Phase One of a landmark trade deal with China will be signed this coming week. If there are no more snags. Six months ago, the Chinese backed off of what they’d agreed to at the last minute prompting President Trump to put big taxes on Chinese imports. If you aren’t sure what all this is about and why it matters so much, there’s no-one better to ask than Michael Pillsburyan outside adviser to President Trump, head of the Center for Chinese Strategy at the Hudson Institute think tank and author of The Hundred-Year Marathon: China's Secret Strategy to Replace the United States.
Sharyl: What does phase one seek to do, or what will it accomplish?
Michael Pillsbury: The most important thing about phase one in my opinion, is to have an enforcement mechanism where the Chinese set up a system that the American side can make complaints. You stole this intellectual property from us on this date, and we lost this much money, please fix it. China's never agreed to it with any other country in the world. So this will be the breakthrough the president will have achieved.But there's also something that the president cares a lot about called the trade deficit, that China has a $500 billion trade deficit with us. It's the biggest one in the world. The Chinese are promising to greatly increase the purchase of American exports.
Sharyl: If you can explain in simple terms why Americans who are not wrapped up in China trade and geo global politics, why this matters to them, what would you say?
Michael Pillsbury: The key thing is American jobs. The American infrastructure, the number of manufacturing jobs, the rise of the drug problem with fentanyl and the opioid crisis—this is all related. As we've exported jobs, many to China, our own country has suffered a certain number, let's say 3 million, lost jobs. High paying jobs are also being lost. So the trade agreement's designed to increase the number of American jobs that come from exports.
Sharyl: Can you give a specific example of a way the United States of America had jobs and what happened that put those in China's lap?
Michael Pillsbury: Sure. There are many, many examples. The Chinese will pick a company, they will steal its intellectual property, its trade secrets. They will essentially put it out of business.
Sharyl: An American company.
Michael Pillsbury:An American company. They will take its market share. And that American company in a certain city then no longer has those 1,000 jobs. And they've been doing this off and on in different places for 20 years. So over time it's all built up, and no one's noticed this.
Sharyl: In terms of how large, if this phase one is signed, how big of a deal this is. How would you characterize that?
Michael Pillsbury: It’s pretty big. The president at one time used the joke, granddaddy of them all trade deals, because we're the two largest economies in the world. Many people think China's still a backward country with peasants, and they ride bicycles. No, they're ahead of us in many ways. Supercomputers, 5G, telecommunications technology, it's quite a long list of where China has surpassed America.
Sharyl: Phase two, in a paragraph ,would cover what, and when could we expect that?
Michael Pillsbury: This is a very delicate issue, because phase two is supposed to be things that were not resolved in phase one, the biggest one being the subsidies Chinese companies get from their government. They give them massive unfair advantages against our companies. Some people think phase one means no more tariffs, President Trump has dropped them all. No, he's kept most of the tariffs on China. Roughly 25% tariff rate or tax rate, you might say on about 250 billion Chinese exports to our country. So the pressure is still on. China is very unhappy about this. If they don't show up for the signing, my view is it'll be because we didn't take all the tariffs off. We're continuing to really punish them, while they claim they're making these concessions to us. So there's some level of suspense. I think they will come. I think they will have a signing ceremony Wednesday, January 15th, but I don't want to be totally optimistic, foolishly optimistic, and say everything is taken care of.
Add to the volatile mix: some Chinese claim the U.S. is trying to provoke China into a military confrontation through U.S. attacks on Iran since China is a major importer of Iranian oil and a close partner of Russia.