[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]
ACROSS THE OTHER POND: U.S. OPPORTUNITIES AND CHALLENGES IN THE ASIA
PACIFIC
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON ASIA AND THE PACIFIC
OF THE
COMMITTEE ON FOREIGN AFFAIRS
HOUSE OF REPRESENTATIVES
ONE HUNDRED FOURTEENTH CONGRESS
FIRST SESSION
__________
FEBRUARY 26, 2015
__________
Serial No. 114-8
__________
Printed for the use of the Committee on Foreign Affairs
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COMMITTEE ON FOREIGN AFFAIRS
EDWARD R. ROYCE, California, Chairman
CHRISTOPHER H. SMITH, New Jersey ELIOT L. ENGEL, New York
ILEANA ROS-LEHTINEN, Florida BRAD SHERMAN, California
DANA ROHRABACHER, California GREGORY W. MEEKS, New York
STEVE CHABOT, Ohio ALBIO SIRES, New Jersey
JOE WILSON, South Carolina GERALD E. CONNOLLY, Virginia
MICHAEL T. McCAUL, Texas THEODORE E. DEUTCH, Florida
TED POE, Texas BRIAN HIGGINS, New York
MATT SALMON, Arizona KAREN BASS, California
DARRELL E. ISSA, California WILLIAM KEATING, Massachusetts
TOM MARINO, Pennsylvania DAVID CICILLINE, Rhode Island
JEFF DUNCAN, South Carolina ALAN GRAYSON, Florida
MO BROOKS, Alabama AMI BERA, California
PAUL COOK, California ALAN S. LOWENTHAL, California
RANDY K. WEBER SR., Texas GRACE MENG, New York
SCOTT PERRY, Pennsylvania LOIS FRANKEL, Florida
RON DeSANTIS, Florida TULSI GABBARD, Hawaii
MARK MEADOWS, North Carolina JOAQUIN CASTRO, Texas
TED S. YOHO, Florida ROBIN L. KELLY, Illinois
CURT CLAWSON, Florida BRENDAN F. BOYLE, Pennsylvania
SCOTT DesJARLAIS, Tennessee
REID J. RIBBLE, Wisconsin
DAVID A. TROTT, Michigan
LEE M. ZELDIN, New York
TOM EMMER, Minnesota
Amy Porter, Chief of Staff Thomas Sheehy, Staff Director
Jason Steinbaum, Democratic Staff Director
------
Subcommittee on Asia and the Pacific
MATT SALMON, Arizona Chairman
DANA ROHRABACHER, California BRAD SHERMAN, California
STEVE CHABOT, Ohio AMI BERA, California
TOM MARINO, Pennsylvania TULSI GABBARD, Hawaii
JEFF DUNCAN, South Carolina ALAN S. LOWENTHAL, California
MO BROOKS, Alabama GERALD E. CONNOLLY, Virginia
SCOTT PERRY, Pennsylvania GRACE MENG, New York
SCOTT DesJARLAIS, Tennessee
C O N T E N T S
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Page
WITNESSES
Karl D. Jackson, Ph.D., C.V. Starr Distinguished Professor of
Southeast Asia Studies, director of the Asian Studies Program,
Johns Hopkins School of Advanced International Studies......... 8
Van Jackson, Ph.D., visiting fellow, Center for a New American
Security....................................................... 18
Mr. Matthew P. Goodman, William E. Simon Chair in Political
Economy, senior adviser for Asian economics, Center for
Strategic and International Studies............................ 27
Mr. Abraham M. Denmark, senior vice president, Political and
Security Affairs and External Relations, The National Bureau of
Asian Research................................................. 38
The Honorable Patrick Mulloy, trade lawyer (former Commissioner,
U.S.-China Economic and Security Commission)................... 56
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
Karl D. Jackson, Ph.D.: Prepared statement....................... 10
Van Jackson, Ph.D.: Prepared statement........................... 20
Mr. Matthew P. Goodman: Prepared statement....................... 29
Mr. Abraham M. Denmark: Prepared statement....................... 40
The Honorable Patrick Mulloy: Prepared statement................. 58
APPENDIX
Hearing notice................................................... 86
Hearing minutes.................................................. 87
The Honorable Gerald E. Connolly, a Representative in Congress
from the Commonwealth of Virginia: Prepared statement.......... 88
ACROSS THE OTHER POND: U.S.
OPPORTUNITIES AND CHALLENGES
IN THE ASIA PACIFIC
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THURSDAY, FEBRUARY 26, 2015
House of Representatives,
Subcommittee on Asia and the Pacific,
Committee on Foreign Affairs,
Washington, DC.
The committee met, pursuant to notice, at 10 o'clock a.m.,
in room 2172 Rayburn House Office Building, Hon. Matt Salmon
(chairman of the subcommittee) presiding.
Mr. Salmon. The hearing will come to order. First, I'd like
to take this opportunity to welcome everyone to the Asia and
Pacific Subcommittee's first hearing of the 114th Congress.
As many of you know, I've spent a significant amount of
time living and working in the region, and I'm honored to serve
as the chairman of this important subcommittee. I look forward
to working with all the committee members to conduct rigorous
oversight of our nation's foreign policy and spending decisions
in this critical region of the globe.
Since President Obama announced his administration's
rebalance to Asia several years ago, the United States has
struggled to maintain its priorities to the region. While
recognizing the significance of the Asia-Pacific, fiscal
austerity at home, and instability and conflict in the Middle
East and Eastern Europe have diverted U.S. attention away, and
the United States struggles to convince our allies and security
partners of our commitment to the region.
Two thousand fifteen will be a pivotal year for U.S.
engagement in Asia, presenting numerous economic, political,
and security challenges. Today we hope not only to hear about
the prospects and obstacles facing the rebalance, but how we
could better operationalize our resources to lend greater
credence to our objectives in Asia in the medium to long term.
This year we may see the potential passage of the Trans-
Pacific Partnership, a 12-member nation trade and investment
treaty with Asia-Pacific countries. And there's no doubt that
the economic opportunities in the Asia-Pacific are
unparalleled. Current negotiating member nations account for 37
percent of total U.S. goods and services trade, so its passage
has the prospect to vastly bolster our economic well-being.
Two thousand fifteen will also be a year of continued
instability and conflict. In addition to persistent challenges
in Asia such as human trafficking, terrorism, human rights
violations, catastrophic natural disasters, widespread
corruption and ethnic strife, new conflicts and threats will
most certainly emerge.
North Korea continues to egregiously violate international
norms; from its cyber-attack on Sony Entertainment Pictures
late last year to its continued violation of human rights, to
its continued pursuit of nuclear weapons capabilities.
Pakistan continues to harbor terrorists and contribute to
the instability in the region, and poses a threat to the United
States. Various nations' state-sponsored theft of U.S.
intellectual property and citizens' personal information
presents an enduring, long-term threat to our economic and
national security.
This year marks the 70th anniversary of the end of World
War II, and Japan's Prime Minister, Shinzo Abe, has proposed
revisiting its interpretation of collective self-defense, in
light of unprecedented tension between Japan and China. At the
same time, the United States and Japan are also revisiting
their bilateral defense guidelines. I look forward to hearing
what our witnesses think the implications are for the U.S.-
Japan alliance.
Later this year, we will also look forward to welcoming
India's new leader, Prime Minister Narendra Modi, to the United
States. As the world's third largest economy and major
democratic power player in Asia, there is immense potential for
collaboration and cooperation. Similarly, India also seeks to
balance China's growing dominance in the region, and the United
States is poised to play a unique role in this space.
We will see whether Burma's reforms since we lifted
sanctions have been genuine in its parliamentary elections
later this year. And that said, I am concerned with the level
of ethnic conflict in Northern Burma between the government and
numerous ethnic minority opposition groups, especially the
number of displaced refugees the conflict has caused.
Elsewhere in Southeast Asia, political instability has
elevated our concern. For example, in Thailand, two military
coups over the last 8 years have disrupted our traditionally
strong economic and security relationship with that country.
Without a clear way forward and no strong domestic governance,
Thailand may continue to face significant obstacles.
Finally, China. China continues to gain leverage on the
international stage and has challenged international norms of
behavior in such areas as diplomacy and cyberspace alike. China
has pressured American businesses in unfair, even hostile
business environments, while simultaneously partaking in
arguably the largest transfer of intellectual property theft in
history through means such as cyber espionage. Internally,
President Xi Jinping has a brutal anti-corruption campaign to
weed out potential opponents while simultaneously clamping down
on civilian freedom of expression and access to information.
At the same time, China continues to modernize its military
and weapons systems specifically targeted at Taiwan and the
United States, and U.S.-allied assets. In the maritime space,
China continues to aggravate tensions in the East and South
China Seas with its buildup of islands in contested waters and
with its aggressive expansionist behavior against its neighbors
such as Japan, Vietnam, and the Philippines under the banner of
sovereignty claims. As there is currently no clear solution, I
would certainly be interested in hearing from our witnesses
today how we can best prevent conflict from escalating and
arbitrate these disputes.
China is ostensibly a major factor of the U.S. rebalance,
though by no means should our attention to China come at the
expense of our other commitments in the region. Our alliances
with Japan, South Korea, the Philippines, Australia, and
Thailand could help secure cooperation and compliance with
international norms.
I really hope that the witnesses will be able to address
how the United States can best focus our time and our assets to
the rebalance, how we can improve commercial ties, how trade
deals like the TPP can help, how we can support democratic
governance and transitions, and how we can best support our
allies and friends in the region. An improved understanding of
U.S. opportunities and challenges in Asia will undoubtedly
inform our engagement in the region.
I look forward to hearing from the distinguished witnesses
this morning and I now yield to Mr. Sherman, the ranking member
of the subcommittee, for his opening remarks.
Mr. Sherman. Asia and the Pacific, so many issues, so
little time. Glad, Mr. Chairman, you've put together a survey
of what our subcommittee will deal with as you begin your
chairmanship, and I begin my, what do they call it, ranking
membership. And I'm glad to see that so many of us from
California and Arizona were able to get through the snow of the
East. I don't know if the gentleman from Ohio gets any special
accolades for that or not in order to be here today.
This committee's jurisdiction is not only over half the
world's population, it is probably over half the world's
problems, and half the world's opportunities. A lot of
attention is focused on the Muslim world. Our jurisdiction
includes Indonesia and Malaysia, the world's two largest--or
two of the largest, including Indonesia being the largest
democracy in the Muslim world.
Our jurisdiction includes the two nuclear powers that don't
have stable governments, North Korea and Pakistan. We are posed
to deal with Prime Minister Modi, a new force in India, and the
significant trade opportunities that that provides.
And when I mention trade, I should point out that the
Trans-Pacific Partnership which is basically a trade deal with
Asia is, perhaps, the only legislation this Congress will pass
other than, of course, keeping the doors open by passing
appropriations bills. Unfortunately, it's legislation we should
not pass.
We were told by the International Trade Commission that
permanent most favored nation status for China would add $1
billion to our trade deficit. I guess $1 trillion would have
been closer. Certainly, several hundred billion dollars per
year has been added to--as a result of that decision. And we
were told in this room just yesterday by Secretary Kerry that
this trade agreement was not a race to the bottom. Well, it's a
free trade deal with a country with 30-cent-an-hour wages. how
much more bottom do you need to go? How much lower a wage must
American workers compete against? And we're told that this
trade agreement will confront China, but if you read the Rules
of Origin provisions, it will tremendously benefit China.
We can look to our trade agreement with South Korea and see
that goods that are 65 percent made in China, sometimes higher,
and finished in South Korea get duty-free entry into the United
States. Business will eventually take advantage of that, and so
China gets all the benefits of a free trade agreement. No, 65
percent of the benefits of a free trade agreement with the
United States, and zero percent is what we get of a free trade
agreement with China.
It's I think known that I'm a hawk on these trade issues
with China. I'm also a dove on the military issues. Most of
Washington is on the other side on both of these. The
condescension and self-interests of those on the trade issue
is, I think, well known. Less well known is just how dedicated
the Pentagon is to finding and building us up to confront a
worthy adversary. Every time we have confronted a non-uniformed
adversary since the Philippine insurrection, it has been an
inglorious experience for the Pentagon. Every time we've
confronted a worthy uniformed adversary, and there is only one
available to us at the present time, it has been a glorious
victory and none more glorious than when we defeated the Soviet
Union without a major conflagration. So, when I talk to the
Pentagon about research, about deployment, about training they
say we don't want to prepare for ISIS. There is no glory in
Boko Haram; 100 percent of our research dollars are going into
how to fight China.
Well, we may get what some wish for; a confrontation with
China, but keep in mind these little islands, islets, rocks
that are the excuse, even if we win, they're not ours. We build
our whole military machine so that Japan, a nation of many
islands, gets a couple more. And we're told there's oil there;
there isn't, but if there was, it's not ours. So, this buildup
to confront China is not in our national interest. It does meet
the institutional needs of the Pentagon, and pivot toward Asia
seems to be a cover. It is a slogan that conjures up a trade
mission to Tokyo, but instead it means spending $\1/2\ trillion
developing and deploying supersonic fighters that have no
purpose other than to hit targets in a well-defended
technologically advanced country.
So many issues, so little time. I really haven't mentioned
Taiwan, the Philippines, barely mentioned Japan, Burma or
Myanmar. We've got a big job to do, and the first step in
helping to do that is to yield back to the chair.
Mr. Salmon. There is a little bit of a difference in our
opening remarks, and you know what, it's a good thing, it
really is. I have nothing but respect for the ranking member.
And while we're probably going to come to some different
conclusions, I have nothing but respect for the positions that
you've taken. I think they've always been principled, and I
believe that unlike a lot of politicians here in Washington,
DC, you actually believe what you say, and I have nothing but
respect for that.
Mr. Sherman. Can I use that in my next campaign?
Mr. Salmon. I'm not sure it will help you coming from me.
If other members would like to make an opening statement,
go ahead, absolutely.
Mr. Chabot. I'll be brief. I just wanted to, first of all,
congratulate you on your chairmanship, your first hearing, and
wish you the best. Having had the honor to chair this
subcommittee in the last Congress, I know that you're more than
up to the job. Speaking Chinese is something that I never
accomplished; I really never accomplished speaking in any other
language other than English, but you've mastered it. And, I
think you're perfectly positioned to chair this subcommittee. I
know you're going to do it well.
I also know that Mr. Sherman will do a great job, even
though we may disagree on an issue here or there. He is
principled, and one of the smartest guys in Congress. He'll let
you know that once in a while. No, I won't say that, no. Just
by your actions you'll let us know, not by informing us. I know
having traveled with Mr. Sherman to Asia in the last Congress,
I think over time I would consider him not just a colleague,
but a friend. And periodically, we find an issue to agree on,
and that's a good thing.
I also want to congratulate and commend Mr. Bera for
filling in for Eni Faleomavaega in the last Congress as ranking
member. Eni, as we all know, had some serious health issues
that he was dealing with much of that Congress, and Ami did a
great job. At the same time, he had a barn-burner of a race
back home, which I'm familiar since I've had a number of those
over the years. My district has changed, and I hopefully won't
have that any time in the near future, but experience that time
and again. When you are in one of those races, it can be
challenging to really put in the time and effort up here, and I
always try to do that. I know Mr. Bera did, as well, so I want
to commend him for that.
I actually having another hearing going on, so I'm going to
be going between two places. I'm the new chairman of the Small
Business Committee, the first time I've chaired a full
committee, so that's something that I'm going to be devoting a
lot of attention. But Foreign Affairs is near and dear to my
heart, having served on this committee for 19 years now; the
full committee, and chaired the Middle East Subcommittee. That
said, the Asia-Pacific region is critically important, and when
you consider the amount of trade that goes through that area,
and the world's oil shipments--two-thirds of the oil
shipments--it's a critical part of the world.
The so-called ``rebalancing'' or ``pivot,'' I think in
concept, at least, may be a good one. I think there's some
question about the follow-up, particularly when one considers
the growing, for lack of a better term, chaos in the Middle
East; whether it's Yemen, which was touted as kind of a success
story and recently we saw the government fall to an Iranian-
backed Hoothi group; to Libya, where we saw 21 Christians
literally beheaded on the beach there recently. There's a whole
range of things we can talk about in the Middle East, so I
understand why the rebalance certainly may not be as it was
originally envisioned--we're not necessarily seeing that right
now.
Those are the kind of questions I'd ask, but I have to go
to another committee. What can we expect from that rebalance
when you consider what's actually going on in the Middle East?
It looks like not only are we going to be exiting that region
to some degree, I think we're going to be going back in, in
considerable form in the very near future.
So, anyway, thank you and congratulations on your
chairmanship, and I yield back my time, Mr. Salmon.
Mr. Salmon. Thank you, very much. Mr. Bera, would you like
to make an opening statement?
Mr. Bera. Sure, and I'll keep mine short. I'm looking
forward to a great session of Congress with you, Mr. Chairman,
and the new ranking member. I'm also looking forward to the
testimony of the witnesses.
Obviously, I have a keen interest in the U.S.-South Asia,
U.S.-India relationship. Also, very interested in getting an
update on, you know, some of the tensions in the South China
Sea, as well as it does seem like things in the East China Sea
have settled down a little bit, but again these unilateral
moves that China has made, and getting that update.
Again, I think we're going to have a great session of
Congress. I think there is huge opportunity both geopolitically
and economically in a strong U.S.-Asia relationship. And,
obviously, just having returned from India, I think there is
huge opportunity and promise in the U.S.-India relationship,
both strategically and economically. So, look forward to the
testimony.
Mr. Salmon. Thank you. Mr. Lowenthal, yes.
Mr. Lowenthal. Thank you, Mr. Chairman, ranking members,
and all the witnesses. It's a real pleasure to join this
subcommittee.
I, like many of my colleagues, think that we have
tremendous--we're at a pivotal point in U.S. foreign policy in
Asia. I think there are lots of opportunities, but there are
also great challenges. You know, as we continue to see greater
involvement and engagement, especially through the TPP, that
raises certain issues for me.
I represent the Port of Long Beach and know how critical
the engagement of all these countries are at an economic level.
And while we grapple with issues of environment and the TPP,
labor, currency manipulation, and state-owned enterprises, for
example, we also now have unprecedented leverage in these
negotiations to promote universal values of human rights.
I believe if you want to gain favorable trading status with
the United States and your neighbors, you must at least adhere
to a minimal standard of respecting the basic rights of your
own citizens. So for me in my district, and what I'm concerned
about is, for example, Vietnam. It's failed time and time again
to meet anything close to a minimal standard. This one party
authoritarian government represses, sometimes violently, anyone
who speaks out against the regime. The government jails
bloggers, labor activists, and religious leaders seemingly on a
whim.
You know, while Vietnam has been increasingly pressured by
the international community to improve its human rights record
in recent years, it seems like every step forward is also
accompanied by two steps backward.
I look forward to hearing the witnesses, not only in terms
of economic issues, and security issues, but really how we can
advocate for values that are not just important to us as
Americans, but really are universal values. And I look forward
to really the discussion that takes place on this committee.
Mr. Salmon. Thank you. Representative Meng.
Ms. Meng. Thank you, Chairman Salmon, and Ranking Member
Sherman for welcoming me. I'm very honored to join the
Subcommittee on Asia and the Pacific this term.
Our hearing today is aptly named. This is an important time
for many Asian countries that are rising in economic strength,
and looking to increase their power in the region, and
globally. The strength of our relationships with these
countries will be a defining characteristic of the next
century.
I look forward to working with my colleagues as we navigate
these relationships, and work with our allies in the region.
Mr. Salmon. Thank you very much. We're pleased to have such
an excellent panel join us today to share their expertise on
this very important region of the world.
First, Dr. Karl Jackson serves as the Director of the Asian
Studies Program at Johns Hopkins School of Advanced
International Studies, where he founded the Southeast Asian
Studies Program. Before he joined Johns Hopkins University, Dr.
Jackson served as the Vice President's National Security
Advisor and as Special Assistant to the President.
Dr. Van Jackson is currently a visiting Fellow at the
Center for a New American Security. Prior to joining CNAS, Dr.
Jackson served with distinction in the Office of the Secretary
of Defense. Dr. Jackson also lectures at a number of highly
regarded academic institutions, including Georgetown University
and Catholic University of America.
Mr. Matthew Goodman joins us from the Center for Strategic
and International Studies, where he's a Senior Advisor for
Asian Economics. Mr. Goodman previously served in numerous
roles in the administration, including the Departments of State
and Treasury, as well as the White House.
Mr. Abraham Denmark is the Senior Vice President for
Political and Security Affairs at the National Bureau of Asian
Research. Before his time at NBR, Mr. Denmark was a
professional in both the private sector and the government, and
worked in the Office of the Secretary of Defense.
Mr. Patrick Mulloy was most recently a five-term
Commissioner of the Bipartisan U.S.-China Security and Economic
Review Commission. Mr. Mulloy is a trade lawyer and former
Assistant Secretary in the Department of Commerce's
International Trade Administration.
And without objection, the witnesses fully prepared
statements will be made part of the record, and members will
have 5 calendar days to submit statements, questions, and
extraneous materials for the record.
Let me just briefly explain the lighting system. I'm sure
you're all familiar with it. You each are given 5 minutes for
your prepared statements. After 4 minutes, you'll see an amber
light, just to let you know that it's coming close. When the
light hits red, it's time to conclude. I've not been a real
stickler if you go a few seconds over because I really want to
hear what you have to say. The same thing for members'
questions. We don't want them to go on forever, but I really do
have a light gavel. If you've got questions you want answered,
that's why we're here, so if you go a few seconds over, don't
worry. Let's just get as much as we can.
So with that, we're going to start with you, Dr. Jackson,
and we'll work our way over.
STATEMENT OF KARL D. JACKSON, PH.D., C.V. STARR DISTINGUISHED
PROFESSOR OF SOUTHEAST ASIA STUDIES, DIRECTOR OF THE ASIAN
STUDIES PROGRAM, JOHNS HOPKINS SCHOOL OF ADVANCED INTERNATIONAL
STUDIES
Mr. Karl Jackson. Thank you very much, Mr. Chairman, and
other distinguished members of the committee. I used to testify
as a government witness; now I'm a free man, but that was a
long time ago in the age of Steve Solarz and Jim Leach. But, in
any case, it's good to be back in front of the committee, and
I'm not going to read my statement. I'd like to just make a few
points so that we can get on to my younger brother, Dr. Van
Jackson.
The first point I'd like to make is, Asia has in our
lifetimes been a remarkably successful place. It's been far
more successful than we ever thought, at least I ever thought
as a young adult. There's been a larger increase in prosperity
in a shorter amount of time than mankind has ever witnessed.
This is an amazing turn of events, but with that turn of
events comes greater complexity because China and India are
going to be much, much more powerful in the next 25 years than
we ever anticipated really 30 to 40 years ago. The so called
uni-polar moment of the United States in Asia, in my opinion,
has passed, and we will be facing a multi-polar balance of
power in Asia, and we have to figure out how to deal with it so
that we preserve our own interests, but also avoid conflict.
Now, I'd say the last time the world faced the problem of
integrating two new big rising powers we failed miserably. We
have two World Wars, as a result, and the name of the game for
us in the 21st century, and the assignment for the next
generation, is to avoid repeating the follies of the 20th
century.
I would contend that we have to bring to the head table of
international relations both India and China, and to combine
them in a quadri-partite conflict prevention mechanism that
deals only with security, not with trade, not with human
rights, not with many other incredibly important issues, but I
contend that the biggest problem we face in Asia is to prevent
these disputes over worthless rocks escalating into warfare
which would destroy both the peace and prosperity of the
Pacific.
Several members mentioned the rebalance. I think it's very
important to make sure that the rebalance is not under-
resourced on the military side. I think it's incredibly
important to make sure that TPP and the trade side receive the
prominence that they deserve. And I think it's enormously
important that the rebalance be conceptualized as running all
the way from India around the Horn to Korea, and all the way
down under; otherwise, it becomes just a synonym for a China
containment strategy which, in my opinion, if that is
approached unilaterally with just the United States, or just
the United States and Japan, it won't work.
So, I would contend that U.S. policy over the next 5 years
should give just as much attention to the U.S.-India
relationship as it gives to the U.S.-China relationship, as it
gives to the U.S.-Japan relationship. Why? We need to have four
powers together potentially in the same room at a very high
level to insure that we will not allow some of the things that
Mr. Sherman mentioned to escalate into warfare. Thank you. I
yield to my older brother.
[The prepared statement of Mr. Karl Jackson follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
----------
Mr. Salmon. Thank you. Dr. Jackson.
STATEMENT OF VAN JACKSON, PH.D., VISITING FELLOW, CENTER FOR A
NEW AMERICAN SECURITY
Mr. Van Jackson. Thank you. Mr. Chairman, Ranking Member
Sherman, distinguished members of the subcommittee, let me just
say that I'm a great fan of both California and Arizona. And
thank you for the opportunity to come address this topic today.
U.S.-Asia policy should not be autopilot. Right? It merits
regular critical scrutiny most intensely at times when the
regional landscape is changing, and I would offer that that
time is today. If I have a singular assertion it's that over
the next 2 years, keeping Asia stable should be the
overwhelming priority for U.S. policy in Asia.
The Trans-Pacific Partnership, human rights, fostering
democratic political transitions in authoritarian regimes, all
of this matters, but none of it's possible in a region riven
with conflict, so it may sound banal to prioritize keeping Asia
stable, but it means adapting to what I would describe as
greater structural risks facing the region.
The chairman mentioned some of these. China is
demonstrating an increased willingness to challenge the
international status quo. At the same time, we have Japan
seeking to expand its security role in the region after half a
century of formalized pacifism in international affairs.
Militaries across the Asia-Pacific are undertaking robust arms
buildups, military modernization programs, increasing the
latent capacity for rapid destruction in the event of conflict.
And North Korea is expanding and improving its nuclear and
ballistic missile programs completely unchecked, even as it
finds novel ways to coerce, to probe the resolve of the United
States and its South Korean ally.
All of these developments are taking place against a
backdrop of region-wide mistrust, uncertainty about the future,
and longstanding unresolved territorial disputes. Taken
together, these circumstances constrain the ability for even
astute statesmen to navigate Asia peacefully.
I would submit that keeping Asia stable amid these evolving
circumstances require two things from the U.S. First, to be
seen as a sure thing, as a reliable ally and partner. To the
extent uncertainty drives regional security trends in a
problematic or undesirable direction, certainty about the U.S.
can help be an antidote for that. And then second, I think we
need to do what we can to encourage the militarization of the
region in a defensive direction. And I think this can be
achieved by working with regional allies and partners to
develop military capabilities and operational concepts that
improves overall situational awareness, counter the ability of
others to project power, and strengthen territorial integrity
of sovereign borders.
In short, I think it would benefit the region and the
United States to empower the region's smaller and middle powers
to better defend themselves; particularly, as dominant military
technologies evolve and spread. Despite growing economic
interdependence among Asian states, the region remains a
potential powder keg.
China is still a lingering concern for most, but so are the
long-term intentions of neighbors among middle powers, to say
nothing of the risks that North Korea may pose as it develops a
survivable nuclear force. The United States rightly seeks a
peaceful, liberal order in Asia, and I would suggest that the
minimal necessary condition for that to obtain is stability,
which is facing greater structural risk. So, thank you again,
and I look forward to answering your questions.
[The prepared statement of Mr. Van Jackson follows:]
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Mr. Salmon. Thank you. Mr. Goodman.
STATEMENT OF MR. MATTHEW P. GOODMAN, WILLIAM E. SIMON CHAIR IN
POLITICAL ECONOMY, SENIOR ADVISER FOR ASIAN ECONOMICS, CENTER
FOR STRATEGIC AND INTERNATIONAL STUDIES
Mr. Goodman. Thank you, Mr. Chairman, Mr. Ranking Member,
distinguished members of the subcommittee. I'm delighted to
have a chance to talk about the economic dimension of the
rebalancing of our economic opportunities and challenges in
this important region, Asia-Pacific.
As someone who works on economics in a foreign policy think
tank, I sometimes joke that my colleagues work on life and
liberty, and I work on the pursuit of happiness, and so that's
the way I look at the economic story in Asia, because it's
largely a positive one for us. So, I'd just like to make four
points.
First, the economic stakes for the United States in the
Asia-Pacific are enormous. The region accounts for around 60
percent of global GDP, includes eight of the world's $15
trillion economies, and it's consistently been the fastest
growing region of the world in recent times. By 2030, Asia will
likely be home to 3 billion middle class consumers, which is a
huge opportunity for us to export American goods and services,
beef, pork, soybeans, aircraft, software, healthcare services,
and the many other things that we are competitive in. But U.S.
economic engagement with Asia also comes with a number of
challenges. We have sizable trade deficits, as Congressman
Sherman mentioned, with a number of Asian countries. Our
companies face an array of barriers and unfair trade practices
both at and behind the border in many Asian economies from
regulatory impediments, to theft of intellectual property. And
excess savings; I'm a former Treasury guy, so I have to say
excess savings in Asia create macroeconomic imbalances that can
be destabilizing, as we saw in the global financial crisis;
which leads to my second point.
Addressing these challenges and these opportunities, and
maximizing these opportunities requires a robust U.S. economic
diplomacy in the region. And, indeed, administrations of both
parties over the past 40 years have pursued an active economic
strategy toward Asia from Nixon's opening of China, which
really facilitated China's reform and opening strategy, to the
Obama administration's pursuit of the Trans-Pacific
Partnership, which I'll come back to.
The basic objectives of U.S. economic strategy across these
administrations have been threefold. The first is growth and
jobs. Stronger demand, rising purchasing power, and lowering
trade barriers means more opportunities for U.S. exporters,
which translates into growth and jobs at home.
The second objective is upholding and updating the rules of
the international economic order. Those rules have increasingly
fallen out of step with the realities of today's global economy
which revolves around integrated value chains. This means trade
agreements need to be updated, not just to cover things that
happen at the border like tariffs and other border measures,
but also behind the border issues, like the behavior of state-
owned enterprises, regulatory practices, intellectual property
protection, and so forth.
Finally, U.S. economic policy in the Asia-Pacific has been
aimed at underpinning America's long-term presence in the
region. Our alliances with Japan, South Korea, Australia and
others have provided long-term stability and security in the
region, and these trade investment and other economic
arrangements help provide a critical economic equivalent
enmeshing the U.S. in regional affairs, and reassuring our
allies and potential adversaries of our long-term commitment to
the region.
My third point is that there is a new reality in Asia
shaping our economic engagement, which is obviously the rise of
China and India. I'll focus mainly on China. Just 15 years ago,
China's economy was roughly one-ninth the size of ours. Today
it is the world's second largest economy, and could surpass
ours in nominal terms in just a few years.
China clearly has ambitions to resume its historical
position as the Middle Kingdom at the heart of Asia, which has
implications for the established order in the region and the
U.S. role in it.
Not all of this is a bad thing. China's economic success
has created a significant new source of demand for the United
States and neighboring countries and, therefore, economic and
export opportunities. Beijing has to date largely been a rule
taker in the regional economic order, and has even been a
constructive player in regional institutions such as APEC, but
Beijing has also, of course, been selective in its compliance
with international rules and norms, as others have mentioned;
failing to honor the spirit of its WTO commitments, tilting the
playing field in favor of its industrial champions, and harming
the interests of U.S. companies.
Moreover, Beijing is clearly seeking a greater voice in
setting international rules and standards, and imbuing them
with Chinese characteristics, setting up new institutions that
raise questions about the sustainability of the Bretton Woods
institutions that we champion for so long. So, this means we
have to have this robust economic strategy to deal with both
these challenges and opportunities of interacting with China.
Final point is about TPP. It is obviously right now the
sharp end of the spear of our economic engagement in Asia, and
it serves all three of the enduring objectives that I mentioned
of U.S. economic strategy in Asia, substantial economic gains,
potentially, updating the rules of the regional trade with new
disciplines in the areas I mentioned, and TPP would embed the
U.S. more deeply in the Asia-Pacific region, and reassure our
allies who are skeptical about our long-term commitment.
As you know, TPP is near the end game, and it's now
believed this could be brought to you and Congress for
consideration as soon as later this year. The stakes are very
high. I think this is a critical component of the rebalance.
Without the economic components, and TPP as the, as I say, the
sharp end of the spear, then the rebalance is seen as a
primarily military endeavor, and that's not going to be
acceptable to the region, so we need to pursue this agreement
for a number of reasons. Thank you very much.
[The prepared statement of Mr. Goodman follows:]
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Mr. Salmon. Thank you. Mr. Denmark.
STATEMENT OF MR. ABRAHAM M. DENMARK, SENIOR VICE PRESIDENT,
POLITICAL AND SECURITY AFFAIRS AND EXTERNAL RELATIONS, THE
NATIONAL BUREAU OF ASIAN RESEARCH
Mr. Denmark. Thank you very much, Mr. Chairman, Mr. Ranking
Member, and the distinguished members of the subcommittee.
I agree with the ranking member that when we talk about
Asia, we have so many issues and so little time. And since my
time is ticking away rapidly, I'm going to just focus on three
things, and look forward to our conversation later.
The first is looking at China. As has been mentioned
before, the rise of China is probably the most significant and
profound geopolitical trend of the 21st century. Its economic
rise, its rapid and profound military modernization program is
really historically unprecedented, and something that is of
tremendous importance to American interests. But the rising
prosperity that China has experienced in recent years is
forcing Beijing to adjust to the demands of a modern economy
and rising expectations of its people.
China is facing unprecedented levels of urbanization,
privatization, marketization, globalization, and what they call
informatization. It speeds in scale that we've really never
seen before. This economic development is creating corruption,
environmental degradation, social dislocation, economic
disparity, and political unrest that is incredibly challenging
for Beijing to manage.
These are challenges that Beijing is very much aware of.
These are Beijing's absolute top priorities, and China's
leaders are engaging on several programs to address them; the
most well known being Xi Jinping's anti-corruption campaign.
And this is a very serious campaign that Beijing is going
through; tens of thousands of senior cadres have already been
charged with corruption, hundreds of thousands of lower level
officials have been charged with corruption, and the Bank of
America has estimated that China's GDP fell by 1.5 percent last
year solely as the result of government officials no longer
buying luxury goods and real estate, so this is a huge problem,
but also a major program that Beijing is going through. It has
important implications for the rule of--for Xi Jinping's power,
and for Chinese politics. And it informs Beijing's ability to
craft its approach to foreign policy and U.S.-China relations.
I would argue that in the grand scheme of things, China is
not pursing a radically revisionist agenda in the international
system, and that it sees that it is this system that allowed it
to grow prosperous, to remain stable. Where China is
revisionist, however, is regionally. As has been said before,
China is attempting to establish something what I call a neo-
tributary system which places it at the center of the Asia-
Pacific's economic, political, and security destiny; a destiny
that in China's mind does not include the United States playing
a major role. This is, obviously, something that is very
problematic for American interests, and so we are engaging them
in a wide variety of different activities that involve both
cooperation and competition.
The second issue I wanted to address with you has been
brought up a little bit already, is American alliances and
partnerships in the Asia-Pacific. Our alliances are absolutely
critical to American interests going forward. They are at the
center of our power, our influence, and our presence in the
region, and something that we need to be able to maintain and
update for the requirements of the 21st century.
Japan is, obviously, a very important alliance for the
United States. Prime Minister Abe is revitalizing Japan's
economy, but also revitalizing the role that Japan can play in
the geopolitical realm in the Asia-Pacific. By working with us
on new defense program guidelines, we have a tremendous
opportunity to bolster their capabilities, and find a new
capable and more balanced alliance that will help our
interests, help maintain stability in the region.
It has also been mentioned that India is incredibly
important to the United States. President Obama is the first
American President to be invited to India to celebrate Republic
Day. He's also the first President to visit India twice while
in office. Prime Minister Modi clearly sees the United States
as incredibly important to India's interests, and there are
great opportunities for us to engage with them strategically,
politically, and economically. India's ACDIS policy has
tremendous potential complementarities with our rebalancing
policy, and I think those are complementarities that we need to
address.
Third and finally, there's been a lot of questions and lot
of ink spilled over questions about the long-term potential for
American power. Many in Asia, some in the United States talk
about potential American decline, that we are going to be
overshadowed by the rise of China, the rise of other powers in
Asia. And I actually wanted to make the point here that I think
this is a very wrong analysis. I actually think that the United
States has tremendous potential to remain powerful and dominant
in the Asia-Pacific. Our economy is the most rigorous, the most
powerful in the region, our military is the most powerful in
the region. The key for us, though, is to take this potential
and translate it into actual power. We have opportunities to
maintain our power and dominance in the region, but it's going
to require the adroit leadership and good decision making from
our leaders in the Executive Branch, and from you all in
Congress.
I look forward to talking with you about U.S. strategy and
dynamics in the Asia-Pacific. Thank you very much.
[The prepared statement of Mr. Denmark follows:]
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Mr. Salmon. Thank you. Mr. Mulloy.
STATEMENT OF THE HONORABLE PATRICK MULLOY, TRADE LAWYER (FORMER
COMMISSIONER, U.S.-CHINA ECONOMIC AND SECURITY COMMISSION)
Mr. Mulloy. Mr. Chairman, Ranking Member Sherman, and
members of the subcommittee, thank you for inviting me to
testify about U.S. opportunities and challenges in the Asia-
Pacific area.
I had the great good fortune in my life to work 15 years on
the staff of the U.S. Senate Banking Committee where I was
General Counsel and Chief International Counsel, so I love
working with the elected representatives of people. And I think
some of my views about what's happening in Asia may be
reflective of the fact that I did have the chance to work for
people who have to get elected to office.
I have already submitted my written testimony to the
subcommittee, and I just want to take a little time here to hit
some of the key points that I made in my written testimony.
I think America's so called pivot to Asia and a TPP as one
element of the pivot are grounded in concerns about the rapid
rise of China's economic, political, and military power. The
pivot includes, among other things, beefing up our military
capabilities, and building a closer working relationship with
Japan and India.
I understand that by 2020, the Navy and Air Force plan to
base 60 percent of their forces in the Asia-Pacific region. The
pivot also makes a more vigorous attempt to integrate our
economic relationship with Asian economies, such as those with
whom we are negotiating the TPP.
I should note that we presently have a combined total trade
deficit with the TPP countries of well over $100 billion. I
hear a lot about the geopolitical reasons we must do the TPP,
but I am not aware of any analysis that claims the TPP deal, if
approved, would reduce our very large trade deficits with the
TPP countries.
I also hear a lot about how the TPP, whose provisions I
have not seen, will bring about increased exports from the
U.S., but I hear nothing, nothing about what we might expect in
terms of increased imports. Most economists will tell you that
when a nation runs large negative net exports, you are
detracting from your GDP and job growth.
The Chinese use a term called comprehensive national power,
meaning that if you build your economy, then your military and
political strength will come from that economic base.
Our completely unbalanced trade and economic policies
toward China are helping China to become a great power much
more quickly than we ever thought imaginable. Let me explain. I
think we must correct our totally unbalanced economic
relationship with China if we want to strengthen America's
geopolitical position in Asia, and elsewhere.
Last year, our nation ran a $345 billion trade deficit with
China. Since China joined the WTO in 2001, we have run over $3
trillion worth of trade deficits with China. How has China done
this? One, they manipulated their currency. Two, they're
stealing intellectual property. Three, they're incentivizing
American companies to transfer factories from here to there
partially through their currency manipulation. The companies
can make bigger profits by moving there and shipping back here.
China also incentivizes our companies to transfer technology
and R&D from here to China. This is building China's military
and industrial base. And then some people say then we have to
arm ourselves because China is more powerful. I'm like the
Congressman. I'm a trade hawk, and I'm not so keen on just
using military means to rebalance this whole relationship.
I had the great good fortune, as well, to be a Commissioner
on the U.S.-China Economic and Security Review Commission. That
is a bipartisan group appointed by the leaders of the House and
the Senate, and they're charged to look at the economic--at the
national security implications of our economic relationship
with China.
Most of their reports have been unanimous. In their 2014
report to the Congress, which is unanimous, the Commission said
this:
``China's rapid economic growth has enabled it to
provide consistent and sizable increases to the PLA
budget to support its military modernization. China's
defense budget has increased by double digits every
year since 1989.''
Let me just finish this last part. They said,
``As a result of China's comprehensive and rapid
military modernization, the regional balance of power
between China on the one hand, and the U.S. and its
associates and allies on the other is shifting in
China's direction.''
So, it is clear that our imbalanced trade with China, that has
fed China's extraordinary economic growth--over 10 percent a
year for over 30 years--is contributing to a shift in the
balance of power in Asia against our interests.
To me, we've got to pay a lot of attention to rebalancing
this whole economic relationship with China. I have provided
some ideas on how we might do that in my written testimony.
Thank you for giving me the opportunity to testify, and I
look forward to taking any questions you may have.
[The prepared statement of Mr. Mulloy follows:]
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Mr. Salmon. Thank you. That concludes the panel
testimonies. We'd like to now be able to ask some questions.
First of all, regarding these maritime disputes both in the
South China and East China Seas, and in light of this month's
reports that China is building artificial islands, and
potentially building up military installations, what is the
administration's response? And do you see it as effective?
Start with you, Dr. Jackson, what are your thoughts?
Mr. Van Jackson. Yes.
Mr. Salmon. Yes. Okay, thank you.
Mr. Van Jackson. Thank you. So, the administration has
taken steps to shore up its alliances. It's focused--it's taken
its own credibility in the region seriously. The challenge is
not so much with the United States sort of showing up, or
demonstrating resolve short of violence, or the threat of great
violence. The larger issue is with the nuanced way that China
is doing what it's doing.
It makes it much easier to stand firm or retaliate whenever
the Chinese send in the PLA Navy. Right? Whenever they use
traditional military force it's easy to respond in kind.
Signaling resolve in this kind of thing becomes a clearer
exercise, but when you're using unarmed drones, when you're
pressing assertive with the construction of artificial islands
or water canons, or any of these sort of nontraditional means,
it creates this dynamic where it's very hard to respond without
being seen as the bad guy, without being seen as escalatory
yourself.
I think there's a way to remedy this by sort of forcing
operational transparency to the extent possible through
cooperation, information sharing regimes with allies and
partners. It's something that China can be a part of, too, if
it wanted to. The question is does it want to? And as long as
China operates coercion within this gray space, transparency is
really the only solution without sort of risking escalation, I
think.
Mr. Salmon. Thank you. Yes, Dr. Jackson.
Mr. Karl Jackson. I would just say that, to amplify the
answer of my fellow Jackson member here, that China really
follows, if you look at it in a long term, a take and then talk
strategy. It's cyclical. The number of incidents go up in the
South China Sea, or in the East China Sea, and then if there's
an APEC meeting coming in Beijing, suddenly things get quiet in
the Pacific again. And then I would assume we're moving into--
in fact, we're in the middle of the next phase of a take
strategy, which is the creation of new islands in the South
China Sea. And, you know, this is a very difficult problem to
deal with, and it requires, in my opinion, that the
administration provide more assistance to the Philippines, more
diplomatic assistance, as well as military assistance. Thank
you.
Mr. Salmon. Thank you. Over the last few years, the
tensions in the Taiwan Strait have de-escalated with the
election of President Ma. He's facing some political challenges
of his own, and recently there's speculation that the DPP
candidate may gain a little bit of steam given some of his
challenges.
China has made no secret of its loathing of the DPP and
what they stand for. If the DPP is successful in the next
election, where do you see Taiwan-China-U.S. relations going?
Any thoughts? Mr. Denmark, did you want to address that?
Mr. Denmark. Sure. Obviously, we're still quite a ways away
from the next Taiwan Presidential election, so it's difficult
to speculate on who may win. But I do think that the Mainland
is being very careful to try to keep some space open in case a
DPP candidate wins so that they'd be able to maintain a
relationship with Taiwan.
They, obviously, recognize that it's very--it's going to be
very complicated if the DPP wins the next Presidential election
in Taiwan. There's going to be a lot of concern in China that
the next candidate would show some of the more problematic
tendencies that Chen Shui-bian showed when the DPP was last in
power. But I also think that the Mainland would be trying to
find a space that they can work with the DPP, so I expect them
to be fairly quiet about the election. I'm not trying to put
anybody in a corner, but I do think that they're going to be
very concerned about what happens.
I also wanted to note that there's going to be some real
challenges in the next election, and if--whoever wins the next
election in Taiwan, because of what's happened last year in
Hong Kong, because of the framework that China talks about
these systems of one country, two systems; although, the
proposals are not exactly the same. There are some important
differences, but they are some very important similarities, as
well; enough similarities that I think in Taiwan there will be
a lot of concerns and questions about this formulation of one
country, two systems, and how Taiwan can position itself within
that context.
Mr. Salmon. I completely concur. In fact, I think the
Taiwan body has been really watching with interest how this
whole one country, two systems has played out. And it hasn't
really played out the way that China said it would back in
1997. They have not been nearly as hands off, especially with
the selection of the CEO, as they said they would be. And it's
prompted these protests and quite a bit of political unrest
within Hong Kong. And I don't think that is helping their case
at all with Taiwan as they seek a peaceful reunification at
some point in the future. I think it bodes very ill for them.
In fact, I'm going to be leading a codel in May with Elliot
Engel to Hong Kong, specifically, for these purposes, so stay
tuned. I'll yield to Mr. Bera.
Mr. Bera. I want to thank my colleague from California for
giving me this time.
It is a very interesting time in this pivot to Asia, and as
we look at the U.S.-Asia relationship, as we look at the
opportunities and the challenges, listening to the opening
testimony, the goal is twofold; stability in the region and
prosperity in the region. And, certainly, that is to our
advantage.
Having had the privilege to travel to India with the
President and, you know, just kind of up front looking at the
dual interests on both sides; clearly, I think at the Executive
level the Prime Minister and the President understand the
importance of the relationship. I think the Prime Minister as
he is looking at an ambitious agenda in India, is looking for
reliable partners, and clearly is looking to the West.
Certainly, is building a relationship with Japan, but also
increasingly is looking at the importance of the relationship
with the United States. And I think the President understands
the opportunities to open up the Indian markets here. And then,
also, the importance of India geopolitically and strategically
in stabilizing South Asia, and helping bring some stability to
the South China Sea and so forth.
I think we make a mistake if we just look at these
relationships in a bilateral way, though, because there are
really trilateral, multilateral relationships. And when we
think about the U.S.-India relationship, we should also think
about the U.S.-India-Japan relationship because, again, it's in
our interests as allies. Certainly, India is looking at these
relationships in a multilateral way. I think we make a mistake
if we just look at India as picking the United States or China.
Again, all these countries have major trading relationships
with China, as well; and, again, I think we approach these in a
multilateral relationship.
You know, I'd be curious, you know, as we look at this
growing relationship with India, as we've set the framework in
moving forward with another 10-year bilateral defense treaty,
looking forward to continuing progress on a bilateral
investment treaty with India, and so forth, there's real
opportunities here in the U.S.-India space to protect our
interests but also, again, to bring stability to the region.
Maybe we'll start with Mr. Denmark, your thoughts on this.
Mr. Denmark. Thank you, Congressman.
I completely agree with the tremendous potential there is
in the U.S.-India relationship. I actually happened to be in
New Delhi when Xi Jinping was visiting and got to see what a
problematic relationship that India has with China.
Clearly, Prime Minister Modi is seeking to enhance his
relationships with all the major countries in Asia, so he's had
important visits with President Obama, with Xi Jinping, but
also with Putin, with Abe, and with Abbott down in Australia.
But I think, clearly, that the United States occupies a special
place in Prime Minister's Modi's outlook. And the bilateral
defense agreement, the investment agreement that you mentioned
I think have tremendous potential both in themselves, and what
we can work with them, but also the precedents that they set;
that the bilateral agreements that we've already put together
with India, the Ash Carter push when he was the deputy, now his
secretary, I think have tremendous potential to enhance our
defense technology cooperation capabilities, potentially our
interoperability, our planning. And because we share so many
interests, especially in East Asia with India. On the
investment side, encouraging India to look more outward as an
exporter, to be a more integrated member of the international
economy, I think is of vital importance.
And I would just add, finally, you mentioned the trilateral
and quadrilateral agreements, aspects of this relationship.
Prime Minister Modi had very interesting and very close
engagements with Prime Minister Abe, and with Abbott in
Australia, and I think there's real potential for that
quadrilateral dynamic that I hope in the coming years we'll see
really getting----
Mr. Bera. Great. And I'm glad you mentioned the new
Secretary of Defense, Ash Carter. I think we've got a great
team in place that understands the complexity of the region, as
well as the opportunity. Obviously, the Secretary of Defense
understands the region and spent a lot of time there. Our new
Ambassador to India, Rich Verma, certainly understands the
complexity and the opportunities there, as well.
Mr. Goodman, you talked about kind of a basis of economic
stability and economic prosperity. In the extreme seconds that
I have left, would you like to go ahead and expand on that?
Mr. Goodman. Sure. Again, the same basic point, which is
there's huge potential in the U.S.-India relationship in the
economic front. It's been, frankly, under-exploited over a long
period of time. I think that that's for a number of reasons. I
think one of them is that India has not until Prime Minister
Modi in recent times had somewhat committed to the internal
economic reform that Modi seems to be clearly committed to. And
I think that's a precondition to a stronger relationship.
Then there are the direct bilateral processes you
mentioned. The bilateral investment treaty I think has great
potential. I think it's going to be a challenging negotiation,
but I do think it's something that could provide a real
foundation.
There are number of outstanding concerns, particularly of
our U.S. businesses in India with foreign investment
restrictions, localization requirements, intellectual property
problems, the patent protection and so forth. Modi has
addressed some of those. There's been some improvement on
foreign direct investment in the railways and other
infrastructure sectors, and I think that's quite an important
sort of down payment on an improvement.
I also would just endorse the point that regionally there's
a big opportunity. You know, frankly, India has not been as
engaged in certainly regional economic affairs to the extent
that I think would be good for all of us. And they're not a
member of APEC, which is the fault of both sides really for
their not being in there. But they've also been sort of
lukewarm about some of these regional endeavors. And I actually
think that there would be, if they were willing to invest in a
more greater openness in their own economy, they could make a
great contribution to rulemaking and principle in these
regional arrangements.
Mr. Bera. Great, and I would just close with this. As co-
chair of the Caucus on India and Indian-Americans which is the
largest country caucus in Congress, I think I can speak for
members on both sides of the aisle that we view the U.S.-India
relationship in a bilateral way, and see some of the
opportunities there. Thank you.
Mr. Salmon. Great. Thank you. Mr. Rohrabacher.
Mr. Rohrabacher. First and foremost, thank you, Mr.
Chairman for holding this hearing, and with these five very
informative witnesses.
Dr. Mulloy, or Mr. Mulloy mentioned that in the TPP he did
not see anything that was going to bring down the level of
trade deficit with the Pacific, which is now $100 billion a
year, and with China it is $350 billion a year trade deficit.
Do any of you disagree with Mr. Mulloy's assessment that
there's nothing in the TPP that will bring that down? Are you
predicting that the trade deficit will go down if we pass this
trade policy? Yes, whoever. Does anyone disagree with him on
that?
Mr. Goodman. Well, I think it's very unclear how bilateral
trade deficits and surpluses will be affected by trade
agreements like this. I think in principle, a trade agreement
like TPP which is opening markets in some of these key markets
in Asia will increase our export opportunities. Of the 23 trade
agreements that we've negotiated since 2000, all but one of
them has led to a significant increase in U.S. exports. The one
that hasn't is the Korea free trade agreement, and that's
largely because Korea hasn't been growing and, therefore,
particularly our coal exports to Korea have really plummeted.
Our corn exports have also plummeted because of drought here.
But if you take out those factors, other exports to Korea have
increased. There should be an expectation of greater trade and
exports to those countries.
I would like to take on one point----
Mr. Rohrabacher. Before you do.
Mr. Goodman. Yes?
Mr. Rohrabacher. Do you actually know what's in the TPP,
because----
Mr. Goodman. I mean, I haven't read the actual agreement
itself, but I have a general sense of what the contents are,
yes.
Mr. Rohrabacher. Because we're not even permitted to know
exactly what it's in the TPP. I mean, I've got people telling
us what it's about. It's interesting they can read it and we
can't. What's going on here?
You were about to make a point. I'm sorry for cutting you
off.
Mr. Goodman. No, no, it's all right.
Mr. Rohrabacher. I'd like Mr. Mulloy to have his chance to
answer you, but go ahead.
Mr. Goodman. Sure. No, I have not read the TPP agreement,
so I am basing my understanding or assessment of it on the
presentation by the U.S. Trade Representative Office, and by
other players in TPP, what the contents are.
Mr. Rohrabacher. Have they been successful. You're basing
it on them; have they been successful in their predictions in
the past?
Mr. Goodman. Well, I mean, I think trade has increased with
the countries with which we've negotiated free trade
agreements, so I think in that sense yes.
Mr. Rohrabacher. Okay.
Mr. Goodman. We'll see what TPP actually does.
I just wanted to respond to one thing about imports. So, I
mean, this is a somewhat controversial statement to say, but
imports are not as bad as people say in the sense that we're
all working--I mean, it's like we work 5 days a week, that's
exporting, to have the weekend, that's importing. We all want
our iPhones. Right? We all want our, sorry, Smart Phones, which
are made up of value from all around the world. You buy it for
a couple of hundred dollars. When it arrives in Long Beach,
it's valued at about $170, and that is booked by customs as an
import from China worth $170. The reality is only about $6
worth of this phone is actually produced in China, the rest is
value-added from all over the world, including the United
States. So, I think our trade data is not entirely an accurate
reflection of global value chain production today. That's the
specific point I----
Mr. Rohrabacher. Give Mr. Mulloy a chance to answer.
Ordinary working people who have jobs producing high-
quality products in the United States has enabled us to have a
very wealthy, not a wealthy, but a middle class who lives at a
decent standard of living. I personally see that in jeopardy,
and by basically people who make analysis all based on what's
good for a business, which then translates sometimes just into
very wealthy Americans are getting better, but middle class
Americans are not because they don't have these high-quality
jobs.
We've got just a couple of minutes, or a couple of seconds.
Go right ahead.
Mr. Mulloy. Thank you, Congressman. I remember the debate
about whether to give China PNTR and bring them into the WTO.
Many of the same groups, which are now behind the TPP, talk
about increasing exports. I remember those same people were
telling us that if we brought China into the WTO--we had an $80
billion trade deficit with China at that time, now we have a
$345 billion annual trade deficit with China. So, they told us
that it would help balance our trade. It didn't, it made the
situation much worse.
I remember being on the staff of the Senate Banking
Committee when we did hearings on NAFTA, and we were being told
that it would help expand and improve our trade relationship
with Mexico. We have about a $70 billion trade deficit with
Mexico now after that, because there were no currency
provisions in that agreement. And shortly after it was signed,
Mexico devalued their currency. And that was--when we looked at
it, we saw that wasn't a trade agreement, that was an
investment agreement. And that's why they wanted those investor
state provisions in that agreement to protect their right not
to have to settle disputes in Mexican courts. So, I hear a lot
of talk about the TPP exports. I never hear anybody talk about
the trade balance that we're going to get out of this TPP. And
I think that's very important for members to think about, and
the impact that's going to have on their constituents.
Mr. Rohrabacher. Well, thank you for bringing that up, and
thank you, Mr. Chairman.
Just a note; we were also told that with more trade with
China, by bringing them into a close economic relationship with
the United States, that we would have democratization. And I
notice Mr. Denmark's remarks, he went through all the isms that
are happening in China, but democratization wasn't one of them.
And, in fact, I think what we see now is a regime in China that
is politically just as oppressive that its ever been, and the
theory that we were going to have more democracy by having this
more open economic relationship, which they have manipulated,
has not worked out. And what I call it is we were given the hug
a Nazi, make a liberal theory, and it didn't work. They're no
more liberal in China than they ever were. Thank you very much,
Mr. Chair.
Mr. Salmon. Thank you, Mr. Rohrabacher. Mr. Lowenthal.
Mr. Lowenthal. Yes, I find the conversations fascinating. I
think that there's been a focus more--again, I'm going to bring
it back to some of the--what's important to me is some of the
smaller countries in Asia. We focused on China, and we focused
on India. I've listened a lot. But I'm concerned about, as I
mentioned in my opening statement, I talked about, and I'll
give you some other examples. I'd really like to hear your
thoughts.
I talked about some of the, what I consider--I represent
Little Saigon, and Garden Grove, and Westminster, and all I
hear from my constituents are the fact that human rights
violations that are going on, and prisoners of conscience. And
I also just recently introduced the International Human Rights
Defense Act to protect--to create a special envoy within the
Department of State for LGBT rights; and, yet, you know, I
also--and as that bill was just beginning to be moved forward,
Senator Markey also had the same bill, Secretary Kerry picked
it up and appointed a special envoy for LGBT rights. Yet, we're
talking about, just as Vietnam, we're talking about Brunei.
Brunei puts LGBT folks to death, you know. It recently made
same-sex sexual activity punishable by death; yet, it continues
to be part of the TPP negotiations. We have some real issues of
human rights violations also in Malaysia, in Singapore.
I'm wondering with this pivot is there a role that we can
leverage, as I raised, on some of the smaller countries to--
without imposing, but to really talk about, you know, you want
to increase trade with the United States. What are you going to
do about these issues, you know, that--and how are you going to
really demonstrate beforehand that you're really moving forward
at this time; or is that just not really a reasonable request
to make at this time? You know, does that destabilize the
situation?
We talked about needing--I think it was Mr. Jackson talked
about--Dr. Jackson, about the need for stability. I mean, I'm
more concerned about protection of human rights at this moment,
so I'm just wondering. That would protect the stability within
those nations.
Mr. Karl Jackson. Well, you've posed a difficult question.
I used to work a lot on human rights problems in Vietnam, and I
used to interview people in Westminster.
Mr. Lowenthal. Right.
Mr. Karl Jackson. I used to hang out with Dana Rohrabacher
working on the same issues.
Mr. Lowenthal. And Dana has done a great job, and I now
represent part of the--that Dana used to represent. So, I
picked up the Dana Rohrabacher mantle; so, I'm following in the
great tradition of Dana Rohrabacher.
Mr. Karl Jackson. All of that said, the whole business of
making foreign policies is prioritizing, making choices, tough
choices. And while it is possible for us to try to the best of
our ability via the State Department, the Defense Department,
et cetera, to push Vietnam toward being more reasonable toward
its citizens, we have not been very effective. It's been very
difficult.
Mr. Lowenthal. Yet, now we're going to reward this bad
behavior by having a special trade agreement.
Mr. Karl Jackson. No, I think what we're going to do is
reward ourselves by creating a more stable Asia-Pacific area by
having this trade agreement. And, you know, nothing, nothing is
going to come close to being perfect either with a trade
agreement, or certainly with the human rights dimension. I've
been doing this for a long time, and I wish I could say I've
been 100% successful. It's not for lack of trying, but I don't
think you're going to be able to turn to the Vietnamese
administration and say all right, if you don't make the
following six changes, there'll be no TPP. I think that would
be a counterproductive way to go.
Mr. Lowenthal. For them, for us to say to them. What if I
said to myself if you don't make those changes, I won't vote
for it.
Mr. Karl Jackson. That's your--you know, obviously----
Mr. Lowenthal. I'm just saying would that--do we have any
leverage?
Mr. Karl Jackson. We have only very limited leverage over
what goes on at the domestic level inside Vietnam. I wish it
were otherwise, Congressman.
Mr. Mulloy. Well, I think you have a lot of leverage
because you haven't given TPA yet, and in the TPA you can say
what you want addressed in these trade agreements, because if
you're going to bring them back without having a chance to
amend them, and you have to vote them up or down, you've got to
be pretty clear what you want, and then follow-up and make sure
that those items are on the agenda of the negotiators.
My problem now is, I think the TPP is being put to bed even
before the TPA is going to be enacted, so you're going to come
back without Congress really having a chance to put its input
into this TPP in the way it should.
Mr. Lowenthal. I yield back.
Mr. Salmon. Thank you. Representative Meng.
Ms. Meng. Thank you to the witnesses for being here today.
My first question is for Dr. Van Jackson, or whoever, is
welcome to answer, about North Korea. North Korea has been
increasing its investment in nontraditional military weapons,
chemical and cyber, in addition to its nuclear program. Is
there any strategy that would dissuade North Korea from the
further development of these weapons? I'm curious about your
thoughts.
Mr. Van Jackson. So, the short answer is probably no, not
in the near term, anyway. They've put nuclear weapons in their
constitution so it's more than a bargaining chip at this point.
It's increasingly becoming part of who they see themselves as
being.
Chemical weapons, my interpretation has been that they see
it not as a taboo the way we or the international community
does, but as a sort of operational capability just like any
other military capability. So, there's some reasonable
expectation that chemical weapons could be used in some sort of
limited conflict because they don't share the same taboo about
it. But there is a larger pattern here where North Korean sort
of egregious misdeeds, especially on the violence end, only
occur in the context of sort of shared hostilities, which is
very much the case right now, obviously. And we can--we and our
South Korean ally can only bend so far, obviously, but it takes
two to cooperate. It takes two to have, you know, a
rapprochement, or non-hostile relations, qua amity from enmity.
Right? So, all of the bad things we see from North Korea tend
to be arrested during periods of better relations.
The question is, how can get there? And in the near term, I
don't see a path, so it seems the responsible thing to do in
that context then is to be prepared for the range of
possibilities with North Korea.
Ms. Meng. My second question, anyone is welcome. the Asian-
American diaspora is the fastest growing population in the
United States. How do you think this will impact our point of
view and relationships with our allies in Asia?
Mr. Karl Jackson. No, the increasing size of the Asian-
American diaspora is a good thing. It's a very good thing,
because of the fact it makes us much more informed about this
place called Asia. And I think that anything that can be done
to facilitate the movement of more Asian-Americans, for
instance, into our diplomatic service would be a great plus.
We're beginning to see Korean Americans as Ambassadors and
things like that. And, frankly, they receive a different
reception in Asia. They are 100 percent American, but they have
a different reception, and it's a very positive--it can be a
very positive thing. Thank you.
Mr. Mulloy. Governor McAuliffe has recently appointed me to
the Commonwealth's Asian Advisory Board in Virginia, so I'm
having a great opportunity to meet a lot of very talented Asian
Americans, and learn a lot. And I think they'll be a tremendous
asset for this country going forward on giving this broader
perspective on how we should be integrated with these Asian
economies.
I'm a trade hawk, but I am very much in favor of balanced
trade, and that's what I think we ought to be doing. I'm very
much in favor of a closer economic relationship with India. I
went to India when I was in the Clinton administration. I was
Assistant Secretary, and before the President went out there, I
was out there trying to line up some deliverables that the
President could sign when he went out later. And I always
thought that we should be putting a lot more attention on
India. They're a democracy. Why are we putting all of our
apples, and all of our effort into this China relationship? The
imbalance in it I think is really harmful to this country, and
I think we've got to rebalance that. But I think Asian
Americans are going to be a tremendous asset to this country
going forward.
Ms. Meng. Thank you. I yield back.
Mr. Salmon. Thank you. Mr. Connolly.
Mr. Connolly. Have you gone, Brad? Entirely up to you,
whatever you have scheduled. Thank you, sir.
Welcome to the panel and, Pat, great to see you again. Pat
and I had the honor of serving together in the U.S. Senate as
fellow staffers working with Senator Sarbanes, in particular;
great preparation for this job, I'll tell you.
Pat, let me pick up on something you had to say about
NAFTA. It sounded like what you were saying was Mexico
deliberately waited until the ink was dry on the NAFTA
agreement and then devalued its currency, thus, unfairly
exploiting the opportunity NAFTA gave it. Is that your view of
history?
Mr. Mulloy. No, here's my view. When we did the hearings in
the Banking Committee on NAFTA, it was sold as a free trade
agreement. But when you really held the hearings, you concluded
that was really an investment agreement. It was to provide an
opportunity for American companies to be able to invest more in
Mexico, to have a lower base job--to have lower wages, and be
able to compete with some of the Asian imports. That was kind
of the theory of the thing. But we didn't have any currency
provisions in that agreement. And the fact that you had those
investor state provisions in it to get outside of the Mexican
courts to protect American investors was a good sign it was an
investment agreement. Senator Warren has a big article about
that issue in The Washington Post today.
But shortly after that was done, Mexico ran into an
economic emergency and devalued its currency, but we had no
provisions in the NAFTA to deal with currency issues. I don't
think they necessarily planned it, but it happened, and I think
it had enormous deleterious impact on the American economy, and
particularly those jobs in the Midwest where the companies
relocated to Mexico and shipped back here.
Mr. Connolly. Got it. Dr. Karl Jackson, sometimes in the
world of political upheaval transformative change can happen
virtually overnight. I mean, there may be lots of things that
lead up to it, but the actual change happens very rapidly;
witness the fall of the Berlin Wall, and everything that
happened in Eastern Europe. I don't know any experts who
predicted the rapidity of that change, and the reintegration of
the two Germanies. I mean, nobody I knew at that time.
Are we prepared for something comparable in North Korea?
What if change comes to North Korea, I mean, with lightning
speed and the regime collapses, and now what do we do?
Mr. Karl Jackson. Well, you've hit upon a really good
problem, because of the fact that if there were really rapid
uncontrolled regime change, this would make China extremely
nervous. It would make South Korea extremely nervous, and it
would make the United States extremely nervous. And this is an
instance where if there were the kind of security arrangement
that I was advocating in my written testimony, then the phones
would ring in New Delhi, Washington, Tokyo, and Beijing, and we
would hopefully all say to one another let's all be calm and
take this one step at a time, no troop movements. Let us all
try to let the situation sort itself out to the maximum degree
possible. But it is a very worrisome thing, and Chinese
officials worry about it just as much as you do, because
uncontrolled change is the one thing they want to avoid. They
don't want a flood of refugees, and more than anything else
they don't want the kind of instability that might necessitate
the south coming to the north.
Mr. Connolly. Thank you. Mr. Denmark, I wish we had more
time, but real quickly, Mr. Mulloy has given a pretty cogent
critique of a potential TPP, but I wonder if you might address
both that critique and--but what's the alternative? I mean, one
of the things I wrestle with is, if we don't set the standards
through TPP, and we let this fall, then by virtue of the
vacuum, it seems to me the Chinese then set them. And that is
part of the choice, I think, we're wrestling with up here.
Mr. Denmark. Thank you, Mr. Chairman. And an aside, I'm
very glad that you asked about Korean unification. I think it's
an incredibly important issue.
On TPP, I am not an economist. I am not even going to--it's
hard for a think tank person to admit his lack of expertise in
something, but I'll admit I'm not an economist. I leave that to
my friend, Mr. Goodman, here. But I can talk about the
geopolitics of TPP; that TPP is absolutely essential to the
longstanding American power and influence in Asia; that
economics is at the center of Asian geopolitics, and the United
States needs to play a leading role in that area; that TPP
would go a long way in setting the rules of the road for
economic engagement in Asia that goes beyond the specifics of
the agreement, but would really set the tenor for much of
economic engagement across the Asia-Pacific. And if we don't
set the rules of the road, then China will. And if China is
able to set the rules of the road, as it is already attempting
to do by establishing things like the Asia Infrastructure
Investment Bank and other sort of alternative institutions,
we'll see much lower standards for environmental protection,
lower standards for--lower tariffs for tariffs, and just a
lower quality mode of economic integration; something that
would be very much detrimental to our broader interest for
greater economic integration in the region. So, geopolitically
I see the TPP as being incredibly important.
Mr. Connolly. I would only ask the chairman, Mr. Mulloy
seeking recognition. It's the chairman's call, because my time
is up.
Mr. Salmon. Mr. Sherman.
Mr. Connolly. Thank you.
Mr. Sherman. There is an alternative. It's fair trade
rather than free trade. The question is not TPP, or the status
quo. The question is when we listened to Warren Buffet when he
suggested that we require that for every dollar of imports
there be a dollar of exports. The economic arguments for TPP
are so bad that we have to be told that somehow we're going to
obtain a national security advantage. The benefit--China,
actually, will be the beneficiary of TPP because, as I
indicated in my opening statement, goods could be admitted to
be 65 percent made in China, but actually 70, 80, 90 percent
made in China, and get duty-free access to the United States
under the ``rules of origin.'' You just ship it to a TPP
country, the slap a Made in Vietnam sticker on it, and end it
to the United States, and we get no access to China.
And as to the joy of us writing the rules of the road,
these are Wall Street's rules. They have mutilated the American
middle class, and the fact that they were made in Wall Street
doesn't change that. The rules of the road in the future ought
to be fair trade.
But moving on to another subject, Mr. Jackson, and
whichever Mr. Jackson feels most focuses on this. Would China
be less inclined to support the North Korean regime if they had
a solid promise from the United States that American forces
will never be deployed north of the DMZ, and that, in fact, a
unified Korea would have substantially fewer American forces in
it than South Korea does today?
Mr. Van Jackson. That's a good question. I don't think no
matter what we promise that they would find it credible,
ultimately.
Mr. Sherman. Even if it was a Senate-ratified treaty?
Mr. Van Jackson. Anything is possible, I suppose. I think
the reasonable hedge for China is to maintain a reasonably
sized military garrison on the other side of its border, and as
it has suggested, in the event of any kind of instability
insert itself as a buffer. Their overwhelming concern is with
refugee flows, so what do we do about that?
Mr. Sherman. And we would hope that a prosperous unified
Korean would be able to accommodate the resettlement of all
residents of North and South Korea in a newly prosperous state,
but I'm going to go on to another issue, and that is that we're
told exports are good, but imports don't matter; that where the
statistics indicate that exports will grow, we embrace the
statistics; where the statistics indicate that imports will
grow, well, we dismiss the statistics because there's always
something fuzzy about a statistic. We're told that if we export
50,000 cars, that produces jobs. If we import 500,000 cars,
well, that has no affect on our economy.
Our school systems should be able to teach subtraction as
well as addition. Every other country in the world knows that
it's about trade balances, that if you increase exports by 1
billion but you increase imports by 2 billion, you devastate
your economy. And the only country that doesn't understand that
is the country that is experiencing the largest trade deficit
in the history of mammalian life.
We can hold up an iPhone as a symbol of trade, but the real
symbol are the broken families in every district in this
country where jobs have been lost, families have been broken
up.
Now, we're told--we were told before MFN for China that the
effect would be negligible on trade flows. That was off by $3
trillion. We were told that the deal with Korea would benefit
us as far as our trade deficit and, in fact, we have had a
spectacular increase in our trade deficit with South Korea. And
now there apparently aren't even any economic studies, they're
not even promising to help the U.S. economy.
Mr. Mulloy, are there--what do the economic studies which
have consistently understated the devastation of these
agreements, what do these economic studies show about this
agreement?
Mr. Mulloy. I've been reading a lot about TPP.
Mr. Sherman. Your microphone.
Mr. Mulloy. Yes, I've been reading a lot about the TPP.
What I see always in any spokesperson in favor of the TPP, they
talk about increased American exports. I have not seen any
studies, or what is going to be the impact on our trade balance
with those TPP countries. Is it going to improve?
We're running a pretty major deficit with those countries
right now. Will the TPP improve that? I have not seen any study
that supports that.
Mr. Sherman. The proponents of this can't even figure out a
way to lie to us. That's exceptional, so there aren't--the last
few times they've been able to tell us that they're going to
increase net jobs in the United States, and now they've
retreated. You and I would specify yes, these agreements will
create increased exports to some degree.
Mr. Mulloy. If I could speak to just one more thing.
Mr. Sherman. Yes.
Mr. Mulloy. Under the Constitution, you guys have control
over trade.
Mr. Sherman. Tell that to the administration, but go on.
Mr. Mulloy. And my understanding is the majority of both
Houses of Congress have written to the administration asking
them to address exchange rates in the TPP.
Mr. Sherman. Well, let me--because I've got a response from
the administration, if the chairman will indulge me. Every time
I talk about them cheating on their currency, China
particularly, the response is, ``But they're cheating less.''
Gentlemen, don't try that on your wives. Honey, I'm cheating
less.
The idea that we would violate every day as the Executive
Branch does the law compelling them to designate China as a
trade--as a currency manipulator on the theory that they're
treating--that they're cheating less demonstrates that no
future trade agreement is going to be enforced no matter what
the provisions might be. We'll scurry around, we'll file
papers, but we won't do anything serious. I believe my time has
expired.
Mr. Salmon. Thank you. Mr. Goodman, I'm going to give you a
chance. We're going to go through one more round. We have three
folks, and we'll go through another round of questions. But,
Mr. Goodman, I'd like to give you a chance to respond to some
of the issues that were raised.
Mr. Goodman. Thank you, Mr. Chairman. I'd just like to make
three quick points.
First, there are studies that show the potential benefit of
TPP. The Peterson Institute did a study a year or two ago that
showed that the annual income gains from a completed TPP
agreement in 2025 would be roughly 225 billion U.S. dollars.
That's a global number. And for the United States, $76.6
billion. That's based on an econometric analysis that covers
both exports and imports. I'm happy to put that specific
reference in front of you. I think I may have referred to it in
my written testimony, but happy to get that citation to you.
So, there are studies showing potential benefits.
Of course, these numbers are not going to be absolute. The
$.6 billion I take with a grain of salt, but I do think there
are studies showing there's some significant income gains for
the United States that come both from the export, and as I was
trying to suggest earlier, the import side of the equation. So,
that leads to my second point.
Globalization is a reality. Globalization and technological
change are realities regardless of trade agreements. They're
happening, and so the question in my mind is whether we are
going to be able to positioned, and when I say we, I mean
broadly the United States, including middle class workers, are
going to be able to be competitive in that globalized
technologically advanced, and changing world. And, to me, trade
agreements run the possibility of establishing a set of rules
which would level the playing field, and give us a chance to
compete. So, that's what they're about.
I don't think they are going to make globalization or--the
existence of them or nonexistence of them is not going to make
globalization or change.
Mr. Sherman. If I can interrupt for a second.
Mr. Goodman. And I'm happy to----
Mr. Sherman. If I can interrupt for a second. The idea that
the greatest companies in the world, the greatest workers in
this world are losing by $300 billion or $400 billion a year in
terms of our trade deficit, because they're bad workers, and we
have fair trade is one view. The other view is that we have the
greatest workers, and we have the worst rules. But it's clear
we're losing, and I don't think we should blame our workers for
that. I think we should blame our Government for that.
Mr. Goodman. Totally agree. I think that it's not our
workers. Our workers are the best in the world, and our economy
is the strongest in the world. We can compete if there's a
level playing field, which there is not. And that's why trying
to shape the rules is what these trade agreements are trying to
do. Of course, they're not going to solve every problem, but I
think that's what they're aspiring to do.
Just on currency really quickly, I would say that there is
a currency problem in East Asia, a currency manipulation
problem. Most countries in East Asia have engaged in that
practice at some point or the other, and it has been a
persistent problem and challenge.
My own view is that using a trade agreement to solve that
problem is unlikely to be successful, and that there should be
other mechanisms explored to try to promote fairness in
currency practices.
Mr. Salmon. I'd like to move to a different issue. Several
of you have mentioned that it's critical that the U.S. be seen
by our allies in the region as a stable, consistent ally. Do
you believe that's the view of the U.S. today in the region?
Let me start with you, Dr. Jackson.
Mr. Van Jackson. So, if you had asked me 2 years ago, there
would have been much greater doubts. There are still
hesitations, there are still concerns, not least because it's
kind of a bottomless well with some of our allies. But they
feel much more confident about the U.S. today and the
trajectory we're on than 2 years ago, but it's not constant.
So, like if you're checking in right now, I would say that
we're in a better place than we were, but there's always room
for improvement.
Mr. Salmon. Mr. Denmark, do you have any thoughts on that?
Mr. Denmark. Sure. Our allies and our partners in the Asia-
Pacific are in a very difficult geopolitical position in that
there's a major strategic rival or challenge very close to
them, and their primary ally guarantor of their security is far
away, so they're very sensitive to indications that the United
States be consistent, be reliable. So, the challenge that we
have as being the dominant power is that if we demonstrate our
reliability and consistency 90 times, and twice we stumble, all
we're going to hear about is the two times that we've stumbled.
So, I've been hosting groups of people from our ally countries
when we had government shutdown, and those sorts of events that
we have when the government shuts down for reasons that are
very difficult to explain to them, raises their concerns about
how reliable we are, how we can act as a responsible country.
Further, being able to pass TPP after we have encouraged
them to do it, after we've been negotiating for so long, if
we're not able to pass it, that would send a signal to our
allies that we're not a reliable partner, that we're not able
to follow through with what we say we're going to do. So,
they're very sensitive to that. They want to be able to work
with us. They see themselves as needing us economically,
politically, militarily, strategically, but they need to make
sure that we're consistent and reliable.
Mr. Salmon. Dr. Karl Jackson.
Mr. Karl Jackson. Yes, I guess I would have a twofold view
on this. First of all, in the last 40 years of going back and
forth, especially to Southeast Asia, I've almost never heard
anyone say gee whiz, you guys are doing a terrific job. Now, we
can't have been wrong consistently all the time so there is a
tendency to try to poke us a little bit to get us to do a
little bit more. That's one side of my answer, that is that
this is a perennial complaint about us.
The other side of the answer is that if, after having said
that we will rebalance to Asia, we fall down on those
commitments and under-resource the rebalance to Asia, then they
will begin to really doubt whether or not we are at all
reliable. Thank you.
Mr. Salmon. Well, do you feel that right now our policies
in our Government are adequately resourcing that pivot?
Mr. Karl Jackson. I think the pivot is under-resourced to
the extent that the change is occurring slowly. The folks in
Southeast Asia tend not to notice the changes, and they tend to
pocket whatever the changes are and say but, what have you done
for me lately? So, it's a very careful balance, and if the
Defense budget, particularly as it has an impact on U.S.
presence in Asia, and particularly U.S. presence in the South
China Sea were to go down, or if it wasn't responsive to
increased activities on the part of the Chinese Navy, then
doubts would increase. And those increases in doubt would be
based upon empirical fact rather than upon just a desire to get
the Americans more involved.
Mr. Salmon. I just have one last question, and then I'll
yield to the ranking member. We've seen a lot of very erratic
and irresponsible behavior out of North Korea, and that's
probably the understatement of the century. But as far as
threat level to the United States, how serious is the threat of
Kim Jong-un?
Mr. Van Jackson. So, I wouldn't put too much credence on
threats that they're going to attack the White House, or the
Continental United States, or even Hawaii today. In 5 or 10
years, it's a completely different--my answer could be
completely different. But when they make threats--so, their
threat level is always at the, you know, intolerable level, and
most of the time it's incredible, but most of the time when
they engage in sort of low-level violence, or the novel forms
like the Sony hack, they do signal ahead of time that they're
going to do this. They do threaten that they're going to do
things like this. Like the Sony hack played out over a series
of months, and then the question is, you know, how do you
separate signal from noise? And that's always the challenge
with North Korea. But I would say that there is an upper limit,
and so it's reasonable to not take as seriously. Well, I mean,
if you're in the military you should take it all seriously, but
you don't need to take as seriously some of the bombast about,
you know, global annihilation. But the stuff--if they're saying
they're going to hack a South Korean bank, or if they say
they're going to go after a corporate actor in the U.S., I
would take that extremely seriously, because they've shown that
that's--they're willing to match word and deed on those smaller
scale acts.
Mr. Salmon. Thank you. I yield to the gentleman.
Mr. Sherman. Mr. Jackson brings up this hacking of Sony
which, of course, was designed to chill free speech in America.
I'd point out China has bought AMC, or a Chinese businessman
working with the Chinese Government, and so I wonder whether
we'll see any more movies made about Tibet, or a movie made
about Tiananmen knowing that so many of the screens around the
country may not air it; this at the same time while the Chinese
Government, while claiming to be part of WTO, doesn't allow our
movies free access to their screens.
Mr. Denmark, I have to disagree with you on something that
you probably don't even realize you said. You said, ``Asians
will think we can't get it passed.'' We, means the Executive
Branch in that sentence. That is a misunderstanding of the
United States Constitution. We are the American people. We
under Article I of the Constitution are the United States
Congress. We in Congress are given the authority to deal with
international commerce, and the only thing we have agreed on is
that this currency manipulation has to stop. We--to say that
the American President can go out there, make promises, and
then say Congress is unpatriotic or letting America down, or
besmirching America's word because we don't do what he says, is
a device used to dismantle our Constitution, and has been done
by many administrations.
Again, Mr. Jackson, we're now deploying, Mr. Mulloy says,
60 percent of our Air Force, 60 percent of our Naval power to
the Pacific mostly to fight over some rocks that Japan claims,
as much as anything else. How much does Japan spend as a
percentage of its GDP on its defense? Isn't it below 1 percent?
Mr. Karl Jackson. It's characteristically below 1 percent.
Their defense budget, however, has been going up for the last 3
years.
Mr. Sherman. And it still remains under 1 percent?
Mr. Karl Jackson. Yes. It once exceeded 1 percent, and I
was there that afternoon and helped make it happen.
Mr. Sherman. Congratulations. So, we spend 4 or 5 percent
of our GDP, more if you throw in veterans benefits, which after
all is part of our military pay structure. And, as I pointed
out, there isn't any oil under those islands, but if there was,
we don't get any of it.
I want to go to this idea that this trade deal benefits us.
Mr. Mulloy, in general, to the extent there have been benefits
from trade, they've gone to Wall Street, and the harm of trade
has hit American working families. Is there any study out there
that shows that there are more jobs in the United States net
after imports from TPP, as currently configured?
Mr. Mulloy. First, the study that Mr. Goodman cited by the
Petersen Institute, I know the administration used that. And
then Glenn Kessler in The Washington Post investigated that
claim and gave it four Pinnochios. It might be worthwhile to
get that article from The Washington Post and put it in the
record of the hearing.
Mr. Sherman. Without objection we'll do that. Go on.
Mr. Mulloy. Now, I think when the TPP is concluded, it's
not concluded yet, I think under the law, the ITC is supposed
to give an economic analysis looking at its total impact on the
American economy, which I think will have to get into the whole
business of a trade balance and jobs.
There is a formula that economists use for determining GDP.
They use investment, consumption, government spending, and then
net exports. When net exports are negative, they are detracting
from GDP and job growth, and that means that your economy is
not performing the way it would if you weren't running the
negative net exports. You'd probably grow your economy 2 or 3
percent more than it would happen if you run the major deficit
in net exports. That would result in better paying jobs for
Americans, and I think better communities.
And I think the way we've run it now, the corporations are
focused on shareholder value. Other countries put in place
policies that make it good for them to outsource. For example,
if you produce in China and then ship back, that underpriced
currency gives you an export subsidy and helps you make greater
profits. It also makes it more difficult for you to sell from
here into China.
Mr. Sherman. If I can interrupt, one good example is the
Chinese realize they're going to import planes from the United
States, so they require Boeing to make the fuselages in China,
and then those fuselages are shipped and used all over the
world. And they're able to do that while being in WTO because
the government controls the decision as to whether they're
going to buy Airbus, or they're going to buy Boeing.
Here, our airlines will buy a Brazilian plane or a Canadian
plane based on what's in the interest of the airline; whereas,
the Chinese airlines are doing what's--based on what's in the
interest of China as defined by its government. And with those
kinds of rules, we're going to lose airplane manufacturing one
airplane part at a time.
Mr. Mulloy. One of my recommendations in my written
statement is that we ought to give an antitrust protection,
where if Boeing wanted to go to Airbus and say let's both of us
agree that we're not going to be transferring technology as
part of making a sale to China; that we should give them the
right to do that, so that they're not squeezed by the Chinese.
The Chinese will say to Boeing if you don't do this, then we'll
buy from Airbus. Well, the two of them ought to get together.
And I think the Europeans might be interested in some kind of a
relationship like that, because this is going on across the
board.
Our companies are told that if you invest more and move R&D
into China, you'll be considered friends of China. But what's
happening is, those transfers of technology and R&D are beefing
up the Chinese ability to build their defense industrial base,
and their military base. So, I think we need to really focus on
this whole China relationship and get that as a key part of the
rebalancing to Asia. And it will strengthen our whole
geopolitical position if we get this relationship more
balanced.
Mr. Sherman. Thank you.
Mr. Salmon. Well, thank you. It looks like the questions
are through. I appreciate the distinguished panel coming and
addressing many of our concerns. As you can see, this was the
tip of the iceberg. We've got a lot to cover over the next
couple of years, and we didn't even get to a lot of the
questions and the concerns that the committee will have.
I appreciate everybody's participation, and this committee
is now adjourned.
[Whereupon, at 11:58 a.m., the subcommittee was adjourned.]
A P P E N D I X
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