Brought to you by Bank of America Merrill Lynch seeing what others have seen, but uncovering what others may not. Global Research that helps you harness disruption voted top global research from five years running. Meryll Lynch, Pierce, Fenner and Smith Incorporated. But if I were to sit down with the President elect, I'd say, you have two ways to
see China. You can see China through a fear of prism, and you can you can articulate the U. S. China relationship through fear to the American people, which I think does it a disservice, Or you can articulated through a prism of of opportunity, which I think there is a lot of on both sides. Hello, and welcome back to
Bloomberg Benchmark, a show about the global economy. I'm Scott landman and economics editor with Bloomberg News in Washington, and I'm Danielmost, Executive editor for Global Economics at Bloomberg in New York. So, Dan, we heard a lot about China during the past year's election campaign. President elect Donald Trump spent a lot of time bashing China, talking about how
it's manipulated its currency, taking jobs away from Americans. He's also pledged to pull out of a Pacific RIM trade accord, which gives China an opening to do its own big pan Asian trade deals. And while we're on transitions, China is going through one of its own. The ruling Communist Party is gearing up to elect their words it's new
leadership team late next year. The speculation the President, Shi jing Ping, who took office as party secretary in could set himself up to lead the nation beyond tennees, which would break with race and practice and hawken back to the days of Chairman Mao. And in addition to a political transition, the country is also going through a profound economic transition. The China that Trump ranted and raved about during the campaign sounds like the low cost, low end
sweatshop image stuck in the ninety nineties. But today it's not really about T shirts in Guangdong Province. It's about the Starbucks sprouting up all around the suburbs of Beijing and Shanghai. We have a distinguished guest today who can offer insight like few others on China's economy and politics. John Huntsman served as US Ambassador to China in the early years of the Obama administration and before that, elected
twice as Republican governor of Utah. He's now co chairman with Joe Lieberman of No Labels, a group trying to push a nonpartisan economic agenda. He's also chairman of the Atlantic Council, I think tank in d C. And let's not forget briefly ran for President. John. We really appreciate you being here. Thank you Dan's guard. It's a pleasure to be with you. John. I just described Trump's image of China, one that probably looms large in the minds
of many Americans. You were there for two years as ambassador, visited there many times. UH have deep connections there. How much of that picture that Trump described as true? And if you're briefing him on China, what would you tell him? Well, I think you have to see China. Uh. First of all, let's recognize where we are. We're in the political season. We're ending one aspect of political season. We're about to
start the governing aspects of presidential politics. While at the same time in China, you've also got a political dynamic playing out in the run up to the nineteenth Party Congress, which will take place about a year from now. Party congresses they have every five years and have since the
death of Mantzedong in nineteen six. So the peculiarity here is that you've got politics playing out in the United States and we're about to begin a political season in China, and they're almost running into each other in the form of a head on collision, which means on both sides, we're going to hear most more nativist talk, more nationalistic talk. We're going to talk about closing markets, not opening them. We're going to hear more about saber rattling as opposed
to collaboration. I think this is to be expected, But if I were to sit down with the President elect, I'd say, you have two ways to see China. You can see China through a fear of prism and you can you can articulate the U. S. China relationship through fear to the American people, which I think does it a disservice, Or you can articulated through a prism of of opportunity, which I think there is a lot of on both sides. But you have to carefully balance the
two to be sure. You have to recognize that we have some irreconcilable differences. You can spend a lot of time talking about them, but in the end there are no easy solutions. But as we talk about those, don't forget that we're we're wasting a lot of time by
not talking about areas of commonality and collaboration. Uh. And they include economic opportunities both on trade and investment, on intellectual property protection, on the advancement of technology, opening markets where they are closed, helping China and make its transition from the old investment led export model to more of a consumption model, which is very good for US exports
longer term. And there are a lot of areas of commonality on the security side, notwithstanding our friction in the South China Sea in the East China Sea, let's not forget we have a common cause as it relates to counter terrorism. We both want to calm down the Middle East. We want to make sure that the supply and the trade routes are are protected for purposes of prosperity, and
we want to be prepared for disaster relief. When disaster strikes, how we can go to the aid of those affected countries. So there's a lot to be done on the on the positive side of the ledger, but we have to manage the downside friction as well, which is never an easy thing. So is the politics driving the economics at this moment or is the economics driving the politics? Well,
that's that's a very very good question. I would say politics are driving much of the economy x because there is evidence that economics are driving some of the fear uh and anxiety that people feel here in the United States. Uh So, I suspect we're going to see some early clashes in the in the Trump administration. He has said that he would cite China as a currency manipulator. So let's just say that he does that on day one, which he said he would do. That takes us to
January twenty or one. The Treasury Department, which manages these issues, has a semi annual report to Congress on currency manipulating countries. The next one up is in April. So if this just plays out as as it might, you could have China deemed a currency manipulator, which is in words only.
But I suspect there may be some appetite on Capitol Hill, given that you've got a new balance of power on the Republican side in Congress that might want to stand behind Donald Trump because it does play well politically back home. And there are reasons that China is not playing by the playbook that everyone agreed to, at least under the w t O as session documents back back in two
thousand one. UH. And if China were or if if the US Congress were to slap sanctions onto a currency manipulation bill, you could have some early days that that would include some some back and forth on the economic side, because China with then retaliate, of course in kind, and then you'd see a spiraling out of control of the bilateral trade and economic relationship until some equilibrium was found a little bit like the Tires case early on in
the Obama administration. The great irony of this, though, is if China is manipulating the currency now, it's to prevent it from weakening. Why would Donald Trump want a week you want, Well, this is where you've got to sit down with the economists and you you have to you have to get the real story. So are they purposefully manipulating the running b or is it taken down as a result of an economy that is performing poorly? UH?
And capital outflows are they you know, so they're protecting their currency to the tune of maybe sixty to a hundred billion dollars a month and have been for many months, which has taken their their foreign exchange reserves from four drillion maybe down to three point one where it sits today. So I think these are emergency measures that the Chinese are taken, just taking just to keep the currency afloat, uh,
not manipulating for purposes of cheap chief exports. So once the facts are on the table, uh, And that rarely is the case when you're in the middle of a campaign, But once you're president, you've got to take a look at the facts and then and then based policy on that you might have you might have a different outcome. Well, you have a Democratic Senate leader, Chuck Schumer, who who has been uh, you know, leading this issue for many
years to call China currency manipulator. He has a kindred spirit, it seems now in President elect Trump. Is there anything I mean you say that maybe when they see the facts on the ground, they might they might halt. Is there anything to to really stop them now? Or do you think you know, we're really on the verge of of going down that route. I suspect there will be a fulfillment of Trump's promise to cite them as a currency manipulator. I think the question will then become, are
their punitive sanctions that back up those words from Congress? Uh? And if there are, I think we're in for uh, you know, a wild ride economically in the first six months. So this is an example of a president of fulfilling their campaign promise, and I think the Chinese, on the
other side, are are fully prepared for that. The question will be how do they then retaliate and does that cause a counter retaliation and then a spiraling out of control of the economic relationship, which UH makes it more difficult to invest to trade. There's a loss in confidence overall that we we wipe out a year or two of productive economic engagement. I think the first few months
will really be telling well. And to be fair, Donald Trump was not the first presidential candidate to bash China on the campaign trial Bill Clinton famously referred to the butchers of Beijing. Yet if anything, the economic relationship with China became far more intimate under his administration. How do you see this shaking out in reality? Well, you can go all the way back to Ronald Reagan. I remember because I worked for him when he talked about moving
our ambassador out of Beijing. Remember we we we had the fulfillment of the Shanghai community in nineteen seventy nine under Jimmy Carter, our ambassador went from Taipei to Beijing. Ronald Reagan talked about bringing him back to Taibei uh
and then made a famous trip. I was on that trip with him as part of the staff in the early nineteen eighties and spoke to a billion Chinese people on live television and had warm discussions with Dung Hiao Ping and some of the other early leaders where they talked about most favored nations, aid that they talked about non proliferation. You never would have guessed that in the heat of the nineteen eighty campaign, and the same U site with Bill Clinton, and the list goes on and
on and on. So the governing aspects of the U. S. China relationship are are a lot different than the campaign aspects of the U. S. China relationship. So once in office, you have to look at your stakes, your equities UH and and how you can manage what clearly is the
most important relationship of the twenty century. Now, now you might be a little biased on this question, but how much does it matter who President elect picks as his ambassador to China, And how important is the ambassador's role in managing that relationship compared with say the president or
the Secretary of State or the Treasury secretary. I think the and I am a little bit biased having served in that position, I think the ambassador in Beijing is disproportionately important because the part of the role is to explain the U S system to Chinese leaders, to party
leaders who oftentimes are very confused about how we do business. Uh. And then on the flip side, it's too explain to senior leaders in the US government how the Chinese side works and how through it all we can actually come up with with a strategy, bilateral strategy to get a few things done. Because the stakes are so high on both sides, and because both are members of the U N Security Council, both are nuclear armed, We've got the two largest economies on the face of the earth, growing
numbers of disputes. It's ever important to have an ambassador who can carry messages back and forth. But in the end, let's face it, it really will depend on how much skin the president wants to put in the game. So if you want to just sort of manage the downside without any sense of building the upside capacity, you can do that. You can sort of manage downside friction and risks and all of that, but you lose the upside potential of the relationship. We haven't had in quite some time.
Uh And I would say Richard Nixon tried to do this when he kicked off the relationship shortly after is managing a true strategic dialogue which takes a little bit of what the Chinese want and what the United States want. But it's sort of countercultural for us because we're short term thinkers, were more transactional. We negotiate in ways that achieve a certain defined outcome. The Chinese, on the other hand,
want to think in terms of forty years. Uh. And we haven't been able to really strike a long term strategic relationship that spell out our goals over a long
period of time. And I would advocate for any incoming president of the United States to build a strategy visa of Eachina that serves US interests, that brings on a bilateral basis problem solvers together in State Department, Treasury, Commerce, Defense Department in ways that do more than just talk about the tactical, but are able to engage in more
of the strategic. Just going back to your time on White House staff in the eighties again, does this sound like the white people talked about the US Japan relationship back in the eighties in the early nineties in terms
of economic mercantilism. Yes, because I was also in a trade position in the eighties which brought me in contact with Japan UH, and we had the structural impediments initiative, you know, we had all kinds of concerns about their mercantilistic behavior and activity, only to find and tremendous levels of investments coming in the United into the United States, buying a lot of trophy UH investments that are well known by by most of your listeners, H. And that
all came to an end, and the structural efficiencies were never adequately addressed in Japanese policy making, and they still exist today. I would say in the case of China, it is a more resilient economy, it's mercantilistic today. One of the big problems is You've got state owned enterprises a hundred and fifty thousand of them that have not been touched, that have gone beyond being reformed. Some of them have been built up in recent years as a
matter of fact, and they are backwaters of of inefficiencies. UH. Sweetheart contracts for princeling UH, princeling members of Chinese society. They get discounted capital, they get cheaper raw materials, and they basically engage in nationalistic business practices, and no one has had the political will to take them on UH.
And I suspect that if if the third plan of reforms that Chi Jinping talked about after the last Party Congress, the eighteenth Party Congress, in if thet or if the third plan of reforms which were talked about in the end of twenty are to come to fruition which really get to the heart and soul of cleaning up the system, the state owned enterprises are going to have to be dealt with realistically, brought down, bankrupted, a new debt market
established in order to accommodate some of the inefficiencies. If if that isn't done, I think the Chinese economy is in for long term serious problems. Japan never dealt with those inefficiencies, and we're seeing what what what that is brought about. I was there three years ago for those the announcement of those Third Plenum reforms, and we're still waiting for some of them to to be implemented. Let's leave that thought there and take a quick break for
a word from our sponsor. Will be right back. Brought to you by Bank of America. Meryll Lynch. Seeing what others have seen, but uncovering what others may not. Global research that helps you harness disruption voted top global research from five years running. Mary Lynch, Pierce, Venner and Smith Incorporated. And we're back John. Let's turn to China's so called elections, that's the word they use. But at all levels the candidates are picked by the Communist Party, so anyone who
votes doesn't actually have a choice of candidates. We don't get to see the kinds of deals and machinations that happened behind the scenes that they do to choose the leaders all the way up to the top level. And yet when you take a long view of it, this authoritarian system has lifted hundreds of millions of people out of poverty, kept the economy growing at a relatively rapid pace and made China into a global power. They like to criticize the way democracy works in the US and
other Western nations. Is there any merit in their viewpoint? Well, I would also say they achieved that success through doing it the old fashioned way and the and the easy way, which is bad your currency, drawing on cheap labor, and exporting products to the major markets of the world while keeping your own domestic markets relatively locked up. Uh. And now they're hitting the middle income trap, which is causing
a new reality for them. They have to transition into a consumption model in order for their economy to prosper longer term and for and for people to move more into the middle income categories into the middle class. So I see coming with that a lot of opportunities for the United States. I see more more purchasing power on the part of a consumer class. It will be hundreds
of millions strong, which is great for US exports. The Chinese love to buy US products where they're available, and I think increasingly will find more and more opportunity there. And I think on the investment side, will see more in the way of Chinese investment here in the United States that will run more in parallel with US investment
in China. We're already seeing evidence of that, and the political implications, of course, will be fairly profound domestically, as Jen Ping pries to keep hold of a one party system which doesn't want to be a one party system. Let's talk about that shift to consumption for a moment. Do you feel that, uh, the shift away from exports and fixed usset investment to service as a consumption. Do you think that is broadly understood in the United States?
In otherwise it's not your grandfather's Chinese economy anymore. No, No, it isn't, um, and I don't think it's it's largely understood. I think we're we still see China through a prism that has maybe dated by twenty years. We're not looking at online purchases, which if you so, don't look at inventories of steel and coal and aluminum, which are off the charts high um that that's not a good leading indicator of where China's economy is going. It's where it's been.
The leading indicators really are our online sales. Look at travel and tourism, look at airline seats, being purchased. UH. Look at outbound tourism. UH. Look at legal and architectural services, look at education and healthcare services. There's a lot going on behind the scenes. And what is exciting for me is the United States does extremely well in many of
these service related areas. And once the markets are more and more open, UH, and we're able to define the China of the twenty century as opposed to the late twentieth century, I think we'll have more in the way of opportunities. So it would be ironic if we got into a trade wall with China based on a part of the Chinese economy that effectively is over. Anyway is effective is effectively over. As a matter of fact, you know, the bloom is off the rose from a manufacturing standpoint,
that the golden days are are gone. China's labor rates are are are on the on the rise. You've got more people leaving the workforce than entering the workforce. By they could be deficit twenty million workers. UH. And who's picking it up. We'll take a look south into Vietnam, India, Bangladesh and beyond. Uh. So China is fundamentally entering a
new playing field. From an economic standpoint, and we do ourselves a disservice by not identifying properly where they're going and what therefore the opportunities are for US investors and traders. Why isn't that breaking through? Well, remember Dan that we're still in a political season. And when you're in a political season, you don't talk by way of opportunities, you
talk by way of fear. UH. And when you talk by way of fear, you talk about deficits, You talk about threats, you talk about foreign investment that is taking away jobs. You talk about UH saber rattling on the
security side. So now that we're beyond that, it'll be very interesting to see if President elect Trump is able to take the U S. China relationship and sort it out into something that represents less fear and more opportunity for job creation here in the euided States, US export potential UH IN and overall economic relationship that of course is going to be UH riddled with challenges and problems,
but also there will be plenty of opportunities. Talking about the current political situation in the United States and turning away from China, we can we can't let you go without asking a few questions about what's going on here right now. And one of the major stories in the news is whether Mr Trump will pick Romney, your fellow former Utah governor, as UH Secretary of State. How do you think Governor Romney would do as as a secretary of State. Well, it's not even worth my speculating on
any potential candidates. I think President elect Trump has a pretty good sense of where he wants to take the world. I think it will be important to have people who are of common mind as they see where he wants to go. Clearly, were some international affairs foreign policy themes that came through in the campaign, and they included, Uh, the Middle East, We've been there too long, there's too much of an overhang, something that's got to be addressed.
Trade was prominent, which is a big foreign policy issue, uh, And that was we've got to get trade agreements that are they're fair to American workers. And immigration was the third big area that is a foreign policy issue. So I suspect that if these three areas are going to be prominent in in the early days of a Trump administration, he's got to have people around him who were fluent and conversant in where he wants to take the United
States and what is uh? An increasingly disaggregated world. And have you had a telephone call? I've had a telephone call. And what was the purpose of that? Just just a congratulatory call to Mr Trump. Yeah, we can't also let you leave here without asking a question about your own personnel plans. You're you're here with us in EC today, but your roots are in Utah. You're a popular governor there for some time. Uh. You're you've actually partially moved
back to Utah, kind of splitting your time. And I've read that there there's a speculation that you're considering a run for the U. S. Senate from Utah. In is that true? Well, listen, we've Utah's home. I was. I was born and raised in California. I was raised in Utah. I've spent time overseas, living overseas four times. Utah's our home, uh,
and we feel pretty passionately about that. And we've we've gone back and forth the last few years, UH, and we're looking forward to spending more and more of our time there. I've always said that I've got one more run left in our bones. And I don't know what that will be. But I love this country. I've got two sons serving in uniform. I have always believed that our best days are ahead, and we're going to take a good look at Uh. It may be a future Senate run in the state of Utah. And would you
run as an independent or as a Republican? Well, I've been a Republican my entire life. I've watched the Republican Party go through different phases, trying to find trying to find itself. But I'm of the Party of Lincoln. I'm of the Party of Roosevelt, of Eisenhower, of Ronald Reagan. I kind of know where our roots are. Uh. And I think I know where the Republican Party's roots are. And we've gone round and round trying to find them, and I think we we might still travel some distance
before finding exactly what our traditional roots are. And one more question, would you run if Senator Hatch decides to stand for re election, would you run against him in a primary? Well, we'd have to decide whether or not we're actually going to to enter the race. Uh. And that in part would be based on what Senator has chooses to do. He's been a productive Senator for nearly half a century. I'm somebody personally who believes in term limits.
I always have you get into your job, you get out, hopefully leaving a little bit better for the next person to take over. Um. But time will tell on that, Governor Huntsman, thank you so much for joining us today. This has been a really insightful and fascinating conversation. It's been a great pleasure. Thank you. Benchmark will be back next week and until then, you can find us on the Bloomberg Terminal and Bloomberg dot com, as well as
on iTunes, pocketcasts, and Stitcher. While you're there, take a minute to rate and review the show so more listeners can find us and let us know what you thought of the show. You can talk to and follow us on Twitter at Daniel Moss, d c at Scott Landman, and our guest at John hunts Thanks for listening and see you next time. Brought to you by Bank of America Merrill Lynch. Seeing what others have seen, but uncovering what others may not. Global Research that helps You Harness
disruption voted top global research from five years running. Merrill Lynch, Pierce, Fenner and Smith Incorporated it