s when you saw the rise of Donald Trump. President Trump and Xi, one-minute best friends, the next best of enemies.

17:31Will Bain:Both standing firm, but both willing to do a deal. There are no winners in trade wars. Bullying and hegemony will lead to self-isolation. They've really taken advantage of our country for a long period of time. They've ripped us off. He campaigned in 2016 against trade in general. So I don't think it's fair to say that President Trump likes trade with anyone. It's not just China. But he did put a focus on the trading relationship with China and certainly was the first American president to do something consequentially different about it. But that being said, I don't think that even if President Trump had come along – hadn't come along in 2016, that things between the United States and China were going to continue as is.

18:20I think even by the early 2010s, certainly here in the United States, there was recognition that the relationship with China needed to change. And I think there's – one piece of that was President Xi Jinping. He comes around in 2013. There's a – with any Chinese leader, you're kind of watching and reading the tea leaves. Is he going to continue on with the reform efforts that had been continuing? And it really took a little bit of time. But I think by 2014, 2015, it was already pretty clear that China was going down a different path with President Xi. I think on the U.S. side, even by the second half of the Obama administration, so preceding President Trump, you had the design of new trade agreements that had recognized that the WTO was proving ineffective to deal with the China problem.

19:11But of course, the real difference with President Trump is he comes into office and he has a special affinity for these things called tariffs. And he started to use them and he is, you know, use them to great effect, especially with respect to China.

19:28Will Bain:This week, then your level of hope, Chad, for what actually can be achieved. I mean, is it is it good news? I suppose at least that the two sides are at least meeting again, the most senior people in the two sides. It is absolutely good news that President Xi and President Trump are going to meet. But that being said, I think my expectations at least at the moment are relatively modest. And that's partially because the United States right now has very little leverage with respect to China. China has such dominance over these essential inputs that you need to run your economy, right? rare earths, permanent magnets, a lot of these other critical minerals, and has shown the willingness to threaten to cut the United States off from them, that the United States' hands are tied and can't really ask for much from China in return.

20:21So no escalation, hopefully, but also, I think, very little progress as well on some of the really deeper underlying challenges between the two countries.

20:31Will Bain:Our thanks to Chad Bowne from the Peterson Institute in Washington, D.C. That's it for this episode of the documentary from Business Daily made by me, Will Bain. You can find more of our global business stories and discover how they affect workers, entrepreneurs and companies around the world at bbc.com or by searching for BBC Business Daily wherever you get your podcasts from. We have got coverage all this week on that trip by President Xi to the United States, including hearing from businesses who are trying to navigate working between the world's two largest economies and also hearing from our top correspondents in both parts of the world.

21:06Will Bain:I'm going to live program later on in the week, digesting absolutely everything that goes on overnight, all the press conferences, all the lines that come out of the discussions between the two presidents and how they affect all of us around the world and how we live and work. So do, if you don't already, subscribe to Business Daily wherever you get your podcasts.