Susan Shirk Interview (2007): Conversations with History: Institute of International Studies, UC Berkeley
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Let's talk a little about the United States and Chinese relations. Since you were in government there is a much greater degree of codependency now as a result of the state of the American economy. Let me pull out some of the statistics that you quote in your book. The U.S. is China's largest overseas market and second-largest source of its foreign direct investment on a cumulative basis. Positive? 60,000 Chinese students study in the U.S. every year. The Chinese are now loaning us $250 billion a year, our trade deficit with them is approximately $200 billion, they have one trillion dollars in reserves and 70 percent to 80 percent of that is in U.S. government bonds. So, there is codependency underlined here, and it affects what we can ask of them, although we continue to ask a lot. So, talk a little about our vulnerability, as these two countries move forward into the future.
Basically, we have an interest, just as China's leaders have an interest, in the Chinese economy continuing to grow and to be stable. A domestic crisis in China, a crash in China, would not be good for the United States. Zhu Rongji, the former premier, gave a speech around 2000 at a university and students asked him, "What is the biggest threat to China in U.S. - China relations?" [He replied,] "A downturn in the U.S. economy." So, they have an interest in our economy remaining strong.
This bilateral trade deficit is really so conspicuous, it's the biggest trade gap that we've ever had with any country, much bigger now than any we ever had with Japan. Somehow it looks like China is exploiting us, but it's actually much more complicated than that. One of the things that people say is that the competition from China is destroying American jobs. This is the outsourcing issue. The fact of the matter is that the manufacturing sector in the United States has been shrinking, way before China was a factor, and it's just a structural change in the U.S. economy.
The second thing is the trade gap. Actually, our trade balance with Asia has remained roughly the same for a long period of time. What's happening is the Japanese companies, South Korean companies, Southeast Asian companies, Taiwanese companies, and American companies are using China as a production base. So, most of those exports from China to the United States are actually foreign companies, so our trade gap with Taiwan, or South Korea, or Japan has shrunk but the trade gap with China has gotten bigger. So actually, the deficit is very explicable, and I try to make it simple so that people can understand it.
And also, parts of the American economy are extracting a lot of wealth from China in the sense that the percentage of the money that's going to American companies is rather large. I think you use the example of the Barbie doll, namely a big percentage of that income is going to American companies. Right?
That's right. But the thing we have to realize is over time a larger and larger share of those exports is going to be Chinese companies, because they are upgrading their technologies, they're moving up from labor-intensive light manufacturing to more technology goods, electronics, and they are going to be Chinese companies. So, that's a trend that we should expect. I'll tell you when we're going to have real trouble is [when] the Chinese automobile industry [gets going]. China is going to start exporting automobiles to Europe and the United States. It's going to be more like those trade conflicts we had with Japan, because we're going to be head on head competing in the future.
One reads in the newspaper that the Secretary of the Treasury goes to China, members of the Congress go to China, to demand that there's a revaluation. You point out that [vis-à-vis] their domestic concerns, they don't want the currency to float, because import pressure on the prices of agricultural goods could spark peasant rebellion; a drop in manufacturing exports would increase unemployment; and the pressure on the shaky financial system could cause a mass run on the banks. So, this is really complicated.
For them it's very complicated, and of course, when we make a lot of noise
about raising the value of their currency, and say they're manipulating their
currency, then that foreign pressure makes it very hard for Chinese leaders
to do what we're asking, because domestically they'll look weak. I've done
a lot of talking to people, senior economic and financial officials in China.
They actually don't know what the consequences will be. They're worried about
it. They are worried that the farmers will be put under real pressure and
that they'll get more demonstrations in the countryside, as well as in the
city. 
So,
as I point out, keeping power at home is the most important thing, which is
true, frankly, in every country, but in democracies it's just a matter of
winning the next election. In China it's maintaining Communist Party rule.
By the way, let me show your book again.
Nice cover. I like the cover.
Yeah, it's a beautiful cover, actually. So, let's go back to this role that you had in Washington and then the purpose of your book, because what you really want to do here is make people here, policy makers, the public, sensitive to these constraints on China, even as you point out the problems in some of China's own domestic situation. Is that fair?
Yes, but I want to make clear that it doesn't mean, "Let's be gentle with China."
Right. So, talk a little ...
Let's be smart. Let's be smart. Madeleine Albright taught me you can never get anywhere diplomatically unless you can put yourself in the shoes of that other guy sitting across the table from you. I think we need to put ourselves in the place of China's leaders and then be smart about our policy. So, first of all, we need to realize that everything we say and do is going to resonate inside Chinese domestic politics. I do think we need to remain strong, not economically strong, of course, because we're going to need to compete effectively, but also militarily strong, because when China's leaders are in a crisis regarding Taiwan or regarding Japan and they're feeling a lot of domestic pressure to make a threat that they can't back down from, say, I want them to look out across the Pacific and see a strong American military, so they know they can't act out in order to look strong at home, that there's real risk to provoking the United States. So, I care about being strong but what I advise against is chest thumping.
Or building up our alliance with the Japanese military.
Yes, here's where I do think the Bush administration has not done a bad job. I'm a Democrat but I'm not very critical of the Bush administration in its policy toward China. I think that we've gone a little overboard in encouraging Japan to build up its military capabilities and strengthening our military alliance with Japan in a very vocal, chest-thumping way. I'm in favor of a strong Japan but I don't think if you throw it in the face of China's leaders and China's public. We didn't have much chance today to talk about this anti-Japanese nationalism but it's the most virulent force in China.
And that's a result of history and it's a result of nationalism at home, and so on.
This patriotic education campaign, and the textbooks... I'm happy about Chinese textbooks. Chinese complain about the Japanese textbooks. Chinese textbooks, especially in regard to how they depict Japan -- they have very little on postwar Japan. It's all about terrible wartime oppression and how Japan stole Taiwan, and all this stuff. So, anti-Japanese sentiment is very widespread.
Unfortunately, the train has probably left the station and in Japan there is a lot of support for building up Japanese military power now, but I don't think the United States should be encouraging it in the same kind of loud way as we have during the Bush administration.
This book is an effort to build a dialogue on a new level between the U.S. and China, creating a situation where at least the American side understands China better. If you stand between the two countries, what advice would you [give] that you think is very important for the Chinese in terms of changing their behavior, and also for the United States?
I do give advice to the Chinese leaders, too. I'm very free with my advice. I'll give it to Washington, I'll give it to Beijing, and I hope the Chinese leaders will read it ...
Zhou Enlai said maybe you would be the future President!*
Well, anyway, I think one thing they should do is definitely try to cool off this anti-Japanese nationalism. It's tricky because any step they make will be criticized at home for being too soft on Japan. But let's at least educate future generations to have a more balanced view of Japan. Let's revise the textbooks, let's stop celebrating annually these battles in which China was humiliated by Japanese soldiers. I think you could do quite a lot to try to reduce this anti-Japanese nationalism. Every time I say this on a blog or something, Chinese come after me, and not -- by the way, I'm not blaming it entirely on the actions of the Chinese government because plenty of Chinese who live outside China feel much the same, but not quite as intensely as people living in China.
The other thing I'm suggesting to China is that I think they should give private businesspeople and provincial officials more of a voice in foreign policy. One thing that worries me is that decisions about war and peace are being made primarily by Party leaders and the military. We need some counterweight there of people who really want to maintain the peace.
What about the United States? Any advice for the United States, other than read your book?
American politicians try to win points at home by looking tough on China,
right? China's a good foil because we expect our leaders to look tough and
strong in the face of outside threats, just as Chinese expect their leaders
to do, because we're both big powers. Often I'm aware of how much we and China
are alike in this respect. Politicians should be cautious, though. They need
to be statesmen as well as politicians, and recognize that taking cheap shots
at China and trying to rhetorically go after China is going to resonate within
Chinese. Chinese folks are going to know about it because they have the information
now, and
that forces Chinese leaders to react, and it's counterproductive. So, don't
chest thump, but remain strong.
Susan, on that hopeful note, if both sides follow your advice, let me show your book one more time, an excellent sort of background for people who want to keep informed about this very important relationship that we have with China, and also not just for scholars. We're talking about the general public and policy makers.
Yes, I wrote this for the general audience, and it was great to write and tell stories and eliminate all that social science jargon. What makes me happiest is when I get a review about how readable it is.
Yes. And that it definitely is. So, thank you very much for coming back to Berkeley and talking about your book.
Thanks. I enjoyed it, Harry.
And thank you very much for joining us for this Conversation with History.
* See page 2 of the 2001 interview with Susan Shirk, "China and the United States," for this story on Zhou Enlai's endorsement of Susan Shirk for President.
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