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U.S.-China Economic and Security Review Commission, "Hearing: China and the Future of Globalization," May 19-20, 2005

This hearing was conducted by the U.S.-China Economic and Security Review Commission on May 19-20, 2005. The U.S.-China Economic and Security Review Commission was created by the U.S. Congress in 2000 to monitor, investigate, and submit to Congress an annual report on the national security implications of the economic relationship between the United States and the People’s Republic of China.
May 19, 2005

May 19-20, 2005
Council on Foreign Relations
58 East 68th Street
New York, NY 10021

Co-Chairs: Chairman C. Richard D’Amato and Vice Chairman Roger W. Robinson, Jr.

Opening Statement of C. Richard D’Amato, Commission Chairman

I am pleased to open our two-day hearing in New York City at the Council on Foreign Relations on a topic of great scope and importance.

It is particularly fitting that we examine the nature and implications of global economic integration – what has come to be known as “globalization” – at this important institution for American foreign policy, and in this city at the center of America’s global economy.  After all, the Commission was established to look at how our economic and strategic goals intersect in the context of China.  We are indebted to Ambassador Haass and the Council for their hospitality and assistance in convening this event. I would also like to recognize the exceptional efforts of my colleague, Commissioner Patrick Mulloy, in helping to develop the agenda for this hearing.

In its 2004 Report to Congress, the Commission set the framework for our hearing by drawing a link between the development of U.S.-China economic relations and the development of globalization writ large. The Commission stated in the report:

[T]he U.S.-China economic relationship is of such large dimensions that the future trends of globalization will be influenced to a substantial degree by how the United States manages its economic relations with China.  It is reasonable to believe that U.S.-China economic relations will help shape the rules of the road for broader global trade relations.  If current failings are remedied and the relationship is developed so as to provide broad-based benefits for both sides, globalization will likely be affected in a positive manner on a worldwide scale. If not, the opposite will likely be true.

This Commission has been detailing for the Congress on an ongoing basis the increasing breadth of U.S.-China economic relations.  The level of trade and financial flows between the two countries has reached massive proportions. Two-way trade exceeded $230 billion in 2004, including a U.S. trade deficit of $162 billion. Yet China remains a developing, non-market economy.  It is a truly unprecedented economic relationship between two economies at vastly different ends of the development spectrum. The Commission believes that understanding and addressing the costs and benefits of this relationship are vital to long-term U.S. economic health and to broader global trade relations.

Globalization is dealt with in formal economics under theories of trade, investment, and comparative advantage. We intend to explore the theoretical underpinnings of globalization with our distinguished panelists and assess how they comport with today’s economic realities. A key question is whether traditional theories need to be modified or recast in the face of a dramatically changing world.  For example, do traditional theories of comparative advantage still hold true where the factors of production – both labor and capital – are highly mobile?

Moreover, we will examine how the U.S. economy is faring in a global environment. Surely there will be specific winners and losers from globalization in the American economy, but we hope to understand what structural changes have taken place that will alter U.S. economic fundamentals in the future.  For example, to what extent are U.S. retailers driving decision-making as opposed to U.S. manufacturers?  What are the implications for the arrangements hammered out between labor and management in this country over decades of negotiations?

We will further examine the causes and consequences of the U.S. trade deficit, one of the most controversial and significant outgrowths of globalization for the U.S. economy. Some economists contend that the deficit is driven by global economic trends, while others view it primarily as the result of U.S. consumption and savings trends. It is vital to understand the true dynamics at work in order to fashion an appropriate national policy response.

Lastly, the Commission believes it is essential to understand the role that U.S. tax policies play in influencing U.S. firms’ global business strategies.  U.S. rules for taxing or exempting from tax the income of U.S. firms’ foreign subsidiaries have been criticized by many tax analysts and practitioners for providing undue incentives for U.S. firms to relocate abroad.  We need to understand whether the current U.S. tax regime strikes the right balance between maintaining the competitiveness of U.S. firms doing business abroad and removing unnecessary incentives for U.S. firms to move capital and production offshore.

In the context of this hearing, it is fair to ask if globalization, per se, is being used as a convenient marquee to justify corporate or governmental behavior that is in fact intended as simply self-serving, or to circumvent labor, environmental, or other standards erected in the most developed economies. If globalization is to be used as a “one size fits all” justification for such behavior, then it is being stripped as a concept of any lasting content.

We fully recognize that even a two-day hearing can only begin to scratch the surface of these far-reaching questions.  But these are questions that must be examined and understood with the goal of reaching a national consensus on how best to meet the challenges and opportunities of globalization.

Opening Statement of Roger W. Robinson, Jr. Commission Vice Chairman

I would like to join the Chairman in expressing the Commission’s sincere appreciation to Ambassador Haass and the Council on Foreign Relations for hosting this important event.  I would also like at the outset to express my thanks to Commissioner Patrick Mulloy who was indispensable in helping pull together this important hearing for the Commission.

When Congress established the Commission, it laid out several particular areas of investigation for the Commission to undertake in assessing how U.S.-China economic relations are affecting our broader economic and national security interests. Over the years, we have held hearings on many dimensions of U.S.-China economic relations, ranging from China’s adherence to its World Trade Organization (WTO) obligations to Chinese firms’ offerings in the U.S. capital markets to our series of field hearings across the country examining how the bi-lateral relationship is impacting key U.S. industry sectors.

In many ways, the topic we will be exploring here in New York represents the next step in our analysis of the economic implications of our relations with China.  We are interested in gaining a more comprehensive understanding of the role that U.S.-China economic relations play in the broader context of what is commonly referred to as “globalization.” As the Chairman explained, and as stated in our 2004 Report to Congress, the Commission believes that the U.S.-China economic relationship is so large in scope and importance that it may well be setting precedents for the global economic order.  Globalization did not begin with China, but China’s emergence as an economic power of such rapidly advancing proportions may well be changing the assumptions and theories that have to date governed our thinking about globalization.

By all accounts, China has reaped substantial benefits from its rapidly expanding participation in the global economy.  Few could realistically have predicted two decades ago that China’s economic integration into the world trading system would lead to the scale of developments we are witnessing today. It is therefore useful to ask: Does the China factor change the dynamic of the global economy?  Has China’s emergence changed the paradigm of globalization compared to the earlier development of Latin America and other Asian countries, or are the trends with China of a piece with the same progression?

We are fortunate to have with us over the next two days a number of prominent economists, academicians, business leaders, and tax practitioners to explore these important issues.  We will be examining the economic theories underlying globalization, the impact of globalization on the U.S. economy, the interrelationship between globalization and the U.S. trade deficit, the strategies that corporations employ to compete in the global economy, and the role of tax policy in driving trade and investment flows.

We hope to use this event to stimulate a debate on what is driving global economic flows, the impact of such flows on the U.S. economy, and the role of U.S.-China trade and investment relations in creating the international framework for globalization. These proceedings likely will raise more questions than provide answers, but asking the right questions is an essential first step in seeking prescriptions aimed at maintaining our nation’s long-term economic well being.


Introductory Remarks
Ambassador Richard N. Haass, President, Council on Foreign Relations, New York, NY

Panel I - The Economic Underpinnings of Globalization
Professor Arvind Panagariya, School of International & Public Affairs, Columbia University, New York, NY
Dr. Ralph Gomory, President, Alfred P. Sloan Foundation, New York, NY
Professor Richard B. Freeman, Harvard University, Cambridge, MA
Dr. William Wolman, Former Chief Economist, Business Week Magazine, New York, NY

Panel II - The Impacts of Globalization on the U.S. Economy
Professor Richard N. Cooper, Harvard University, Cambridge, MA
Mr. Clyde Prestowitz, President, Economic Strategy Institute, Washington, DC
Hon. Richard McCormack, Senior Advisor, The Center for Strategic & International Studies, Washington, DC

Panel III - China’s Role in the Development of Globalization
Professor Oded Shenkar, Fisher College of Business, Columbus, OH
Professor Robert A. Blecker, American University, Washington, DC
Dr. William Overholt, Chair in Asia Policy Research, Center for Asia Pacific Policy, Rand Corporation, Santa Monica, CA

Panel IV – Globalization and the Trade Deficit
Dr. Catherine L. Mann, Senior Fellow, Institute for International Economics, Washington, DC
Professor James K. Galbraith, LBJ School of Public Affairs, University of Texas, Austin, TX
Dr. Dean Baker, Co-Director, Center for Economic and Policy Research, Washington, DC

Congressional Perspectives
(Members of Congress invited)

Panel I - Corporate Globalization Strategies
Mr. William J. Jones, Chairman, Cummins-Allison Corp., Mt. Prospect, IL
Mr. Ron Blackwell, Chief Economist, AFL-CIO, Washington, DC
Professor Gary Hamilton, University of Washington, Seattle, WA

Panel II - Tax Policy Implications
Dr. Gary Clyde Hufbauer, Reginald Jones Senior Fellow, Institute for International Economics, Washington, DC
Professor H. David Rosenbloom, Director, International Tax Program, New York University School of Law, New York, NY
Mr. David R. Tillinghast, Partner, Baker & McKenzie LLP, New York, NY

Additional Material Submitted for the Record
Hon. Paul Craig Roberts, Institute for Political Economy, Senior Research Fellow, The Hoover Institution, Stanford University



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