U.S.-China's Positive Momentum
U.S.-China's Positive Momentum
Will this 'momentum' in U.S.-China relations last?, There are more successes than failures in China-US cooperation: American businessman Menendez, and Germany launches 11th-hour bid to avert trade war
Will this 'momentum' in U.S.-China relations last?
By Manuel C. Menendez (Ecns)
Manuel C. Menendez, founder and CEO of MCM Holdings, is an American businessman and philanthropist with deep ties to China. Menendez's moto is "World Peace through World Trade". In his background, it is very understated that he played an active role in China's return to the world market in the late 1970s. In 1980s, he was CEO of Great Eastern Development (GED) which completed the first U.S. -China Equity Joint Venture in China for a major Fortune 100 company.
In fact, his experience is much more than his resume suggests. Menendez came to China in 1979 and has witnessed the entire process of the county's reform and opening up. His Chinese name "Meng Deshi", was given to him by Chinese leader Deng Xiaoping in 1985.
During the 2nd China-U.S. Economic and Trade Forum held by Western Returned Scholars Association, Pang Wuji, reporter and director of the macro-economy editorial sector of the Economic Department of the China News Service, talks to Menendez. Menendez believes that the U.S. and China are not going to, and not able to decouple. Their economic and trade relations are moving in towards a positive direction. He shared his insights on the "real problems" in the current U.S.-China economic and trade relations, and made many practical suggestions.
Here's an excerpt of the dialogue:
Pang Wuji: Since September, Washington has continued to make positive gestures on U.S.-China trade relations. It seems that after resuming talks between the U.S. and Chinese trade teams, the communication between the two sides has advanced to deeper and more specific area. How do you see this change?
Manuel C. Menendez: First of all, the frequency of the meetings are much more than in the past. Each meeting has made a little bit of progress. I think the positive signs have been built up based on the frequency and frankness of the meetings. What we need to do is more engagement, more meetings, more discussions. That has to be an urgent priority.
With respect to the U.S. - China trade disputes, I think both sides have legitimate concerns. There's not going to be one meeting where they are all solved. It's going to be a step-by-step process to make progress, an incremental approach.
There are many challenges facing many countries of the world due to the global pandemic. There are pressing issues that take away the immediate focus. It's like "having so many fires burning, you have to decide which fire to put out first". So I think that people's health and safety has to be the top priority of any country. Alongside of that, the U.S. - China trade relations has to be one of the top priorities.
Overall, I just would advocate more frequency. I'm very positive in the U.S.-China trade relations by having the interactions. Talking is always better than silence. That's already a good sign with these more frequent interactions between the U.S. and China which means that the windows are open again for discussions. I think the U.S. trade representative has talked about recoupling.
Pang Wuji: What do you think of "recoupling" between the U.S. and China?
Manuel C. Menendez: I don't think we've ever decoupled. Our economies and countries over the past 40 years have become so interdependent, interconnected and intertwined since China’s reform and opening up.
I don't think it's possible for the two economies to ever decouple. There's going to be areas of high sensitivity when it comes to, for example, cyber security, selective areas of high tech. That's why, again, I advocate higher frequency of discussions to work through differences and to find common ground.
My only recommendation as a businessman is, you can't take all the issues at the same time.
What I suggest is to develop what's called "momentum". When you drive your car, the most energy is used when you just start, and as you get rolling you use less and less energy, and there's less friction. What I like to see happen is the U.S. and China start moving incrementally, make positive progress on areas both sides agree to create momentum and to do so we all need to get back to the table of talking, because creating positive momentum is important.
And the way to do that is when you have these big meetings, just pick on a few things that both sides in advance could agree to... like climate change, etc. It’ll at least develop the "momentum" coming along. They're not only good for the U.S.-China relations, but also good for the world.
Pang Wuji: What would add to this "momentum" for U.S.-China relations?
Manuel C. Menendez: When it comes to U.S. - China relations, I put things into two buckets. One is policy related, and the other bucket is structural issues.
Structural issues are very complicated where you might have to change a rule or law. Dealing with them takes a long time. So if you're going to create momentum, pick some policy issues. A great policy issue is the tariffs.
I’m not saying tomorrow, both countries can agree on removing tariffs on the whole list, but incrementally certain categories can get rid of the tariffs immediately, going back to the way they were before. For example, agricultural products, health related items, environmental technologies equipment, garments and footwear, or things that are not sensitive areas to talk about.
Pang Wuji: As the U.S. continues to face greater inflationary pressures, imports of good quality and inexpensive products from China can actually help alleviate such pressures. With that as a basis, will the U.S. and China usher in a smoother trade relationship? What are your expectations?
Manuel C. Menendez: Let's take one step back before I answer that. I think the thesis about the trade imbalance has been a big "political football" in the U.S. When I speak to business people and many government officials, I tell them that the trade imbalance is actually not caused by China.
There is a market only when there is a demand. The trade imbalance of the disproportion where there's more goods coming from China to the U.S. is because many U.S. companies order and manufacture products from China, because the quality is good, and the price is good. And as the rule of the world in business, the best quality, at the best price, with best delivery is the winner. When companies like Walmart, Costco, Nike, Apple are ordering things for the U.S. market. That's where the trade imbalance comes from.
Companies set up early in China, including Procter & Gamble, Starbucks, McDonald's, and General Motors, have grown well. These companies have served the Chinese market well as well as the U.S. market. Some people in the U.S., like former U.S. President Trump, say, "China is costing us jobs," and that's not true. We need to get back to the kind of mutually beneficial and cooperative U.S.-China relationship that we had before.
Pang Wuji: What is the biggest misunderstanding and misjudgment some people in the U.S. have about China? Why do they seemed to have deepened their misunderstanding in recent years?
Manuel C. Menendez: Part of this is just the politics in the media. If people have never been to China and do not understand the situation, it may cause misunderstanding.
I've been here since the opening since 1979. And my company put together the first U.S. - China joint venture. So I've seen what has happened in China with my own eyes. When you think of what China has been able to do in 40 years, it's unbelievable.
If I was the richest man in the world, I would take mayors of every city, governors of every state, and even members of the U.S. Congress and ask them to come and see China. Not only Beijing and Shanghai, but wherever I am in China, people here are very friendly to me. As Confucius said: "When people come from apart a far, you should be happy and welcome them."
Confucius also said China is a benevolent society. So China is not interested in conflict, and has never been aggressive. The other concern that people misunderstand is that as China rises, it doesn't mean that the rest of the world is diminished. China's rapid growth is driving huge demand and that has significantly helped other countries’ economies grow.
China is already playing the role of a stabilizer. For example, during the Asian financial crisis in 1997, many countries devalued their currencies, but the RMB kept strong, which helped stabilize Asia.
Pang Wuji: How has the economic and trade friction between the U.S. and China affected American companies?
Manuel C. Menendez: There's no winners in the trade war, only losers.
Trade war from Trump till now has not worked at all. There was this idea floating around the previous administration, and in some political circles that if the U.S. makes the tariff so high on imports from China into the U.S., that when they bring something in from China, it's equal to the price of the U.S. or close to the price of the U.S., then the factories in China would close and will move back to the U.S. - but that never happened. What was also missing in the thinking is many of these U.S. companies that set up China operations sell in the huge China market and are making money for the U.S. shareholders and were not set up just for exports to the U.S.. Tariffs should not be used as a mean of trying to improve competitiveness and level the playing field for every business.
China did not initiate the trade war. They responded to it tit for tat. China's way is to respond to external pressures.
When trade becomes difficult, as well as logistical interruptions, some U.S. companies need to expand and redesign their supply chains. As far as I know, the vast majority of companies have not, and will not, abandon the Chinese market altogether. If you're a major player in the world market, you're not likely to abandon your business in the world's second largest market…China!
Pang Wuji: What are the current expectations of the U.S. business community for U.S.-China relations?
Manuel C. Menendez: The vast majority of U.S. businesses, especially the ones that are involved in China, they want the relations to get better, without any doubt.
They also want more dialogue on those areas that are issues on both sides. There are certain areas, certain markets in China that foreign companies, not just U.S. companies want to enter, but sometimes the government hasn't fully opened them up yet. People may go like "Oh it's protectionism". But it's not true.
I always try to explain to my friends sometimes you have to look at the timeline of China. In my education, China never opens up any market completely immediately, because it's a big country, with 1.4 billion people. So what I've learned is that China will try maybe in one area opening up a certain market and see if there's any issues, and if there are issues they try to solve them and then they will open the China market up step by step gradually. So I ask my friends to be patient and remain positive.
There are more successes than failures in China-US cooperation: American businessman Menendez
By Xie Wenting and Zhao Juecheng (Global Times)
This year marks the 45th anniversary of the establishment of diplomatic relations between China and the US. Manuel C. Menendez, founder and CEO of MCM Group Holdings, was one of the earliest American businessmen to come to China. He facilitated the establishment of the first China-America joint venture.
Over the last 45 years, Menendez has experienced the ups and downs of China-US relations and the expanding economic and trade cooperation between the two countries. Currently, the development of China-US relations is at a critical juncture. Regarding the future direction of China-US relations and how the two countries can strengthen cooperation, Global Times reporters Xie Wenting and Zhao Juecheng (GT) recently interviewed Menendez to gain his perspective on these and more pertinent questions.
GT: On November 15, 2023, Chinese President Xi Jinping and US President Joe Biden held a meeting at the Filoli Estate in San Francisco, US. How do you view the significance of the meeting and its impact?
Menendez: Without engagement and contact, misunderstandings can arise, leading to misjudgments and trouble for everyone involved. That is why the only way to avoid this is to continue the momentum we have now, especially with President Biden and President Xi meeting together. I am extremely excited and pleased that the two presidents were able to meet. I believe we are now on a better platform for stability. Stability is important.
We had a number of very senior officials who came to China in 2023, including Secretary of State Antony Blinken, Treasury Secretary Janet Yellen, Commerce Secretary Gina Raimondo, and Senator Chuck Schumer who led a delegation of both Republican and Democratic senators. I think the buildup of the number of high-level meetings is critical at this important stage of US-China relations. It sounds simple, but the most important thing is continued talking, continued engagement, and finding common ground. That is because, in reality, on most things, there is a lot of common ground on which we share common views, whether it's climate change, health issues, or coordinating efforts for natural disasters. I believe these actions are very important for the two largest economies in the world.
But the engagement on what are red-line issues or sensitive issues takes time to roll up your sleeves and have a clear understanding. This applies not only to China and the US but to any country that has sensitive issues that need to be discussed. The most important thing about discussing these more sensitive or national security issues is to spend the time to talk about them on a granular level so that there are no misunderstandings.
In terms of business, the business community always appreciates predictability and stability. I am glad that we are currently on this trajectory.
GT: What are your expectations for China-US relations in 2024?
Menendez: We have to keep it stable, so my hope and wish for the New Year is increased contact and stability.
Will there be significant improvements? I think it will be challenging in 2024. As we enter the presidential season in the US, China will inevitably be part of the discussion. However, it is important to remember that political rhetoric does not always reflect reality.
The reality can be different from what is portrayed in the media and political rhetoric. The reality is that the two countries have done an unbelievably wonderful job over the last 45 years. There have been many companies from the US, in particular, those have entered the Chinese market and have done very well. And Chinese companies that have gone to the US have done a marvelous job there. So, there are a lot of actual benefits that have been witnessed when the number one and the number two economies of the world work together, because it not only helps the US and China, but also helped the world by uplifting the global economy when we work together.
So, I think that there are so many success stories versus the negatives of the not successful stories. There are more successes than failures in these countries, especially because of the US-China trade.
China still remains the main anchor because there is one very important characteristic about China that should never be misunderstood: China is not only a world factory, but also a world market. This is due to the emergence of the middle class in China during my lifetime, which is driving consumption. Therefore, the growth of consumption in China is also what drives the US. The US is a consumer-driven country with a strong middle class, and the same phenomenon has occurred in China.
My expectation in the bilateral relations is for better stability and predictability. After 2024, I am very optimistic that the world economy will adjust, as conflicts in certain regions, which I am praying, will be resolved, come to an end. This will allow us a return to a more normalized situation and enhanced relations in 2025.
GT: What efforts can be made to avoid "gray rhino" events in China-US relations in the coming year?
Menendez: I believe that moving forward, it is crucial for us to gain a better understanding of the world we live in today. The world is a little bit different from how it was 40 years ago, with lots of geopolitical dynamics shifting.
If you look at the global economy, the combined GDP of China and the US alone accounts for approximately 45 percent of the world's GDP, which is amazing for just two countries. Therefore, we must not only focus on the development of our own nations but also recognize our greater role and responsibility in ensuring that we address global issues correctly.
We have to find a way that makes both countries comfortable, ensures their voices and concerns are heard, establish a structured approach moving forward, and allows for shared participation on the global platform. Sharing platforms together is a complex issue because it not only requires the consideration of practical, business aspects, but also geopolitical aspects. However, misunderstandings sometimes arise when it comes to geopolitics.
The only way I know of solving those things is through the continual frequency of discussions, not only at the highest level but also at the operational level of governments.
GT: In your opinion, what is the biggest misunderstanding that some Americans have about China?
Menendez: I think one of the common misunderstandings about China is that China is sometimes portrayed as an aggressive country. I've never felt nor seen that.
When I think of China being aggressive, I don't mean it from any other perspective other than being very aggressive in business. However, all countries are very aggressive in business. We all compete with each other, and with our companies and brands, to gain market share wherever it may be, whether it's a German, French, Italian, or American company. We are always competing aggressively.
But when it comes to aggressively expanding outside of China, I think there is a misconception that China will aggressively go after other regions of the world. I don't think that is the case. In my personal experience, China has adhered more to Confucian thinking of a benevolent society and not seeking to expand its footprint outside of China. If you look at Chinese history over the last 5,000 years, it is not even a part of it.
Besides, China is known for being extremely friendly, particularly toward foreigners who come to visit. This aligns with the Confucian thinking that says when people come from afar, you should welcome them and be happy. China has consistently upheld this philosophy of welcoming foreigners, and I think that's still the case.
My motto is world trade creates world peace. World peace and world trade go hand in hand because when people work together, they are less likely to engage in conflict. I wish I could take everyone from the US to China so that they could see China. And I wish I could take everyone from China to the US because, at the people-to-people level, the people of both countries are very nice and good people.
The one higher purpose of the relationship we should never undervalue is a strong China and a strong US working together. This collaboration not only creates prosperity in both countries but also fosters prosperity in the world and promotes world peace.
GT: There is a growing voice in the US, calling for the so-called de-coupling or de-risking from China, especially in the high-tech arena. What's your take on it?
Menendez: I think that everything in high tech is not a matter of national security. You have to know where the line is. This is what I mean by engagement and talk. Every chip that is manufactured is not a high security or high national security chip as we use chips in various everyday appliances such as washing machines and cars. Almost every modern appliance, including basic ones, incorporates chips. Hence, as I mentioned before, engaging in dialogue and ensuring a clear understanding of the boundaries between our countries is extremely important.
We need to understand each other's sensitivities and have open discussions while maintaining mutual respect. We may not always agree on everything, but we should at least try to understand the reasons behind our disagreements. This way, we can find solutions to have a path forward.
Due to the COVID-19 pandemic, some companies have identified certain flaws in their product delivery to customers. As a result, companies, particularly in the US, have a responsibility to ensure efficient product delivery. Therefore, they have relocated parts of their supply chain. But I am yet to hear of any big-scale companies that have left the Chinese market. They continue to operate in China. They have partly moved some production, maybe to Vietnam or other parts of the world, and maybe a little bit to India, to enhance the resilience of the supply chain.
But China still remains the main anchor because there is one very important characteristic about China that should never be misunderstood: China is not only a world factory but also a world market. This is due to the emergence of the middle class in China during my lifetime, which is driving consumption.
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Germany launches 11th-hour bid to avert trade war with China
By Camille Gijs, Jordyn Dahl, Antonia Zimmermann, Hans Von Der Burchard and Jakob Hanke Vela (Politico)
Germany wants the EU to set tariffs on electric vehicles at a low level to avoid severe retaliation from Beijing. Germany has launched an 11th-hour bid to avert a full-scale trade war between Europe and China, resisting French calls to hit Chinese electric vehicles with punitive duties.
With a decision by the European Commission imminent, both Paris and Berlin have ramped up their lobbying efforts — with conflicting messages on just how tough Ursula von der Leyen’s executive should get on Beijing.
The EU executive is expected to inform Chinese EV-makers on Wednesday of temporary duties resulting from its probe into unfair state subsidies. EU member countries would then vote this fall to confirm the duties — making it vital for von der Leyen to pitch them at a level that the bloc’s two heavyweights can live with.
The atmospherics around the announcement are fraught: Chancellor Olaf Scholz and President Emmanuel Macron both suffered heavy defeats in Sunday's European election. The French leader responded by calling a risky general election. Now, von der Leyen needs their support to secure a second term as Commission president.
For all the talk of an evidence-based solution that is compliant with global trade rules, it is “a political decision,” admitted one Commission official.
“It will be decided at the highest level, by the von der Leyen cabinet,” added the official, who was granted anonymity due to the sensitivity of the matter.
Another Commission official confirmed that the announcement was expected on Wednesday.
The EU now charges a 10 percent tariff on all car imports — below China’s 15 percent. Realizing that it won’t be able to avert the tariffs, Berlin is now pushing to keep them as low as possible, ideally on a reciprocal level that China also imposes on the EU — meaning 15 percent.
Two months after Scholz was widely seen to have kowtowed to Beijing, German Economy Minister Robert Habeck is expected to head to China next week on a further damage-control mission.
Paris lobbied hard for the probe, which was announced by von der Leyen in her set-piece annual address last fall. And, despite Beijing’s threat to hit back at French cognac makers in an anti-dumping investigation, Paris wants much higher duties on Chinese EVs.
“Something around 20-30 percent would give European manufacturers some breathing space to accelerate their investments in the sector and maintain their market share in Europe,” Elvire Fabry, senior research fellow at the Jacques Delors Institute in Paris, said.
A French official resisted the suggestion that the decision was political.
“This is an objective investigation by the Commission. It is not a political negotiation,” the official said.
The weakest link
A decision on the Chinese EV duties was held back until after the European election, but under the strict timelines of EU trade investigations it can’t be delayed further.
The centrifugal forces at play as the EU negotiates its post-election transition will be welcomed in Beijing, which has long sought to prise EU countries away from Brussels.
“As long as individual member states are kind of played off each other like that, that is very much in Beijing’s interest and suits their interests more than European interest writ large,” Jacob Gunter, a lead analyst at China-focused think tank MERICS, said.
China has already warned it would target the EU’s agriculture and aviation sectors — two sensitive industries that France would be eager to shield. Should Beijing hit back, it wouldn’t be good news domestically for Macron, whose centrist alliance was obliterated by a resurgent far right in the European election.
Berlin may well be trying to avoid exactly that kind of tough retaliation. But its push for a mirroring tariff “undermines the legitimacy of the entire endeavor,” warned Niclas Poitiers, economist at Brussels-based think tank Bruegel.
Germany’s position was “problematic,” he said: While big German automakers still entertain good ties with Beijing, that’s not necessarily the case for smaller businesses, meaning “the German economy as a whole has an interest in a more assertive policy towards China.”
Over the past decade, BMW, Audi and Mercedes-Benz have sold 19.2 million cars in China, making up 30 to 40 percent of each automaker’s global sales, according to data from Schmidt Automotive Research.
Yet even the highest rumored duty — 25 percent — would not be enough to deter Chinese brands thanks to their huge cost and technology advantages. Chinese EV sales into Europe grew by 23 percent, to nearly 120,000 units, in the first four months of this year.
“They can lower their prices and continue to be competitive. We’ve seen that happen in France already,” Matthias Schmidt, a European auto analyst, said.
NB: Camille Gijs, Jordyn Dahl, Antonia Zimmermann and Jakob Hanke reported from Brussels. Hans von der Burchard reported from Berlin. Koen Verhelst and Stuart Lau contributed reporting from Brussels.