Former Ambassador Baucus Talks China, Trade with the Courier

In light of the ongoing trade dispute with China, the Courier arranged an interview with former Ambassador to China and Senator from Montana, Max Baucus. This interview was conducted an the afternoon of Tuesday, Sept, 4, the day federal aid became available to farmers impacted by the trade dispute.

Max Baucus served as ambassador to China from February, 2014, through January, 2017, when the new administration installed their own appointment, which had him in China during the presidential election. During the administrative changeover Ambassador Baucus remained on the ground, giving him a unique opportunity to witness reactions from Chinese government officials and gauge how the country might react to America's new trade policy.

The Ambassador speaks of the Chinese with respect, noting that Americans tend to think of themselves as very intelligent, perhaps more so than other cultures or countries. But, that type of thinking can be detrimental in underestimating the intellect of our global competitors. He says, "The Chinese are just as intelligent as us, and may be even more driven and focused." This drive and focus allowed them, in responding to U.S. tariffs, to strategically target their retaliation on areas of America which supported President Trump, in a clear effort to make him feel more political pain, according to Baucus.

"China is quite sophisticated about the American political process, and are becoming more so, even by the month." Baucus described watching the growing understanding of the government officials during the campaign season, how he could see the sophistication and knowledge growing month by month. In particular, when discussing what the United States' trade policy might look like under the differing potential nominees, the Chinese grew much more specific in their inquiries.

"What happens over the next few days will really determine where this goes." The President had a self-imposed deadline of Sept. 6, on how to proceed against China. Leading up to the deadline, it was speculated that he may decide to pull the trigger on another $20 billion in tariffs. In addition, he has said he may raise tariffs from 10 percent to 25 percent. Despite the President's claims that trade wars are good and easy to win, Baucus holds a different view, "At that point, it clearly becomes a trade war. And no one wins. The U.S. doesn't win. China doesn't win. No one wins."

According to the Ambassador, the passing of the deadline with no new tariffs, could be a good sign that the administration may be signaling to China that a true trade war may be held at bay. At his rally in Billings on Sept. 6, Trump briefly touched on the trade war, saying simply, "We are in a skirmish, but doing well with China, really well." At the time of this writing, the President's self-imposed deadline has come and gone with no escalation. However, recent news articles indicate Trump has not ruled out further actions.

On Sept. 8, Fortune reported President Trump was still threatening to intensify the ongoing trade war by imposing tariffs on $267 billion worth of Chinese exports to America, on top of the $200 billion worth that he might target with duties. The magazine notes the total of current and threatened tariffs is now at $517 billion. Total goods purchased by the U.S. from China the previous year totaled $505 billion.

Baucus told the Courier he has two major problems with Trump's approach to negotiations with China. First, China is a protectionist nation, which makes it difficult for American businesses in China. The Ambassador stresses the point, "Enacting tariffs does not get to the heart of the problem, which is Chinese protectionist policies." These unfair practices include intellectual property theft, currency manipulation, forcing businesses to turn over patented technology as a condition for doing business in China, and taking advantage of American businesses through manipulations of permits and approvals. Baucus states, "Tariffs are not going to force China to back off pursuing economic growth."

As to his second concern, Baucus says the administration cannot go about this unilaterally, the U.S. cannot do this alone. Trump's approach has discombobulated the Chinese, which may work in business, as outlined in The Art of the Deal, but Baucus opines it does not work well with countries. He says the President likes a big splash and strong statements, but that he may have overstated his position. President Trump will find it difficult to back down and save face. At the same time, the Chinese will also need to save face and will find it similarly difficult to deescalate. "We're not going to bully China. China is not going to bully us," Baucus says. "We need to work with our allies, in concert, cooperatively. We need to stand together to encourage change."

"I think Donald Trump is wrong with his America First policy, which is disengagement from international affairs, especially international economic affairs. We should lead," asserts Baucus. He cited the decision to withdraw from the Trans-Pacific Partnership (TPP) as an example. Ambassador Baucus believes the TPP to be one of America's most important deals, showing that the United States would be present in the world. He asserts that when we pulled out of an agreement that improved standards of trade and labor production, the U.S. signaled to China and to Asia at large that we are disengaging and that withdrawal left a void, which China is now filling. China is attempting to convince other countries that the U.S. is an unreliable trading partner, where they are offering stability to potential allies.

Baucus played a lead role in the creation of TPP during his time in the Senate and staunchly believes in the necessity of the 12-nation agreement between allies, "It was a big mistake to pull out of TPP. I think we need to re-negotiate TPP. I don't care what it's called. The President could call it Trump PP for all the name matters. But the deal is good for America and it's good for the world."

Asked if he sees anything coming out of China right now as a cause for optimism, Ambassador Baucus says, "Not really, not yet." In his view, the Chinese are befuddled and perplexed by Trump, which leads them to hesitate in regards to negotiations. They see the President changing positions, a split between what he says and what his administration says on trade and foreign policy. Baucus believes they will wait until after the midterm elections to see what effect will be had on U.S. policies, but that even after that, they will dig their heels in. He notes the Chinese are a proud people who play long ball. They are visionary and patient, even more so than the U.S. They have a strategic plan and we don't. And they know that.

Baucus highlighted the importance of remembering that in dealing with China, the U.S. is dealing with a polar opposite form of government. In China, the communist party controls everything from the press to the markets. The party knows what levers to pull and what buttons to push to keep their people happy. The former Ambassador says there is a Faustian bargain in that country: if the people are happy, with their jobs and economy, they won't question the legitimacy of the party or government. They have total control to fight America in a trade war, giving them an advantage, at least in the short term. In America, if farmers can't sell their crops, they will demand changes. But in China, if the people aren't happy, the government has the ability to make them happy.

The Chinese government wants their economy to keep growing, to keep their people happy, and to do so, they want to deal with the U.S., but they want cooperation. They don't want a trade war but they also won't be pushed around. Baucus points to history to understand the position of the Chinese government, going back to when China was an empire, to losing stature in the world and facing what they saw as humiliation and domination from other nations. The country is back, they have grown so much in a short period of time, and are very proud of who they are, with good reason. "China may be prouder of China than the U.S. is proud of the U.S.," explained Baucus.

On the U.S. side, the American public remains quite proud of its own unique history and institutions. Ambassador Baucus points out the upcoming midterm elections will have a direct impact on how the trade dispute plays out and how long it may take to see progress. China will wait to see if Republicans win elections and negotiations may depend on who gets elected stateside. But he cautions, after elections it takes a while for elected officials to settle in and establish policy.

He does, however, see this as an opportunity to advocate for improving American foreign policy. Pointing to the strength and depth of knowledge regarding Europe and Russia, and the corresponding presence in those regions, he states the U.S. is relatively weak on China. "We Americans need to know and understand China better than we do."

Baucus maintains that enacting tariffs will hurt American workers and farmers. Further, a continuation or escalation of the trade dispute risks losing global markets. The U.S. has already lost a portion of the soybean market to Brazil. The Ambassador stresses that once a market is lost, it is difficult to get it back. Montanans may remember the pain of losing the Chinese barley market forever. Baucus uses the historical example of President Carter's grain embargo against the Soviet Union as one example of the long-reaching effects of poor trade policy. Baucus warns that China will go elsewhere for their import needs.

Indeed, the same day Baucus spoke with the Courier, Time reported that Chinese officials at the annual meeting of the U.S. soybean export group in Kansas City, Mo., laid out how they plan to avoid the intended consequences of the trade dispute. Beyond looking to other countries, such as Brazil, for their soybeans, the Chinese will look to Russia, Ukraine and Kazakhstan as sources for alternative crops, such as palm mill, rapeseed, sunflower seed, and other crops.

In Montana, President of the Montana Grain Growers Association Michelle Erickson-Jones expressed frustration over the markets and the trade situation. Financial estimates from the organization for market losses due to the tariffs came down at 75 cents per bushel, while the aid package offered by the Trump administration is only offering wheat farmers up to 14 cents per bushel. She also noted China hasn't purchased any wheat from Montana since March.

Baucus maintains the longer Trump pursues these tariffs, the more they hurt U.S. workers and farmers. Tariffs increase taxes on Americans. He points out America is not a mercantilist nation. There is an expectation for fair deals and level playing fields. And farmers would much prefer to sell their products over relying on federal assistance.

Despite the hopes of American farmers and workers that there will be resolution soon to alleviate market concerns, the current situation here and abroad points to many more months of bluster and negotiations. Yet, Baucus is not completely discouraged, "I'm always hopeful, always optimistic, but right now, today, I'm not seeing anything out of China to indicate an end to this."