1. Of the Tensions among Individuals, Corporates, and Governments

2. Why We Need Stronger Global Institutions

Of the Tensions among Individuals, Corporates, and Governments

‘The trade war was actually about the dissemination of knowledge, knowledge transfer, technological transfer.’

Yukon Huang is a great – and influential – contrarian.

• The title of his most recent book makes that clear: Cracking the China Conundrum: Why Conventional Economic Wisdom Is Wrong.

I have often said that no one has influenced my thinking on any individual China issue than Yukon.

• The problem: I’m not a good enough economist to tell if he’s right.

Yukon is a senior fellow with the Asia Program at the Carnegie Endowment.  ·

• During his career at the World Bank, he served, among other posts, as country director for China.
• He is an adviser to the World Bank, Asian Development Bank, Asian Infrastructure Investment Bank, and various governments and corporations.  

'One of the things I've been wrestling is a framework for understanding U.S.-China relations, which are getting worse and worse first in the context of the trade war and now in the context of the pandemic.'  

• 'The framework I've come up with looks at the interactions or roles of individuals, the public corporates, and then the governments.’

‘The problem we have is that the factors that shape the behaviors of individuals, firms, and governments are different.’

• ‘Each has differing incentives and behavior that end up exacerbating tensions among nations and the world.’

‘Let me illustrate. What was the trade war really about?’

• ‘It wasn’t about trade - not about bilateral trade deficits or balances, and buying more soybeans.’
• ‘It was actually about the dissemination of knowledge, knowledge transfer, technological transfer.’

‘All growth, whether it's the U.S. and China, ultimately is the result of knowledge being shared.’

• ‘And the more it's shared, the more everyone benefits.’

‘At the individual level, the sharing of knowledge is a public good, which everyone likes and supports.’

• ‘Because if you share knowledge with me and I shared knowledge with you, we both benefit. It doesn't detract from the knowledge.’

‘The same is true across nations.’

• ‘One reason why global growth has surged over the last 20 years is that knowledge has been shared more easily through globalization, trade, foreign investment and flows, and so on.’

‘Over the last couple of decades emerging markets have led that increase in growth triggered by gaining the knowledge from the rich countries.’

• ‘And China does it better than everyone.’

‘But this creates a tension because it’s seen as being unfair.’

• ‘Still intrinsically the principle is still there. We want to promote the sharing of knowledge, and everyone benefits. That's a public good. And individuals individually support this.’

‘Firms are different. Firms, when they capture knowledge and innovate, make money, and they want to protect it.’

• ‘And if they don't protect it, they can't flourish in a commercial sense.’

‘So there's a balance in terms of allowing firms to share knowledge and allowing them to capitalize and gain from it.’

• ‘We have patents and property rights and everything else to try to strike that balance.’
• ‘If you manage that well, you can deal with this tension between innovation and commercial objectives.’

‘But there's a problem because increasingly firms are producing more innovative products which have dual-use or security implications.’

• ‘A corporation doesn't care about the security implications too much. They're concerned about the commercial applications.’

‘So when a lot of these dual-use products are being sold to China, then the government steps in.’

• ‘They're not really concerned about the commercial implications.’
• ‘They're concerned about the dual-use security implications, which they realize corporates may not.’

‘Now you have the U.S.-China trade tension. But it's actually a technology tension. And the problem is basically this.’

• ‘The state is unable to balance the commercial knowledge dissemination benefits of this kind of investment and trade, with the security aspects.’

Why We Need Stronger Global Institutions

‘A great irony. We need global institutions or arrangements to deal with trade, technology, and health because individuals, corporations, and national governments cannot.’

‘So now we have this big debate about decoupling or not decoupling, and we realize that this has negative consequences for everybody.’

• ‘If corporations can't trade or export, they can't invest, and they can't grow, and if they can't have access to the China – in every way they are hurt.’

‘We weren't able to resolve this through the Phase One trade deal.’

• ‘So then the issue here is that we do not have a global governance or institutional framework to resolve these issues.’
• ‘Now we have a tremendous irony. You need a global governance structure that deals with these knowledge issues because even countries can't deal with them.’

‘Herewhether it's on trade or knowledge that structure is the WTO.’

• ‘But the WTO doesn't have the capacity.’
• ‘Even worse, the U.S. undermines it, doesn't want the WTO to have the power or the capacity.'
• ‘It doesn't appoint the judges; it doesn't augment the authority of the WTO.’

‘So, we're missing a global institutional arrangement that could balance commercial interests and global security concerns.’

• ‘That's why the 5G issue is not being addressed properly.’

‘Well, the question is, can we? And the answer is we can because we've done it before: Nuclear proliferation. Landmines. Climate change.’

• ‘We struggle, but it's potentially possible to strike a global understanding about how these public goods issues with commercial implications need to be handled, but it's tough for us.’

‘Then on the pandemic, the WHO is a logical institution to say we need to maintain inventories. We need to share the vaccines and medicines. We need to make sure the information is available. And we need to be able to enforce rules across countries because individually countries themselves won't do it.’

• ‘So far how do we address this? We in the U.S. undermine the WHO.’

‘Again a great irony. We need global institutions or arrangements to deal with trade, technology, and health because individuals, corporations, and national governments cannot.’

• 'But the U.S, China, the EU, and emerging countries all lack the political will to get them.'