the trump administration approach is already self-defeating. it's time to stop it. third, those economic disputes that can be addressed using the world trade organization and other multilateral mechanisms should be addressed using those mechanisms. this would be something taken for granted by most people until the rise of the current administration in the u.s. they believe, apparently, that the wto is an incursion on u.s. sovereignty and decides on biased ways against the u.s. they believe the u.s. is in some sense a sucker to china and others. now, 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 the wto in fair terms. there are other issues at work. but in those areas where wto dispute settlement is applicable, china has obeyed

almost all of the decisions against it, and notable exception is with regard to union pay and payment systems. but for the most part, has obeyed wto rulings. it is the most efficient and the most fair and the most legitimate way to deal with issues that are within the wto remit. it is in both the u.s. and china's interest to have that go forward. fourth, and this is perhaps the most important point. and chad will pick up on this. some current real disputes such as over technology transfer and intellectual property cannot be resolved in the current wto. at least not without stretching it. so new agreements must be reached. just like in issues of other areas like slave trade, trade in illegal goods, chemical weapons, environmental damage, cross-border refugees. if you try to get a problem stopped by yelling at another country, a sovereign country,

and saying to them, you must fix this problem, nothing happens. the only way you get around these global public bads and these issues is to create a mutually agreeable regime that doesn't have leakage, that involves multilateral standards, and that has verifiable observable conditions. this is the kind of agreement we should be looking to move towards in terms of mutual respect for intellectual property rights, mutual respect on technology transfer. and importantly, the fact that china is more advanced than working its way up the international value chain means there is more in common between china, the u.s. and the other advanced economies, not less. there's more competition sector by sector, but there is a greater interest than ever in china and its own interests have proper protections of intellectual property to have proper protections of intellectual investment, to have proper protections of supply chains, because increasingly, it is not going to be a low-wage

radio producer. it is going to be a developer of intellectual property itself. fifth, bilateral trade deficits are not a reasonable or useful goal for trade policy to target. my colleague, fred bergston, wrote a good piece on this some months ago in the context of nafta. many others have weighed in. i'm not going to belabor it, not because it's unimportant, but there's only so many times you can explain if an apple falls down from a tree, it falls down. point six. agreements should govern commercial and governmental behaviors, not economic outcomes. we should not be looking for managed trade. now this is key. if we're moving into a rules-based system and people are doing things we do not like, you don't assess it by what happens. you assess it by what they're trying to do. the problem -- there is a very

big difference in whether you are trespassing because you happen to wander across a line, or whether you go in with intent to break into someone's house. we have seen this very effectively in the area of currency, where my colleagues fred bergston and joe begghanai have made a huge contribution, that the focus should be not on what is the level of the exchange rate, the focus should be on whether or not you are manipulating the exchange rate. similarly, the focus should not be on what is the state of a bilateral trade relationship in terms of bilateral balance or specific industries. the focus should be on are you doing unfair subsidies, are you stealing ip. we have to shift the discussion in that direction. seven. where china wants to open its

economy subject to verifiable rules, 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 really has with the u.s. but the key point is, we saw it in mexico, we saw it in japan, we've seen it in country after country. and we saw it in china in the past under zu wrong ji. that when china's leadership wants to reform, making international commitments is the biggest way it can advance its agenda, because it locks in the reforms. it gives an aspiration and a standard, it creates competitive pressure. this is what globalization at large does. it may have some cost for some people. but you get something for it. you get something profound for it. and so there should be win-win deals that the u.s. and china or the west and china should be able to agree on, where china wants opening for its own

reasons, and that should help the u.s. as well. eighth. by the same token, chinese companies have a right to compete with u.s. companies and to succeed in any sector, including in high-tech. they do not, however, have an entitlement to u.s. technology. so some of that will probably sound like code to you. so let me spell it out. there's a great deal of concern in the u.s. around the world about the so-called made in china 2025 policy. there is a lot of reason to worry about it. there is a lot of reason not to worry about it. but the point is, 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 and develop in whatever industries it is capable of doing fairly. and, of course, people in the trump administration will say, well, that's all they want.

but that's not really what they're saying. they're saying that it is inherently a threat if china wants to be a leader in this industry or that industry or the other industry. and let's be clear. the u.s. has made proclamations of that sort at various times as well. there is noggin her rently evil about a country aspiring to be a leader. the question is what behaviors you undertake to do that. but there is a point where i think i and many of my colleagues would like to push back on some of the chinese government and corporations. you sometimes get the sense that there is this entitlement that technology must and should be shared. that if the u.s. has a high-tech industry, has a particular technology or japan does, china should be able to buy it and not very expensively or should be able to get it. that's not how the world works. or at least that's not how the world should work, if we want there to be continuing innovation and we want there to be fair treatment of business. china does not get to say, oh, you're in that, why don't you

give us that technology. that's not how it works. last two points. the united states should not try to block china's increasing role in international economic governments. the trump administration should not withdraw from the institutions and rules-based system its predecessors led and created. the second half of this paragraph is, i assume, of no objection to anyone. especially since you all read my foreign affairs article explaining why this was in the u.s. interest not to withdraw. 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, in population terms, and the world does not need to be run among a small codery of people in brussels, in new york and washington. in fact, the world needs to be run, including others, from other parts of the world.

governance has to shift to allow this. we saw the folly of trying to oppose the creation of the aiib by the previous administration, the obama administration, nick lardy, fred bergston and i all spoke publicly in this room against the folly of trying to oppose that. not because we wanted to undercut the multilateral system, but because if china wishes to get out there and do something constructive, it should be allowed to do so. similarly, the imf deserves a much better deal from the u.s. in terms of getting recognition for quota review for funding as our colleague ted truman has argued several times. there is a whole host of areas. and then, of course, the questions of governance. but the bottom line is the bias should be the u.s. should welcome china in, subject to china playing by the rules. and what has happened is, the u.s. has repeatedly not given china a chance to play by the rules and tried to block their

ascension, and that to me is wrong. finally, if we can ever get out of the current conflict, expanded two-way cross-border investment should play a role in improving china/u.s. economic relations over the long term. now, there are people in this room who will remember -- i see some ex officials, 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 the effort failed probably rightly, because my understanding is the chinese negative list was unboundedly long, and it could not be workable. nonetheless, as studies from the peterson institute has shown repeatedly in general and with respect to china/u.s., the best way to integrate economies in many ways is through cross-border, two-way direct investment. this has economic benefits in terms of transfer of expertise.

this has direct job benefits in terms of creating new jobs in the areas of highest pay and highest comparative advantage. this has a political benefit, as we saw from japan's investment in the u.s. following the trade difficulties of the '80s and early '90s. we're not going to turn around and do a bit tomorrow of bilateral development treaty tomorrow, but those responsible parties on both sides of the pacific should be realizing that is the goal we should be moving towards in the future. thank you very much. [ applause ] thank you very much. now my colleague.

>> good morning, everyone. my presentation consists of the -- some of the take-aways from the articles that are from the joint report. i don't try to be exhaustive, but i will -- the presentation focuses on the causes of the trade friction and possible impact on the two major economies. my colleague, professor lew, highlighted a few factors that he thinks are the background behind the chinese -- behind china and u.s. trade frictions. one is the relative change -- the change in the power, relative power, of the two economies. the chinese economy grew in the

past half century, accelerated growth from sixish to almost 10% of the more recent years. and also the -- 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's background number one. there are a few other backgrounds. one is the difference in the economic systems between the u.s. and china. the chinese economy is still quite -- rely on the state and soes.

at least it's viewed by many u.s. economists or politicians. and the third is -- also adam mentioned that the made in china 2025 program, that sort of makes it uneasy for some politicians in the u.s. but personally, i think this made in china 2025 initiative is a -- just a very vague objective china tried to achieve. but i don't think there are -- we shouldn't read too much into it. but it's a document issued by a -- mainly prepared by one single ministry. of course, you can also see the state council sort of endorsed this initiative. but it's a vague plan. anyway, of course, the trade

friction between the two countries professor lou said should be understood in a broader context. for the u.s. national security strategy makes china a strategic competitor. and several documents -- u.s. documents also made the same definition for china. this is in contrast to the previous definition of china to the u.s. of course, the u.s. has its own issues. for example, the u.s. is going to 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. 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. or the causes of trade imbalances between china and the u.s. if you look at the overall balance of payment, china's current account surplus stood at 1.4% of the gdp as of last year. it's pretty much balanced. however, on a bilateral basis, china's trade surplus against the u.s. account for 46% of the overall u.s. trade deficit. this is greater than the largest nine trade partners combined. like mexico is number two.

malaysia is number nine. but all these countries combined account for 44% of u.s. trade deficit. so politicians would definitely pick up china, saying you need to reduce your deficit -- your surplus against me. i think there are a number of factors behind the bilateral trade imbalances, and also the u.s. overall trade imbalance. one is the role of the dollar. this chart shows that before 1971, the u.s. didn't have much trade deficit. but after the dollar was depact from gold, u.s. monetary policy sort of was no longer constrained by the packet. and we are now seeing trade deficits. and in some years, the deficits

are very sizeable. and those countries that earned dollars through trade surplus were very much willing to invest in the u.s. bond or stock market. so this has cost another run -- the recycling of the dollar made the u.s. more able to have trade deficits. the second factor is the so-called world factory status of the chinese economy. particularly since china joined wko in 2001, china imported a lot of goods and raw materials from other countries. with you produces final consumer goods to be exported to the u.s. and eu. so as a result, china has a lot of trade deficits with respect to those countries, like korea,

australia, for example. so this is the reason why china has a huge bilateral surplus against the u.s., but overall current account is pretty much balanced. a third factor is savings rate. china has huge savings rate. savings rate -- also savings rate in china is now still around 25 to 30%. that's the high -- probably the highest in the world. if you add corporate and government savings, it's now 45%. compared to high teens in the u.s. and u.k. that is probably why u.s. and u.k. always have trade deficits. china and countries like singapore, japan, hong kong, seem to enjoy huge trade surplus. but looking forward, i do think

china's savings rate will go down, alongside population aging. so it's just a matter of time. china will probably end up being a trade deficit country. sectorial wise, china exports a lot of consumer goods to the u.s. cell phones, furniture, clothing, toys. the bad news now is the u.s. is still planning to impose 25% tariff on $500 billion -- 50 billion chinese exports. the good news is these products probably do not include much of the major exports. china's exports to the u.s. so the impact on employment -- because these sectors are mainly labor intensive. so the impact on employment as of now looks like still

manageable. but if you are interested in a qualitative assessment of the possible tariff on china, i provided some estimates. that 25% tariff on $50 billion u.s. dollar chinese goods do not seem to have a very big impact, estimated at .1% of gdp. but if trade friction escalates so that china's export growth decelerates sharply, say by $100 billion u.s. dollars, then it could have a much more significant impact on the chinese economy. the estimate is eight percentage points. so china could still grow, you

know, 5 to 6%. but i tend to be looking forward to a better scenario in which those countries will not impose sanctions against each other, and china would further expand its demand by importing more products from the u.s. and at the same time, by opening up its service sector to the u.s. so in this scenario, the impact will be very small, or even nil. the question is, does china have the capacity to increase imports from the u.s.? my answer is yes. if you look at the consumption of china's gdp, it's probably the lowest among 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. they had, you know, 59%. also, china's imports of consumer goods in relation to gdp is way below major economies. no matter if you compare it with developed countries or developing countries. that's what the second chart shows. three minutes. okay. i think i need to accelerate a little bit. so china does have a huge room to increase imports from the u.s. particularly consumer goods. agricultural products, energy products, actually a lot of chinese tourists when they visit the u.s., when they visit europe, hong kong, they buy a lot of goods. chinese spend, like, 25% of

their travel budget on shopping compared to 15% by other countries, tourists. given that i have only two minutes, i think i need to talk a bit about this chart. i think china's imports of technology products and china's receipt of foreign direct investment are the two important growth drivers behind the chinese economy. a simple regression shows that these two factors have significant contribution to china's economic growth, and they are, by the way, statistically very significant. there are some other drivers or, you know, negative contributors to china's economic growth. i don't want to talk too much about that. but i think imports of technology products and fdi are the most important factors.

behind china's growth. well, china's -- china also imports a lot of products from the u.s., but they mainly focus -- concentrate on machinery, automobile, aircraft and soybean. so it's not surprising when china announced some retaliatory policies. it tends to focus on these sectors. but i think from a macro economic perspective, if the trade war escalates, china's retaliatory policy could impact the u.s. inflation. and actually inflation in the u.s. is already on the rise due to many domestic factors. but it further couinflation cou interest rates that are faster than many market participants

envisioned. that would not be helpful for the u.s. economy, particularly for the u.s. stock market. and it will hurt economic growth. it will hurt financial stability, as well. thank you very much. [ applause ] >> thank you very much, dr. ha. our next speaker is ted brown. ted, please. [ applau [ applause ] >> great. thank you for the opportunity to be here. so the title of my talk is "using the wto today and adapting it for tomorrow." but what i'm going to really try to do in this piece is to talk about state-owned enterprises.

so as adam indicated, this is one of the areas of particular conflict at the moment between china and the united states, but it's one of many. but i think it provides a useful lens for helping to walk us through why the current set of policy tools that the united states in particular hasn't worked. the issue, nevertheless, isn't going away. and yet why some new longer-term and more cooperative and systemic approaches are needed. and so basically i'm going to do four things. i'm going to focus on why and when and when not china's soes are a concern to western advanced economies like the united states. why the current approach doesn't work. and then a two-pronged approach to sort of fix it within the multilateral system. and so within the wto, what we can do today and how it needs to be adapted for the future. okay. so the first is just to make the point that china's state-owned enterprises aren't going away.

so the first decade or so after china's entry that the world trade organization was obviously a period of tremendous growth. there was continued reform of the chinese economy. my colleague, nick lardy, has documented extensively how the role of the private sector grew enormously as a share of industrial output, exports, all of the major contributors to china's success story in that period. nevertheless, the role of the state and the chinese economy didn't entirely go away. it transformed a bit. and in the period since 2013 in particular, we've seen a bit of a resurgence of the state in economic activity. so this is clear that it's just a feature that we are going to have to address. we're going to need to think through how and why it matters for economies, trading partners like the united states, and to think about adapting the existing system, the wto, to recognize that.

okay. so why might it matter, from an economist's perspective? and i've listed kind of four points up there as to why i think it might matter, or for certain industries, certain sectors, certain relationships, it's something for us to keep an eye on. the first is when there are global shocks. so think of a negative, you know, demand shock out there in the world that should affect all suppliers around the world equally. if the chinese system isn't accommodative of that, because chinese soes refuse to lay off workers, they refuse to allow for bankruptcies. then in a sense, if adjustment is costly, and i think we have some evidence in the united states during the last ten years or the first decade of the 2000s that adjustment in labor markets in the united states, in communities, due to shocks, has been particularly costly, then that would mean simply china isn't bearing its fair share of the costs of this, right? and this is a reason why we need

to be thinking about this as potentially allowing our systems to coexist. second, there may be instances in which in particular industries that are heavily concentrated -- you think about strategic concerns in the economic sense, boeing airbus, high fixed cost. al gop list particular types of industries. with very few firms, allowing for if we think of state-owned enterprises, firms receiving subsidies, this could lead to strategic behavior or profit-shifting behavior that might give firms -- a firm in one country unfair advantage over firms in another. we might be concerned about the global concentration of activity in a particular sector, occurring only in one country, especially as we have observed with the case of china. examples where when china has market power, when it is, you know, the global supplier of, you know, say rare earth metals or raw materials, it will exert market power by restraining

exports, right? that's something we might need to be concerned about, as well, as well as the potential for global efficiency losses if too much activity is being concentrated in a market where the firms aren't necessarily innovated because they're state-run. so that's just to say, this is to set us up that wto needs to be accommodative. what i want to walk us through first is how the u.s. existing approach has not worked. and this is important because i think folks are too dismissive as saying well, we're going to continue to use existing tools. i'm going to try to make the case that existing tools have contributed to the problem. i'm going to use the example of steel to walk us through there. but it's also going to hold for think of aluminum, solar panels. so it's really just representative. the steel industry in the united states has received protection from imports for decades. under a variety of different tools. this is just showing the data for anti dumping, countervailing duties, safeguards, those types of instruments. this is data through 2017. so this is before the national

security tariffs just imposed in march. and what you can see here is, this is the share of imports, the share of u.s. imports from china and from nonchina, the rest of the world, each year, that is covered by those types of import restrictions. anti dumping, countervailing duties. by 2009, 80% of u.s. imports from china had basically already been stopped because of those sorts of policies. by the end of 2017, 95%. these tools have basically stopped the imports from china from coming directly into the united states market, but they don't address at all the underlying issue. so instead, what you see happen, and let me just go back one side, is in the period since 2015 or so, you start to see the united states expanding the use of these trade restrictions beyond china to other trading partners. to europe, brazil, japan, korea. why? steel is essentially -- it has properties that are somewhat commoditized.

stopping the imports from coming into the united states doesn't stop china's exports from going to third markets. china's exports go into third markets, that squeezes other producers out of those markets and into the very attractive u.s. market, because it has higher prices because of import restrictions already in place. they don't tackle the underlying problem. the trade restrictions start to expand on to other countries, as well. first through anti dumping or what we have seen recently which is the use of the national security tariffs, right, on steel. we see the same story for aluminum. or under different laws in solar panels as we saw in the section 201, the global safeguard case, right? so what's happened is china's growth is slowed, as adam indicated. a natural phenomenon, say. it's now exporting a greater share of its production and certainly in the case of steel. but the u.s. tariff legacy creates incentives for china to export more to third markets, to move quicker into downstream products, and the u.s. then application of import tariffs on

to third countries exacerbates the problem, right, with countries that haven't contributed to overcapacity concerns, now all of a sudden the united states is targeting, quote, unquote, its economic allies. economic allies in the sense of being more market-oriented, being -- having the same sort of concerns that the united states does with state-owned enterprises and those sorts of nonmarket activities. same story with aluminum. i'll just work us through there. the main point here is that the policy approach to date hasn't worked, and doubling down on it, whether it's through anti dumping, additional enforcement, we can talk in the q & a about things that the administration is doing on transshipment, utilizing the particular market situation in dealing with anti dumping. none of these things are going to work to get at the underlying issue. okay. so these state-owned enterprises aren't going away. with he have to accept them as a reality. we need to think about accommodating the wto system to address them. how are we going to do it? so here's my new approach. and you're going to see, it's

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

failure to engage in, say, the doha round of negotiations constructively, this is where we could get that to change. so where should we start when we're thinking about new rules for state-owned enterprises? well, if we go and look around at a lot of the new initiatives on the free trade agreements that have been proposed in recent years for the united states, the tpp agreement, the trans-pacific partnership agreement, it's got a state-owned enterprise chapter. i'll put that up in a moment. there were all proposals for state-owned enterprises. the eu agreements all have soe chapters in them. the oecd program. the oecd has a work program on state-owned enterprises. they have been tasked already with developing this overcapacity forum to deal with steel. at the g-7 readout for the communique or the g-6 communique that came out over the weekend, there was acknowledgment of this issue also applies to aluminum and other high-tech sectors. so there is seemingly an

engagement by the other advanced economies to get on this issue, or to address this issue. and finally, the european commission has been dealing through its state aid rules with the concerns raised by its differing member states levels of state-owned enterprises for decades. there's lots of institutional materials and experiences that we can draw on. this is just if you don't remember the tpp agreement, this is the soe chapter. it's there. we can go back and read it and learn from it. what are the critical features of these chapters in these agreements that we could build from? obviously, transparency. and this is one of the big concerns with the chinese approach of having government officials, communist party officials potentially sitting on the board of companies, right? potentially directly/indirectly promoting certain nonmarket-oriented behavior. we need to understand if there is going to be an soe, if it has nonmarket motivations, you need to know what those are. it may be -- they may be

perfectly legitimate. it may be that they're worried about employment concerns. it may be that they're worried about servicing underserved populations, poorer populations. that they might have nonmarket, nonprofit-oriented motives. but you have to understand what those are ex ante in order to evaluate behavior ex post. these agreements have principles to guide behavior on nondiscriminatory treatment, commercial considerations. and finally this needs to be enforceable. so with he nee need to stick it trade agreements that mean the rules get abided by. could this happen at the wto immediately? probably not. right? the trump administration has triggered a bit of a crisis in geneva along a number of different dimensions. they're holding up appellate body judges. their rhetoric in terms of the appellate body and jurisprudence has delegitimized a number of rulings. and threatens sort of the independence of the

organization. and then obviously, the recent behavior, the trade policy decisions that have been taken so far, the national security tariffs on steel and aluminum, the potential national security tariffs on automobiles, the section 301 investigation. all of these things are working at the utter limits of wto rules, trading partners have filed disputes, but equally concerning is trading partners are themselves engaging in retaliation or a rebalancing and especially in the context of the steel and aluminum tariffs, that are -- that is in and of itself pushing at the boundaries of acceptable behavior under the wto. okay? so it's not as if the wto separate from these issues isn't already under stress. that being said, let's put it under more stress. so how are we going to do so? well, i would propose, in addition to this wto set of negotiations for rules on

state-owned enterprises. and, again, i don't have a sine undertaking approach. i think you can do this as a plural lateral. a group of like-minded countries. the united states, europe, japan, canada. market-oriented economies. but i think negotiating this with china would be important. but at the same time, filing a set of set of wto disputes with china on subsidies, in conjunction with one of the other critical issues that adam identified, which is intellectual property, forced technology transfer, investment restrictions. all of these should be put on the table. agreed, it would put stress on the wto system. but the system is already under stress. it's sort of at a make or break moment right now. even where we don't think that there are clear rules on the wto on these matters, i would argue there is a clause where you're allowed to bring these things

called nonviolation complaints under article 23. again, even this process i think would be useful, also from china's perspective. it not only puts the spotlight on the concerns that the united states, europe, other countries have with what's going on in china, but it would help china understand specifically what those concerns are. so that when negotiations take place for new rules, they better understand what the perspective is of the other side. and then two things. disputes, negotiate plural lateral agreement. what would the plural lateral process look like? critical mass of countries, not the entire wto membership, but i would argue include china in the negotiations relatively early on. what's the strategy there? i think china would be incentivized to participate, because it has this potential of a wto dispute action sort of out there hanging over its head.

right? if you're not at the table, negotiating in good faith, engaged cooperatively in this, the rest of the wto membership through this collective dispute could get authorized wto retaliation. have we seen examples of these types of plural laterals? i would argue yes. we have seen these back in the 1970s. again, last slide. we need both short and long-run approaches to deal with these concerns. but i would argue a lot of the work, a lot of the ground work, certainly, has already been done. and is out there for us to make legitimate assessments of this to see if these are the right approaches. we can now look at these soe texts in great detail and assess whether or not they'll do the job. but, again, i think this needs to be part of a longer-term grand bargain between the united states and the west and china on all of these issues. thank you. [ applause ]

>> thank you very much. so now for the q & a session. we have about 13 minutes. okay. >> fred bergston here at the institute. thanks to all of you very much for coming. a question to professor ha. 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. and if that was the case, i don't see why there would be any change in the trade balance. but you seem to be referring to a paper from one of your colleagues, and i would like you to explain that. >> okay. yeah. first, that $100 billion is a very ad hoc assumption. because we really don't know if, you know, the situation worsens, to what extent it will worsen. so it's an arbitrary, you know, kind of ad hoc figure. but $1 for 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. export last year, about $130 billion products to china, where china exports $500 billion products to the u.s. so dollar for dollar, only to a limit. so we are thinking about a arbitrarily very bad situation. so if china -- actually, president trump once mentioned china should reduce trade surplus by $100 billion. that's probably, you know, a number that we used as a reference in this hypothetical numerical analysis. >> the trade war would have to go well beyond -- >> oh, yeah. well, of course, yes. yeah.

>> just for the record, i don't want to get into a back and forth with my friend jimimg, but the numbers he gave on inflation coming out of the trade war between u.s. and china for the u.s., at least in my opinion, would be vast exaggerations. so just as the -- the scale is different on that issue, i think the idea that there would be significant inflation in the u.s. from this is not something i would rely on as a forecast. >> thank you. okay. >> yes. my name is jo, i'm with new rules from global finance, a nonprofit organization in the u.s. thank you. this is very enlightening. i did want to ask adam, in your

ten points of summary, there was a gap that i hoped you discussed at some point, which was, what about the unintended consequences of increased trade or changing trade patterns, and what it does to labor policies in the united states, and who is put out of work and who benefits? as well as the -- i could say the distribution of wealth within the country. but many of these side effects we are now recognizing were not addressed previously. and i'm wondering if your team had considered those. thank you. >> thank you, jo. we, of course, consider those. but the continued linkage of job displacement and distressed communities to trade, particularly to china, as opposed to other developments in the u.s. economy and society is i think mistaken. even if you take seriously the

china paper, they talk about somewhere 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. so -- and i don't know why trade people -- people displaced by trade are any different or any more or less deserving than any other working people in the u.s. the other point remains that the amount of dislocation and suffering in the u.s., as you well know, jo, and you've spoken about in the past, for any given shock to the economy, remains infinitely worse in the u.s. than in any european economy than in australia, canada, new zealand, arguably even japan. and this goes directly to the perversions of u.s. politics, the lack of a 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 in human terms. but there is nothing specific to china or trade about that. the same is true right now when the trump administration pursues anti labor policies that further reduce labor's bargaining power, labor's ability to have minimum wage. labor's ability to organize. all of those are terrible things, in my personal view, that will cause horrible harm to people in this society. far greater than any trade deals. there is always the claim that somehow being globalized makes it impossible to respond to these things, but that, of course, is simply specious on the facts. we know that every other g20 economy, with the exception of japan, does more trade, is more open than the u.s., and we know that every other g20 economy that is at least three quarters as rich as the u.s. has a far, far wider welfare state.

so, yes, we are failing our working people, it has nothing to do with trade, has nothing to do with china. the fault here, jo, lies in the stars, not within ourselves. >> okay. ourselves. >> okay. thank you. the question is for the doctor. i'm wondering what is your response to dr. bose presentation. >> the last part of your question? >> just how much negotiating space do you see in soe and board members control. >> okay, yeah.

i don't have much research done in this area. but i think soe reform in china is taking place at its own pace. and i do think too big a role assigned to soe is probably not going to help to improve china's economic efficiency. actually, one of my studies which i didn't talk too much about is the -- when the size of soe grows too big, it could even have negative contribution to the chinese economy. but i think the chinese government has already determined to pursue soe reforms. it was stated in the six years ago in the congress and it is

being repeated a number of times. but i think, you know, the direction is correct. but i just -- we need to see the outcome. and i hope we don't have to wait for too long before some encouraging outcomes are being seen. but when soe participate in international market competition, certain rules, i do agr agree, need to be modified to have a level playing field for every participant. private company and soes are different in nature. i think china over time needs to develop its private sector so

that the private sector could play a dominating role in the economy. that is what many people anticipated many years ago when china accessed the wto. i think china should move toward that direction, and i do believe china will move toward that direction. thank you. >> okay. please. >> thank you. tomorrow, trump and kim summit will be held in singapore, and we also see the upcoming june 15 as a deadline of u.s. initiating the tariff on chinese goods. so how do you predict the approach of the trump

administration in terms of the trade issue if this summit goes well or does not go well? >> so that's a great question. i don't predict with the trump administration. i think it's a fool's errand. but i do think we need to recognize that regardless of what happens with the summit, the trump administration has shown it will impose tariffs. when it extended this deal under the national security law, especially on canada, mexico, europe two weeks ago, you know, american allies and especially in the case of canada, you know, these are part of north american supply chains that are really, really going to hurt. it shows the trump administration is serious about imposing tariffs. so i think we have to take

seriously the reality they could impose $50 billion worth on china as soon as june 15th. >> just a small additional point. people at times have talked about linkage, whether or not u.s. trump administration feels it needs china one way or the other, north korea. i think they will rationalize it either way. if they have a success, what they deem a success in the kim-trump summit, they will say, look, we did that without china. we get all the credit, fine. if they have a failure, they will say, look, it must have been china's fault. so in line with chad, my expectation is the results of the summit will have no effect whatsoever on the decision to make tariffs. to the gentleman there, please. >> thank you. this is a question for dr. baum.

>> could you identify yourself, please. >> i am from university of pennsylvania. this is a question for dr. bond. in your presentation you highlighted that chinese seos seem to be a problem that need to be addressed in wto negotiation and so on. following up on what dr. haus said, i felt like you emphasized your presentation some of the advantages soe might give in dealing with negative shocks and so on. but soe came with lots of costs. it has shown to be inefficient in investment, in ind and so on. so i'm a little bit surprised you put so much emphasis on dealing with emphasis dealing with soe. and i just want to hear some of your additional thoughts. thank you. >> again, i guess i would go

back to the idea in areas where china's soes are extraordinary large and so their decisions impact global markets, that matters for the united states. they're able to impose costs on other countries. and so if we think adjustment costs are important, for example, it is really, you know, the dislocation of resources, the labor, firms going bankrupt in the united states isn't costless for resources to move in different sectors of the economy. then china but not allowing those same costs in its own country is imposing extra costs on others. that's essentially what i think the argument is. but you do have to buy into this argument there are adjustment costs out there. the second and the other issues is potentially on concentration. if we're talking about soes in commercial aircraft in high tech industries, those may be a concern as well.

but i do think it needs to be thought about. not all soes is something you need to worry about if you are the united states. but you can use economic criteria to justify where and when you need to be worried about those and write down kinds of rules you need to have these different systems of economies being able to get along. >> thanks. if i can quickly follow up. do you think that are the two sides able to reach a trade deal before the deadline of friday? and second question is about do you think that the u.s. congress

has few ways or have a few methods to actually stop the moving forward on the cte deal, which was announce d? >> so i think what you have to remember with the trump administration, again, you can't predict. but what you have to recognize about this administration is it likes to go to these laws that give it executive authority to change things. so the national security law, the section 301 law, these are areas where it doesn't have to go to congress. it doesn't have to go through some investigation process where there is decision makers, judges at the international trade commission to tell them they can or can't impose tariffs. even if you come to an agreement with china, that law still exists, still provides the president with the authority to change his mind at any moment in time. and that's not going to go away

unless congress takes that power away from him. and so there have been some discussions about that. but it hasn't materialized yet. we'll have to wait and see. under each of these laws, the president is doing this under authorities that give him tremendous amount of discretion that once you have opened up that pandora's box, it is hard to negotiate a partner because the partner knows even if you promise me today you may change your mind and do it tomorrow because the law is still giving you the authority to do so. >> okay. thank you very much. >> second question, the u.s. congress is -- >> we're not going to comment on any specific company. >> okay. thank you. thank you very much.

>> for our friends -- for our friends online and around the world, we'll be back in 15 minutes. for our friends in house, there is free lunch. please go ahead. this morning the senate foreign relations committee holds a confirmation hearing on three state department nominations, including former pacific command admiral harry harris to be ambassador to south korea. the president's previous nominee was dropped last december following a disagreement over the white house's consideration of preemptive limited military strike against north korea and for the president's decision to withdraw from a trade agreement with south korea.

admiral harris, who retired on may 30th, was the top u.s. military officer overseeing military operations in asia as commander of the u.s. pacific command.