Navigating the Seas of Uncertainty

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This article was originally published in the second edition of the AmCham China Quarterly, an executive-targeted periodical focused on policy, business, and technology, driven by C-suite perspectives and insights. Click here for more articles from the Quarterly. To subscribe or contribute to the Quarterly, contact our editor: jpapolos@amchamchina.org.  


 

February 2 no doubt occupies a particular place in Nelson Cunningham’s heart.

Not because it’s his birthday, or has any special personal relevance, but because his work for McLarty Associates often resembles Groundhog Day, marked informally in the US at the start of February each year. “You see the same problems coming up again and again and again”, says Cunningham.

“So many businesses are affected by data processing rules, they’re affected by data localization rules, cross-border data flows, trade issues, border, visa, and movement-of-people issues. The local players are very adept at using their government to keep out the foreigners – this is something that you see in every country – and so very often we are hired by the foreigners in that country to try to help them push back against the local competitors who are using the government’s instruments against them.”

"These are two powerful countries that have fundamentally different operating systems – the Chinese OS and the American OS. It’s hard to imagine that we’re not going to see tensions in the years ahead."

When it comes to China in particular, Cunningham notes some of his clients definitely feel that they are being affected by the overall tensions between the countries, whether it’s regulatory approvals being held up or slowed down, inspections being stepped up, or that the fact of their “foreignness” in China is becoming a salient factor in the success of their business operations here.

But he adds that the same phenomenon is also being seen in the US, where foreign companies feel that they are now being disadvantaged. “It doesn’t matter if they are Mexican, or Chinese, or Korean, or German,” he says. “These tensions are rising on both sides and not in helpful ways.

 

Trump Card for the Democrats?

Like many other Democrats, Cunningham places the blame for this deterioration squarely on the ruling party in Washington. “This US government has destabilized the US-China dynamic more powerfully than any one of its recent predecessors, and it has done so in ways that please some American interests and that discomfort many other American interests.”

With attentions now starting to turn towards the US presidential elections in 2020, Cunningham says the whole world will be looking at whether Donald Trump will still be in the White House 18 months from now, or, if not, whether any of his policies endure under the next administration. But though Trump is currently the favorite to stay in power, there are plenty of others lining up to replace him.

“If we decouple the two economies, then the forces of stability and the forces for collaboration and cooperation will become smaller and we put ourselves on a very treacherous trajectory.”

After a long career in Washington, Cunningham is well placed to opine on the state of US politics today. Not surprisingly, given his connections, he sees the Democrats as parading a stronger line-up of candidates. “The Democratic field is as broad and as diverse as any we’ve ever seen,” he says. “As a Democrat, and as somebody who worked for John Kerry, Joe Biden, and Bill Clinton, I’m very proud of the diversity in the field.”

Speaking to AmCham China six weeks before Biden announced his candidacy, Cunningham correctly predicted his old boss would indeed join the race, adding, “[Biden] is the only one of the candidates who brings that foreign policy experience, and who can say, ‘For 30 years I’ve been closely watching power dynamics around the world, and I’m the only one who can understand China, or India, or Europe, or Latin America in a profound way.' Other than Biden, it is a strong domestic field, but the others would have to learn foreign policy, either during the campaign or on the job.”

 

US Views on China

It is no secret that the stance on China in Washington has hardened over the past few years, with the issue gaining broad bipartisan support, with Cunningham pointing out that it’s become a topic for scoring points.

“It has been easy for some time in the US to get political attention by shouting about China. Democrats have done this, and Republicans have done this, because China is big and powerful, and, to many Americans, they feel that it has taken their jobs and weakened the American economy.”

But Cunningham warns that the administration’s unique approach to tackling China could have serious repercussions further down the line. “What Donald Trump has done is he has taken two separate issues and he has linked them together,” says Cunningham.

Cunningham (second from left) speaks to attendees at an AmCham China Policy Plus event

“One is the trade deficit between the United States and China, which he views as the United States losing $500 billion a year. Mainstream economists will tell you that’s simply not the case, but that’s how he sees it and he actually finds more support from those on the left when it comes to talking about trade deficit issues.”

“The other issue that he has taken up is a structural one of intellectual property, joint ventures, cyber espionage, and technology transfers, where the American business community has become increasingly concerned and disenchanted with Chinese policies. So you have these two issues – the trade deficit and these structural changes – which have very different constituencies in the United States, yet the president has linked them together through the use of tariffs. Now he’s got to come up with a conclusion that deals with those tariffs and that satisfies those two constituencies. That’s a very complicated game to win.”

Cunningham cautions that while, for example, China might agree to buy vast quantities of soybeans, chips, autos, and other American goods to reduce the trade deficit, that still would not address the much broader concerns in the American business community.

“If that is the case, it would be hard for [Trump] to claim victory in a way that is durable, because the American business community will say, ‘No, no, you didn’t solve our issue. You solved another issue, which we never thought was a problem, but you did not solve our fundamental issue.’ And it makes it very hard for the president to declare victory.”

Cunningham further worries that two or three years down the line, the two countries would likely clash once again, even if issues are resolved in the shirt term. “These are two powerful countries that have fundamentally different operating systems – the Chinese OS and the American OS. It’s hard to imagine that we’re not going to see tensions in the years ahead. The trick is to make those healthy tensions and resolve them in a healthy fashion.”

 

Decoupling Fears

According to Cunningham, there are some people in the president’s circle who speak of decoupling the US and the Chinese economies, but he warns that would be “a horrendous tragedy”.

Cunningham worked in the White House when President Clinton pushed for the changes to American law that allowed China to enter the WTO, and, while he concedes that, with hindsight, a different deal might have been more fair to American companies, he still maintains it was a “seminal elemental deal” when it came to integrating China into the global economy.

“I am somebody who believes that there is nothing that promotes peace like collaboration, interaction, and trade,” he says. “If we decouple the two economies, then the forces of stability and the forces for collaboration and cooperation will become smaller and we put ourselves on a very treacherous trajectory.”

Cunningham talks about the huge strength of feeling that President Trump has about the China issues that he raises, noting that many others in his government feel even more strongly than he does, especially about the military challenge that China poses.

But he cautions against too strong a line, expressing concern about the lack of balance from elsewhere in government. “Congress can play a moderating influence, but this administration listens less to Congress than many of its predecessors have,” Cunningham says.

 

Geopolitical Chits

The talks between the US and Chinese presidents at the G20 Summit in Argentina last year took a surprising turn when news broke about the arrest in Canada of Huawei CFO Meng Wanzhou, prompting an escalation in rhetoric as well as the arrests of two Canadians, a situation that worries Cunningham deeply.

“[The arrest of Meng] is the most unfortunate intersection of law enforcement and policy issues I’ve seen in a long time,” he says. “It came out of a very narrow, but well-defined case, of Huawei and her personal intervention in lying to regulators and to banks about the unlawful sales of telecom equipment to Iran. Nothing is worse in Washington today than to trade illegally with Iran, so the Meng case is viewed very much as an Iran matter.”

He continues, “What is different is that it came in the middle of a broader dispute between the US and China over Huawei’s role as a global supplier of high-tech telecommunications equipment. That has now been mixed in with this issue of one woman’s arrest over Iran sanctions, and I think it’s most unfortunate that President Trump linked the two by suggesting that the resolution of her case could be part of a bigger deal.”

But Cunningham cautions that China’s response to Meng’s arrest could have a chilling effect on the global business community. “When I talk to my friends who are Canadian diplomats, they are very cautious about warning their citizens to travel to China now, and it’s only because Meng was arrested in Vancouver,” he says.

“It is a huge vulnerability to China to be viewed as retaliating personally against businesspeople for reasons that have nothing to do with their conduct, but simply to create geopolitical chits. I can’t think of anything that will set China back more in the eyes of the international community than for that to continue.”

 

Cunningham was talking to AmCham China following an exclusive Policy Plus event. For more details on Policy Plus, email policyplus@amchamchina.org