service said publicly that they felt they were under attack. it clearly can be said you could draw a line from what they did to the draft ending in 73 -- >> sunday on c-span q&a at 8:00 p.m. eastern. c-span where history unfolds daily. in 1979, c-span was created as a public service by america's public cable television company. today, we continue to bring you unfiltered coverage of congress, the white house, the supreme court, public policy events in washington, d.c. and around the country. c-span is brought to you by your cable or satellite provider. the peterson institute for international economics and the china finance 40 forum hosted a

discussion about the u.s. china economic relationship with a panel of american and chinese analysts. this is an hour and 15 minutes. as many of you know, it is a challenge in every country to set up and independent think tank and to have independent serious voices outside of the

government. think tank as well as and we just completed one month ago our seventh annual conference jointly with beijing. they have become our preferred partner in china and they remain a source of truly independent thinking. we are delighted to have them here with us and we are going

to be presenting the result of the joint report that we did on this issue of u.s./china economic relations. several authors from pie and cf 40. to be clear this is not the joint report in the sense that you sometimes see where everybody has to sign off and get one document and where frankly usually it says nothing. the g7 communiqui managed to avoid that fate because they did not have everybody sign off on it apparently. but anyway, we have a lot of common themes and approaches, but no one unified message except that there has to be a much more constructive approach to u.s./china economic relations than the one the trump administration is pursuing. we are delighted to have with

us today the secretary-general of cf 40. just to remind people this is completely on the record. we are web streaming it live and we have the benefit of a number of cameras here which we are grateful for the coverage all of the papers for the joint report as well as the specific presentations today are now available on the peterson institute website and the cf 40 website. our first panel will be on china, u.s. trade tensions. my colleague at cf 40 who like me try to summarize and pull over the themes will also speak and our original senior fellow chad will present his latest thinking on how the u.s. can work together with other countries to deal with china conflicts. he importantly gave

testimony on this to the china economic commission to the u.s. recently. after a brief lunch break we will have the second panel on the issue of financial opening where we of course have spent so much time and the ed from china for the imf will be speaking along with nicholas lardy here at the institute. one tell was the first fellow at cf 40 and a former high official will be speaking. let me ask them to make an opening remark. >> okay thank you very much. for your introduction. ladies and gentlemen good morning. it is a great honor to

join you here today. this is the seventh year of the collaboration between p.i.e. and cf 40. it has been our model for between the two countries. cf 40 is the leading professional in china. we began from a platform that is around 40 years old. then we created p.i.e. and had an economic form for

financial openings. at that time we also realized the risk of the companies. so in the research topic we focused on the trade. in the last month we had a report in beijing and items are tested from all fields in china. today i feel adam has operated

the temp so this item brings us your resource. thank you. >>'s thank you for the kind words. we don't usually introduce each other and go back and forth. there are certain things we learned from the party in china that were very helpful. so in part with all of our colleagues on both sides involved i try to distill down 10 economic truths toward resolving u.s. china trade conflict >> reporter: i actually wrote down the list and then after that realized it was 10. maybe i was divinely inspired. essentially our premise going in

was that there is an economic reality that should be guiding u.s./china relations on the empirical based communists -- economist both in washington and beijing wanted to get us back to that but this becomes even more pressing when we have seen the basic failure and self- defeating nature of the approach the trump administration seems to be trickling down on at the moment. this is not an economically rational behavior. it does not even make sense as a negotiating tactic. i think that has become apparent. so if at some point the members of congress and senate in the u.s. wake up and reassert their control over trade, which they have a legal right to do we are hopeful that these are the kinds of things that will keep in mind going forward. so this is a joint statement of

what i'm going to call reality- based economists from china and the u.s. when we came together reality-based was not so much an attack on anyone party but the fact that we are empiricists in the real world and not theoretical economists. i want to be clear we are not saying economic peace at any price. peter navarro the presidents trade advisor made a number of statements in the last 48 hours and possibly some in the last 48 minutes that struck the national security and warlike tone with regard to economic matters. we are not pacifists. neither us on the u.s. side nor the colleagues on the chinese side. there are disputes worth having a discussion. there is a bizarre incorrect telling in the world that there is a problem that is so large right now. the millions of people -- it is not solely

about whether americans get rich. moreover if you escalate the conflict further from where we are now there are real costs along the economic growth to financial stability. it is not worth it. the path we are on is just not worth it. there is also an economic dispute that has to be addressed. this is not just test standard not. there are some genuine disputes i want to emphasize neither the bullying or threats as a matter of tactic nor the u.s. government and trump administration getting bought off with some kind of purchase agreements for selected industry nor the skin that they seem to be plantar trying to --

play in trying to force as much home as they can. none of that will serve the u.s. economy and none of that will resolve true underlying dispute between china and the u.s. the real issue underlying everything is growth in both country. don't make it worse by blaming trade. we have a situation in the u.s. where along with all the other economies we have seen a magnificently large slowdown in product growth. i say magnificently not because it is good but to make you aware it is very significant. in china the chinese government has recognized that it is partly for ketchup reasons. if we blame trade for our problems it will get worse rather than better. we have to acknowledge that this is not about subdividing a shrinking pie it's about making the choices for the things that

we have. the unilateral approach is already proving self-defeating and already harming growth. we can see the fact that even if you are national security type scared of china that the u.s. is now using tesco losing allies left and right. that is an area where reformers in china have an interest in being an accommodationist and an area where governments in europe and japan and canada have an interest in collaborating on this is being thrown away. in terms of harming growth we can see that a tax cut bill which has done almost nothing to promote investment in reality in recent months desk a part of the reason for that is there is so much certainty with what is happening to the supply-chain and cross-border investment and the ability of the american

companies to make decisions on a market rather than a political basis. the trump administration approaches already self- defeating. it is time to stop it. third, those economic disputes that can be addressed using the wto and other multilateral mechanisms should be addressed using as mechanisms they believe apparently that the wto is an incursion on u.s. sovereignty and a biased way to get into the u.s. they believe that the u.s. has become a sucker to china and others. there is a real issue here as my colleague chad and others have written about about china's market economy status whether or not it should be granted that in fair terms. there are other issues at work. but in those areas where wto disputes the settlement as applicable china has obeyed

almost all of the decisions with the notable exception regarding to union pay and payment systems. for the most part it is the most efficient and fair and legitimate way to deal with issues that are in the agreement. it is in both the u.s. and china's interest to have a go forward. fourth and perhaps the most important point and chad will pick up on this. some current real disputes such as technology transfer and intellectual property cannot be resolved without stretching it. new agreements must be reached. just like in issues of other areas like slave trade and trade in illegal goods and chemical weapons and environmental damage and cross- border refugees if you try to get a problem stopped by yelling at another country and saying to them you must fix this problem nothing happens.

the only way you get around these issues is to create a mutually agreeable machine tesco that does not have leakage and involves multilateral standards and has verifiable and observable conditions. this is what she -- what we should be looking at for mutual respect. importantly the fact that china is more advanced in working its way up the international value chain means there is more common between china, the u.s. and the other advanced economies, not less. there is more competition sector by sector but there is a greater interest in than ever in china. they have the proper supply chains and increasingly it will not be a low-wage radio producer.

it will be a developer of intellectual properties. >> bilateral trade deficits are not reasonable or useful. my colleague wrote a very good piece on this some months ago in the context of nafta and many others have waited. with this audience i will not belabor it because there's only so many times he can explain if an apple falls from a tree it falls down. the more important point is .6. the agreement should cover commercial and governmental behavior not economic out cropping. if we are moving into a role spaced system and people are doing things we do not like you don't assess it by what happens. you assess it by what they are trying to there. there is a very big difference

in whether you are trespassing because you happen to wander across the line or whether you go in with intent to break into somebody's house. we have seen this very effectively in the area of currency were my colleagues have played a huge contribution with the encouragement from me and others at the institute that the focus should not be on what is the level of the trade, the focus is on whether or not you are manipulating the exchange rate. similarly the focus should not be on what is the state of the bilateral trade relationship in terms of bilateral balance are specific industry, the focus should be on are you doing unfair subsidy or stealing ip. you have to shift the discussion in that direction. seven, where china wants to open this economy subject to

verifiable roles and not just empty statements it will benefit both china and the united states. my colleague in his next presentation will talk about some of these issues as well as help present some of the issues china has with the u.s. but the key point is we saw it in mexico and japan and we see it in country after country and we sought in china in the past. when china wants to reform and when their leadership wants to reform making international commitments is the biggest way it can advance its agenda. it creates competitive pressure. it will have some cost for some people but you get something for it. you get something profound for. there should be win-win deals for the u.s. and china that they should be able to agree on where china wants opening for its own reasons and that should help the u.s. as well. eight by the same token chinese

companies have a right to compete with u.s. companies and's desk and succeed in any sector. they do not have an entitlement to u.s. technology. some of that will sound like code to you so let me so -- spell it out. there is great distress around the world of the made in china policy. there's a lot of reason to worry about it and a lot of reason not to worry about it. it is unreasonable for the u.s. or any country to view another country trying to compete in an industry per se as being a threat. china must be allowed to develop in whatever industries it is capable of doing fairly.

of course people in the trump administration will say that is all they want but that is not really what they are saying. they are saying it is inherently a threat if china wants to be a leader in this or that industry. let's be clear the u.s. has made proclamations of that sort in various times as well. there is nothing inherently evil about a company aspiring to be a leader in it tech industry. there is a point where i think me and my colleagues would like to push back on some of the chinese government. that there is the sense of entitlement. if the u.s. has a high-tech industry as a particular technology or japan does china should be able to get it. that is not how the world works. that is not how the world should work if you want

continuing innovation and fair treatment of business. china does not get to say why don't you give us that technology. that is not how it works. the united states should not try to block china's increasing role in economic government. the trump administration should not withdraw from the institution since president spread -- previous presidents have entered. joking aside the key point is the first one. as a number of us at this institute have been arguing for over a decade china is a reality it is huge in economic terms of population terms and the world does not need to be run among the small cautery of people in brussels and new york and washington. the world needs to be run from other parts of the world.

governance has to shift to allow that. we saw the folly of trying to impose creations by the previous administration. we all spoke publicly in this room against the folly of trying to oppose that not because we want to undercut the system but because of china which is to get out there and do something constructive it should be allowed to do so. similarly they deserve much better from the u.s. in terms of review for funding as our colleague has argued several time. there's a whole host of areas and of course questions of government. the bottom line is that the u.s. should welcome china in subject to china playing by the rules. what has happened is the u.s. has not given china a chance to play by the rules and tried to

block their ascension. finally if we can ever get out of the current context extent of the cross-border direct investments should play a role in improving economic relations over the long-term. there are people in this room that will remember the attempt to negotiate a bilateral investment treaty between the u.s. and china at the end of the last presidency. in the u.s. and it failed the effort and probably rightly because my understanding is the chinese negative list was unbounded belong. nonetheless as studies have shown repeatedly and with respect to china the best way to integrate economies in any way if there cross-border to a direct investments. this has economic benefits in terms of transferred expertise.

this has direct job benefits for creating new jobs. this has a political benefit as we saw from japan's investment in the u.s. following the trade difficulties in the 80s and early 90s. were not going to turn around and do a bit tomorrow but those responsible parties on both sides of the pacific should be realizing that is the goal we should be moving toward in the future. thank you very much. >> thank you very much. my colleague will now come up. [applause] >> good morning everyone.

my presentation consists of some of the takeaways from the articles that were contributed to the joint report. i will not try to be exhaustive but i will focus on the causes of the trade friction and possible impact on the major economies. my colleague professor lou highlighted a few practices that he thinks these are the background behind china and u.s. trade friction. one is the relative change in the power of the two economies china grew in the past half- century accelerated growth from

to almost 10% desk from around six to almost 10%. also during the same time the u.s. economic growth slowed to around 2% in the past 20 years on average. as a result china's contribution to global growth surpassed the u.s. by a very wide margin. so that is number one. there are a few other backgrounds. one is the difference in the economic systems between the u.s. and china. the china ice desk chinese economy is still quite relying on smes.

the third adam also mentioned that the made in china 2025 program sort of makes it easy for some politicians in the u.s.. personally i think that this made in china 2025 initiative is just a very vague objective china is trying to achieve and i do not think we should read too much into it. it is a document issued and mainly prepared by one single ministry you can also see the state council endorse this initiative of course the trade friction between the two countries should be understood.

in the broader context for the u.s. national security strategy making china a strategic competitor and several u.s. documents also made the same definition for china in contrast to the previous definition of china to the u.s. of course, the u.s. has its own issues. the u.s. will have a midterm election coming soon so politicians need to do something in order to win the election. within the administration there are personnel changes. you know that better than i do. it turns out that the hardliners are now taking more

important positions whereas the pro-trade officials either left voluntarily or involuntarily. so now let me focus on the factors for the process of trade imbalance between china and the u.s. if you look at the overall balance of payment that is one person desk -- that is 1.4% of the gdp from last year. on a bilateral basis china's trade surplus of the overall trade deficit. this is greater -- the largest partners combined. mexico is number two malaysia is number nine but all of these

account for 44% of the u.s. trade deficit. politicians will definitely pick up china to reduce the surplus against me. i think there are a number of factors behind the bilateral trade imbalances. also the u.s. overall trade imbalance. one is the role of a dollar. this shows that before 1971 the u.s. did not have much trade deficit. after the one from gold for the u.s. monitoring policy was no longer constrained by the pack. we end up seeing trade deficits in the subsequent years. in some years we have various

-- those who had a surplus were very much willing to invest for the market. this is another round of the recycling of the dolly that made the u.s. more able to have trade deficits. the second factor is the so- called status of the chinese economy particularly since china joined in 2000 when they imported a lot of intermediate from other countries. that produces a final consumer goods to be exported in the u.s. . as a result china has a lot of trade deficit. with respect to those countries like korea, and australia. this is the reason why china

has a huge surplus against the u.s. but overall it is pretty much balance. then there is the savings rate. china has a huge savings rate. it is now still around 25 to 30%. that is probably the highest in the world. if you add corporate and government savings it is now 45% compared to the high teens in the u.s. and uk. that is probably why the u.s. and uk always have trade deficits because china and countries like singapore and japan and hong kong seem to enjoy the huge trade surplus.

that it go down amongst the population aging. it is a matter of time that it will be part of the trade deficit. china exports a lot of consumer goods to the u.s. cell phones and furniture and clothing and toys the good news is that these products probably do not include much of the major exports. so the impact on employment because these are mainly labor- intensive so the impact on employment as of now looks like it is still manageable.

if you are interested in a qualitative assessment of the possible tariff on china i provide some estimates. that 25% tariff on the us$50 billion chinese goods do not seem to have a very big impact estimated at .1% of gdp. if trade friction escalates so that china's export growth changes sharply say by us$100 billion than it could have a much more significant impact on the chinese economy. china could still grow 5 to 6%.

i tend to be looking forward to a better scenario in which those countries will not impose sanctions against each other and china will further expand its demand by importing more products but at the same time by opening up service to the u.s. in this scenario the impact will be very small or even nil. the question is just china have the capacity to increase imports from the u.s. my answer is yes. if you look at the consumption and china's gdp it is probably the lowest of the major economies in the world. at only 39% household

consumption in relation to gdp this is much lower than the 69% in the u.s. even compared to developing countries like india we have 59%. also china's imports of consumer goods in relation to gdp is way below major economies. no matter if you compared with developed countries are developing countries that is the second. okay three minutes. i think i need to so china does have a huge room to increase imports from the u.s., particularly consumer goods. agricultural products and energy products and actually a lot of chinese tourists when they visit the u.s. or europe or hong kong they purchase a lot of goods. they spend like 25% of their travel budget on shopping compared to 15% by other

countries. given that i have only two minutes i think i need to talk about this. i think china's imports of technology products and china's receipt of direct investment are the two important drivers behind the chinese economy. a simple progression shows that these two factors have significant contribution to china and that is very significant. there are negative contributors to china's economic growth. i think imports of technology products and sbir the most important practice behind china's growth. china also imports a lot of

products from the u.s. but they mainly focus on machinery and automobile aircraft and sporting. it is not surprising when china announced some retaliatory policies. it tends to focus on these sectors. i think from the macroeconomics perspective if the trade were escalates china's retaliatory policy could impact u.s. inflation. and actually inflation in the u.s. is already on the rise due to many domestic factors but it will further increase inflation and could prompt the fed to increase interest rates at a pace that is fact -- faster than many market participants envision.

that may not be helpful for the u.s. economy, particularly for the stock market. it will hurt economic growth and financial stability as well. thank you very much. [applause] >> thank you very much. i forgot to tell you our speaker was only 15 minutes. the next speaker is coming up now. >> thank you for the opportunity to be here. the title of my talk is using the wto today and adapting it for tomorrow. what i will really try to do in this piece is to talk about state owned enterprises. as adam indicated this is one of the areas of particular

conflict at the moment between china and the united states but it is one of many but i think it provides a useful lens for helping to walk us through whether current set of policy tools for the united states in particular has not worked. the issue nevertheless is not going away and why some new longer-term and more cooperative and systemic approaches are needed. so basically i will do four things. i will focus on why and when and when not it is concerned to advanced economies like the united states. why the current approach doesn't work and a two-pronged approach to fix it so within the wto what we can do today and how it needs to be adapted for the future. so the first is just to make the point that state owned enterprises are not going away. the first decade or so after

china's entry into the world trade organization was obviously a period of tremendous growth there was continued reform of the chinese economy. mccauley has documented extensively how the role of the private sector grew enormously as a share of industrial output , exports and all the major contributors to china success during that period. nevertheless the role of the state and china's economy did not entirely go away. it transformed a bit and in the. since 2013 in particular we have seen a bit of a resurgence of the state in economic activity. it is clear that it is just a feature that we are going to have to address. we will need to think through how and why it matters for trading partners like the united states and to think about adapting the existing system to recognize that. so why my it matter?

i've listed four points up there to why i think it might matter and for certain industries or sectors it is something for us to keep an eye on. the first is when there are global shocks. so think of a negative demand shock out there in the world that should affect all suppliers around the world equally. if the chinese system does not accommodate that because they refused to lay off workers or allow for bankruptcies in a sense we have some evidence in the united states during the last 10 years that adjustments in labor markets in the united states and communities due to shock have been particularly costly and that would mean that china is not bearing its bare share of the cost. this is a reason why we need to be thinking about this as

potentially allowing our systems to coexist. second there may be instances and with particular industries you think about strategic in the economic sense where there is a high fixed cost. there's very few of those types of industry. with very few firms allowing for internet incident -- enterprises can lead to strategic behavior a profit shifty behavior that might give a firm in one country an unfair advantage of firms in another. you might also be concerned about the global concentration of activity in a particular sector occurring only in one country especially like examples of when china has market power. when it is the global supplier of rare earth metals or raw materials they will exert market power.

that is something we may need to be concerned about as well as well as the potential for global efficiency losses if too much is being concentrated in market. this is just stuff that the w to needs to accommodate. i just want to say how the existing approach has not worked. i think folks are too dismissive to say we will use existing tools. i will try to make the case that they have contributed to the problem. i will use the example of steel to put us through that. will think of solar panels so it is really just representative pick of the steel industry in the united states has received protection from imports for decades. it is under a variety of different tools. this is just showing the data for antidumping and countervailing duties and safeguards in those types of instruments. this is through 2017 so this is

before the national security tariffs that were just imposed. what you can see is this is the share of u.s. imports from china and from non-china, the rest of the world each year it is covered by those types of import restrictions. by 2009 80% of u.s. imports from china had been stopped because of those sorts of policies. by the end of 2000 1795%. these tools have basically stopped the imports from coming into the market but they do not address the underlying issue. so what you see happen is in the. since 2015 or so you start to see the united states expanding the use of these trade restrictions beyond china to other trading partners like europe, brazil, japan, korea. it essentially has properties that are commoditized. stopping the imports from

coming into the united states does not stop the experts from going to a third market. when the exports go into third market that squeezes other producers out of those markets and into the very attractive u.s. market that has higher prices because of equal restrictions in place. they do not tackle the underlying problem. the restriction start to expand on other countries as well first through antidumping or what we have seen recently with the use of the national security tariffs. we have seen it for steel and aluminum and for solar panels like was on section 201. what has happened is china's growth has slowed which is a natural phenomenon. they are now exporting a greater share there for dashed -- of their production. they move into downstream products and then the u.s. application of import tariffs on third countries exacerbates the problem with countries that

haven't contributed to overcapacity now the sudden the united states is targeting the economic allies in the sense of being more market oriented and having the same sort of concerns that you -- that the united states does with state owned enterprises and those sorts of activities. same story with the lemon am i will just work us through there. the main point here is that the policy approach to date has not worked. doubling down on it whether it is antidumping or enforcement or utilizing the market situation none of these things are going to work to get to the underlying issue. studies enterprises are not going away. we have to accept them as a reality. we need to think about accommodating the system to address them. how are we going to do it. here is my new approach. you will see that it will look

a lot like other approaches that have been used or proposed in other contexts in the past so there will be a lot to build from that we have already done but that would be beneficial to heading us down this path. the two-pronged approach will be double faceted obviously. one is to work within the system to develop new roles and the second is to use the existing dispute settlement features to take on the programs that exist where there are roles in place to do so. i will argue that this will be useful for a lot of reasons. one as that might shed light on where current rules are insufficient. it will incentivize the creation of new roles and china's participation in the process to the extent that we have been concerned about china's failure to engage in

negotiations constructively. this is a moment where we could get that to change. where should we start when we are thinking about new roles for state owned enterprises? if we go and look around at a lot of initiatives on the free trade agreement that has been proposed in recent years for the united states the transpacific partnership agreement has estate owned enterprise chapter. i will put that up in a moment. they were all proposals for state owned enterprises. the oecd program on state owned enterprises has been tasked already with developing this overcapacity for them to deal with steel. at the g7 readout that came out over the weekend there was acknowledgment of this issue also applied to aluminum and other high-tech sector so there is seemingly an engagement to get on and

address this issue. finally the european commission has been dealing with these roles with concerns raised by six differing levels of enterprises for decades. there's lots of institutional materials and experience that we can draw on. if you do not remember the agreement it is there. we can go back and read it and learn from it. what are the critical features of these chapters that we can build from. obviously transparency is a big concern with the chinese approach of having government officials and communist party officials potentially sitting on the boards of companies. directly and indirectly promoting certain nonmarket oriented behavior. we need to understand if there's going to be an si we in each know what they are. it may be that they are worried

about employment concerns are that they are servicing underserved populations that they may have non-profit market motives but you have to understand them to evaluate the behavior. these agreements have principles that guide the behavior. finally this will need to be a fort -- enforceable so we will need to stick it into agreements that mean the roles get abided by. now could this happen immediately? probably not. the trump administration has triggered a bit of a crisis in geneva along a number of different dimensions. there holding up appellate body judges. the rhetoric in terms of the appellate body and jurisprudence has delegitimized a number of rulings and sort of threatened the independence of the organization and then the

policy decision set up and taken so far and the potential tariffs on automobiles and the section 301 investigation. all of these things are working at the outer limits of the roles. trading partners have filed disputes but equally concerning is that they are engaging in retaliation or rebalancing especially in the context of steel and aluminum that is in and of itself pushing at the boundaries of acceptable behavior. it is not as if they are not already under stress. with that being said let's put it under more stress. how will we do so. i would propose in addition to this set of negotiations for roles on state owned

enterprises and again here i do not necessarily have a single undertaking approach in mind. i think you can do this as a group of states. i think negotiating this with china would be important. at the same time filing a set of wto disputes against china on this issue state owned enterprises and subsidies in conjunction with one of the other critical issues that adam identified which is intellectual property and technology transfer and investment restriction all of these should be put on the table. it would put stress on the wto system but it is already under stress. it is sort of at a make or break moment right now. even where we don't think that there are clear roles within the wto i would argue that there is a clause in there where you are allowed to bring these complaints under article 23.

i think this process would be useful also from china's perspective. it not only puts a spotlight on the concerns that the united states and europe and other countries have with what is going on in china but it would help china understand specifically what the concerns are so that when negotiations take place for new roles that better understand the perspective of the other side. and then two things. negotiate a plural lateral agreement what would that look like critical mass of countries but i would argue include china in the negotiations relatively early on. what is the strategy there? i think china would be incentivized to participate because it has this potential of a dispute action out there hanging over its head. if you are not at the table

negotiated in good faith and engaged cooperatively in this the rest of the membership could get authorized retaliation. have a seen examples of this i would argue yes. we have seen is back in the 1970s. we need both short and long run approaches to deal with these concerns. i would argue a lot of the work -- groundwork has already been done and it is out there for us to make legitimate assessments to see if these are the right approaches. we can look at these texts in great detail and assess whether or not they would do the job but i think this needs to be part of a longer-term bargain between the united states and the west and china on all of these issues. think you. >> thank you very much.

now as qme said we have about 30 minutes. >> this is fred at the institute think it to all of you very much for coming. the question of professor hot. in your slide that talked about the economic impact of a trade war you suggested that china's trade surplus would drop by $100 billion and cost china 0.8% of gdp. i was puzzled by that.

my understanding is that china plans to retaliate dollar for dollar against u.s. restrictions. if that was the case i do not see why they would be any change in the trade balance. you seem to be referring to a paper from one of your colleagues and i would like you to explain that. >> first that $100 billion is a very ad hoc assumption. we really do not know if the situation worsens to what extent it will worsen. it is an arbitrary ad hoc figure. one dollar for the retaliation for u.s. trade policy in china is not possible because the

u.s. exports to china is much smaller than china's exports to the u.s.. u.s. expert last year was about $130 billion in products. china exported $500 billion in products for the u.s. so dollar for dollar we are thinking about and arbitrarily very bad situation so if president trump once mentioned that china should reduce the trade surplus by $400 billion, that is probably a number that we will use as a reference of miss hypothetical analysis.

>> just for the record i don't want to get into a back-and- forth with my friend ha jiming but the numbers he gave on inflation coming out of the trade war and the u.s. at least in my opinion would be passed exaggerations. just as the scale is different on that issue i think the idea that there would be significant inflation in the u.s. is not something i would rely on. >> thank you. >> my name is joe i am with root -- new roles for global finance. this is very enlightening. i did want to ask adam in your 10 points of summary there was

a gap that i had hoped you would discuss at some point which is what about the unintended consequences of increased trade are changing trace patterns and what it does to policies in the united states . as well as the distribution of wealth within the country. many of these side effects we are now recognizing were not addressed previously and i'm wondering if your team have considered those. >> thank you. we of course consider those but the continued linkage of job displacement and distressed communities to trade or particularly to china as opposed to other developments in the u.s. economy i think is mistaken. even if you take seriously the

outdoor china shop paper to talk about summer between 1 to 2 million people being displaced over a ten-year period. as you well know millions of people are displaced every month in this economy. i do not know why trade people are any different or any more or less deserving than other working people in the u.s.. the other point remains that the amount of dislocation and suffering in the u.s. as you know and you have spoken about in the past for any given shock to the economy remains infinitely worse than in australia or canada or new zealand arguably even japan and this goes directly to the perversions of u.s. politics and the lack of the welfare state the lack of union representation.

all of these are failures of the u.s. society and the u.s. government and they make every economic adjustment in the u.s. worse than it has to be. there is nothing specific to china or trade about that. the same is true right now in the trump administration pursues anti-labor policies that further reduce labor's bargaining power or their ability to have minimum wage or organize all of those are terrible things in my personal be a -- view that will cause horrible things in society. there's also the claim that how being globalized makes it impossible to respond to these things but that is simply species -- specious on the facts. we know that every other g 20 economy with the exception of japan does more trade and is more open than the u.s. in every other g 20 economy that is at least three quarters as rich as the u.s. has a far wider welfare state.

it lies not in the stars but in ourselves. >> my question is for doctor hot. i am wondering what is your response to the presentation on as always. especially in terms of subsidies and board members and in this regard. thank you. >> the last panel -- >> the rules and the board members control -- >> i do not have very much research in this area but i

think they informed and china is taking place at its own case desk apace and i think too big of a role is probably not going to help to improve china's economic deficiency. one of my studies which i did not talk too much about is when the size of sle grows too big it could have a negative contribution to the chinese economy. i think of the chinese government is already determined to pursue a so you reforms. it was stated six years ago and is being repeated a number of times.

when they participate in the international market competition certain roles i do agree with. certain roles need to be modified. to have a level playing field for every participant. a private company and soa are different in nature. i think china overtime needs to develop its private sector so that it plays a dominating role

in the economy. i think china should move toward that direction. i think that china will move toward that direction. think you. >> okay. >> thank you. tomorrow trump and kim summit will be held in singapore and we also see the upcoming june 15 as the deadline of u.s. initiating the tariff on chinese goods. how do you predict the approach of the trump administration in terms of the trade issue.

if the summit goes where or not goes where. >> i do not predict with the trump administration. i think it is a fools errand but i think we need to recognize that regardless of what happens with the summit the trump administration has shown that they will impose tariffs with the extended steel and aluminum tariffs under the national security law especially on canada and mexico and europe two weeks ago american allies and especially in the case of canada -- these are part of the north american supply chains that will really hurt. this shows that the trump administration is serious about imposing tariffs.