You get people saying, well, but the increment to china gdp is so large that ive been trying to use National Wealth as an alternative indicator. Its hard to we have a great series. If you want to know how the u. S. Economy is doing, look at the Federal Reserve series on net National Wealth or net worth of households. Its more informative than gdp. Its hard to do that for some other countries, especially large countries like china. If you use their data, they say from the end of 2013 to the middle of 2018, chinese wealth grew 26 to near 52 trillion. Thats a 4 1 2 year period. In the previous fiveyear period which included a chunk of the financial crisis, the larger chunk of it, the chinese wealth grew 130 . Not my data, right . You might say im biased, trying to find chinese stagnation where i look. They do this independent of me. I send them emails all the time. 130 in the previous five years, 26 in the last 4 1 2 years. Thats more like whats happened to the chinese economy than the official gdp. U. S. Wealth increased 29 . Faster than china and to 898 trillion 98 trillion which roughly fits the feds. China has a growth problem and it is understated by official gdp which i think you are aware of. I point out how stark it is using wealth calculation. Debt, bank of certainly sentiments. There are two biss in my life. I get them confused. China tate debt is a percentage of gdp. Eight years later, its pardon me. Eight years later, yes, its 142 . Its gone up 8 Percentage Points of the percent of gdp. Thats the beginning of the financial crisis. From the end of 2008 to the end of 2017 it goes up 109 . We get an 8year period where it goes up 8 Percentage Points and then another period where its 109 Percentage Points. Its not my date a that is the worst than the worst period equivalent period for the United States since going back to 1952 when data starts as plus 65. We have been i agree with rileys opening remarks. We waste money, we borrow money. Were going to regret borrowing in the future. Weve done it for years. Our worst period of this is plus 65. Chinas most worse is plus 109 and were much richer than them. Official disposable income is about in china, this is official income is 1 9th of the u. S. Level. Its far too early in the Development Process for china for growth to be this slow and for debt to be this high. So you want to know the state of the chinese economy. Its that state. Its not close to becoming a rich country. Its highly indebted in the last nine, ten years and growth has slowed dramatically. Why . Riley touched on a couple. The median age in china is about that of the u. S. Now. In two decades it will be older, an older japan. It matters a lot to the chinese economic trajectory and nothing to do with trade. When people talk about the trade war is going to hurt the chinese economy. Demographics will hurt them much more than that. Nothing to do with us. Education. The u. N. Mean years of schooling. 7. 8 years. Were at 13. 4. Its not rising quickly any longer. You have clear education discrimination against 550 million rural chinese. No sign of that changing. Directly related to that, theres no private ownership of rural land. You cannot make the rural population wealthy. Any rural population in any country wealthy if they cant own their most valuable asset. China has an anchor on the personal income, on all of its Economic Development because it wont let rural people own their land. Again, no Movement Towards change. We have a very powerful chinese leader. He could make change happen. Doesnt want to. My major issue has to do with the state sector. In 20 to 25 sectors, you have a suppression of competition because enterprises cant lose. This is the solution to the mystery of can china innovate. Of course it can. But not in the 2025 sectors where firms are guaranteed market share. Why should they innovate . Its not a when youre on top, you dont want change. Thats the situation in major sectors in the chinese economy. Banking, oil, insurance, power, steel, i could go on and on. Part of chinas economy will innovate. The part protected by the state will not innovate. Innovation, capital, labor, land. Those are the sources of growth. Theyre all in bad shape. So im going to be quick on the unimportance of trade compared to that. I suppose the trade conflict could make china borrow even faster. Thats whats happened this year, early this year. They were borrowing themselves to death before this. The demographic crunch has nothing to do with the rural discrimination, nothing to do with it. S. S. O. E. s is im not defending that. Im saying thats what were doing. We could be trying to get a regulatory protection but were not. Job losses. 15 years ago, china had an ex paneding labor force and they needed exports to pull keep people off the streets. Thats no longer the case. The quantity of jobs is not a major challenge. Trade is not important to the chinese economy that way. If you want to find a place where trade is important, its seconda secondary, although interesting matter, although external finances, not domestic macro. China is hiding data on Foreign Exchange and the banking system. Their official reserve imply about a 6 o billion drain the last year despite a 380 billion goods and trade surplus with the u. S. In the First Quarter, chinese the drain accelerated. This is all prior to the hike in tariffs. Which goes into effect saturday as riley said. So theyre losing Foreign Exchange prior to the hike in tariffs. If we hike the tariffs and, say, put a 10 with exclusion tariff on the 300 billion trench. In july so a 60 billion last year, its going to go past 100 billion. China can afford that. If you follow china, you know that they dont like pressure on their currency. Theres about screeching about that in chinese media. You will feel unbelievable pain. Media has become very difficult to read in the past couple of weeks, chinese media. American media, too. Were going to be dont like outflow of income. They feel like the possibility of being devalued rises. You have a sense where china, the u. S. Can cause Serious Problems for the chinese. We cant have one implication and im almost done. One implication will be, if we do that, if we take the trade actions to sustain them, the bri will be comatose for an indeficit period. Its funded by american consumers. We stop buying chinese goods so summation. The chinese longterm economic problems concern enormous amount of wasted capital, premature aging due to demographic policies and the antipathy, fear, of unnecessary domestic policy. In the shortterm, its vulnerable to Foreign Exchange, pressure from the United States. That doesnt matter to chinas longterm economic prosperity. Ambassador allen. Thats great. Im never going to speak after derek again. That was wonderful. Thank you very much for the invitation. Its wonderful to be here. The kind of perspective im going to give is a little bit different. About a year ago, president xi and President Trump met in ba e buenos a buenos heirs. Theyre expected to meet again in osaka. Probably on june 29. So what i wanted to do today was to provide a little bit of a scorecard. Where are we . What progress has been made . What has been the cost . I think on the positive side, a good number of things have happened within the chinese economy. The benefit American Companies and other chinas trading partners. Little noted in the press here, but the chinese have reduced tariffs on some 3,700 product lines, including many lines that are important to foreign traders like automotive and cosmetics. Theres been a reduction of tax, a reduction of that. Theres been an elimination of equity cap restrictions and a reduction of barriers to investment in china. Theres been a number of approvals, important approvals in the Financial Services sector. And at least formally, legally, theyve banned Technology Transfer. By introducing a negative list for foreign direct investment, theyve opened up larger areas to for american and foreign investment. I agree with dereks comments on s. O. E. S and i think thats the litmus test here. Whether or not they will open up those. Let me just summarize and say that the chinese have made some significant market openings, little noted in the United States. But noted elsewhere. And i think that the president needs to be given credit for that or applying the tariffs and the pressure to get this. These are things that we had negotiated for a long time and finally were seeing some progress. But there is a downside or a price. Id like to divide this into shortterm and longterm. Over the shorter term, u. S. Exports to china were down 7 in 2018 over 2017. Overall chinas imports increased 10 and what we are seeing, particularly in the High Technology area, is that european and japanese competitors are taking market share from American Companies. Agricultural exports from the United States are significantly down. I was startled that iowa exports to china, for example. Down 50 . Many american soybean farmers are finding it theyre unable to plant with current prices. On the services side, chinese travel to the u. S. Last year was down 5. 7 . Chinese travel overall globally, outbound chinese travel was up 13. 5 . And Chinese Investment to the u. S. Is down. This is really dereks area of greatest expertise. The number ive been using is between 60 and 80 down. Thats very, very significant. Many in washington are okay with that. They dont mind seeing this decoupling or falloff of Chinese Investment. I would argue that theres a tremendous opportunity cost, particularly in the poorer parts of the country. I would submit to you, Ballard County kentucky, one of the poorest counties in the country, recently added 500 jobs as a result of Chinese Investment in fish farming and paper mill. I would submit to you, again, forest city, arkansas, where 800 new jobs are planned but in a yarn production facility. But those jobs are on hold since the tariff hit tat began. I think its okay to put that on the downside. The administrations use of more aggressive export controls and investment restrictions are a little bit outside of the trade area. Theyre very closely related. So let me note that on the sip yus side, that the changes in the law has led to at least three forced divestments. One grinder, the second patients like me and health tell. I think theres an Economic Loss there thats forced this investment. On the export control side, which is a different but related area, would note that u. S. Suppliers to cte and ha wie have been affected. American tech competitors, that is the european and the Japanese Companies that are competing with america across the world are in the door immediately once the export controls are signed. Are put into law. So i would argue that the Chinese Government response to the u. S. Moves has been pretty careful, calibrated and conservative until recently and that is changing. The ministry of commerce of china has said they reserve the right to use, quoteunquote qualitative measures against investors in china. Me may or maybe not see that beginning to happen. So the best statistical evidence is from the American Chamber of commerce which released a survey last week, 47 of their members said that on top of the tariffs, so those are tariffs going both ways, that they have faced measures such as slower customs clearance, more inspections and delayed approval for licenses. So thats nearly half of the american investmeors that responded to the survey. Approximately 1 3 were cans sells or dee canceling and 40 of the American Chamber of commerce in china said that they were relocated manufacturing from china to a third country. Possibly back to the United States. But that would be an in a very, very small minority. Mostly vietnam, perhaps mexico, cambodia, sri lanka, wherever. Lets see. So over the shortterm, i think that there has been a considerable cost to the United States to American Companies, american farmers, American Workers, american ranchers. But i worry much more about the longterm rather than the shortterm. So as i look at the situation right now, and the possibility that, as riley mentioned, additional tariffs might come into play they will come into play on june 1 and then the fourth tier might come into play later in the summer. As i look at that, i am very concerned. So let me share those concerns with you. Longer term concerns. The first one is that nation nationalism is rising in china. Theres no doubt about that. That could be used to ill effect against American Brands and American Companies. Theres a lot of cooler heads within the Chinese Government trying to tamp down a national is particular response to this, there are calls for boycotts and other campaigns. In total, american branded products, theres probably about 190 billion worth of exports, but 600 billion worth of sales in china, including sales made in china, taiwan, wherever, around the world. But there are calls for boycotts and i dont think that were too far away from that, its already appearing in social media, then the impact will be considerable. And european and Japanese Companies will be right there to pick up the slack. There are relatively few areas, even in high tech, where we have a monopoly position. So i am concerned that farmers are potentially the greatest victims here. Recall, please, 1972 with the nixon embargoing of soybeans to japan. The National Response of the japanese was to invest very heavily in brazil to have independent bases of soybeans. And no doubt, while i dont have statistical proof of this, the chinese are developing a alternative longterm supply bases. Probably in brazil, russia and ukraine. Again, i dont have evidence of that. But that would be a natural response. The american agricultural economy is predicated on producing for a global population and expanding global. We produce far too many calories for us to use economically. It has to be. It has to be exported. The entire agricultural economy is predicated on a Global Market despite dereks very good effort here. On qualitative measures, we must be respectful of the chinese and mindful that they are they do not operate within the rule of law boundaries and that they can create considerable amount of problems for American Companies. And i wouldnt say necessarily that thats Chinese Government, per se. Just individual chinese bureaucrats who are very risk adverse would have a hard time approving american applications and what not. Even if it wasnt an official government policy. I think the American Chamber of Commerce Survey demonstrates that. On the high tech side, i am also very concerned. Point of fact, United States graduates 650,000 s. T. E. M. Engineers, scientists a year. A third of them are foreigners. About 400,000 americans. China graduates 1. 8 million s. T. E. M. Graduates a year. And so i think it is not inappropriate to be concerned about over the longer term how our two tech sectors are going to intermesh. So let me just end up with a quote from rob atkinson. Rob is in town. He runs the ifif. Information technology and Innovation Foundation and generally a real good scholar of this stuff. He estimates that if the tariffs fully go into effect that u. S. Firms could lose between 14 and 56 billion in export sales over five years, threatening 800,000 to 774,000 jobs. I think that thats something we should ponder. Let me end and say tariffs are an appropriate means to an end. But they cannot be the end. If tariffs are the end of or the objective, then were going to pay a very high price. The two president s will be meet not guilty approximately a little bit less than a month. Let us hope that their diplomats and statesmen can get together to resolve the structural issues as identified in the 301 so that the trading relationship can get back to normal so that American Workers, companies, farmers and ranchers can benefit from the growth that will be derived from china over the next ten years. Thank you. I think, according to the china survey you mentioned, good statistics, by the way, on the views that business is operating in china. I think Something Like 50 would even prefer to simply go back to the status quo of what we had two years ago. Of course. Because weve gotten to this point. Finally, our last guest, wayne morrison, if you will. Thanks, riley. Great to be on this panel with my esteemed colleagues. I was asked to focus more on the trade aspect, trade relationship part of it. Partly because derek didnt want to do it. I think hes tired of working on it. I dont blame him. Ive been working on china trade issues since 1988. I was transferred and do you want to work on china. Nobody is interested in china. Oh, okay. Now it seems like thats changed. Everybody is very interested in china. I do agree a lot with what derek said. When china got into the wtr, i remember when the negotiations were going on, that was a really big deal and there w