How to Win a Summit: China’s Economic and Commercial Leverage

China is one of the 21st century's most consequential nations. It has never been more important to understand how the country is governed and what its leaders and its people actually want and believe. Welcome to Pekingology, the podcast that unpecks China's evolving political system and the trajectory of China's domestic and foreign policy. I'm your host, Henrietta Levin, Senior Fellow with the Freeman Chair in China Studies at CSIS. This is Pekingology. I am very pleased to be joined today by Dr. Thiluk. Thil previously served as Deputy Economist at the U.S. Department of State and he is currently Director of the CSIS Economics Program. We're going to talk about the economic and commercial elements of the summit between President Trump and President Xi in Beijing. This episode is going to drop right as the summit is getting underway, so I should timestamp the conversation. Thil and I are chatting right around May 12th, 4 p.m. Eastern. This is the first of three episodes. We're going to have on-peckingology, unpacking the big meetings in Beijing. This is the first one, the second one will drop Friday, May 15th. That will be our first ever emergency pod and I'll be joined then by John Zin, former Director for China at the White House National Security Council, to unpack the summit outcomes right after they've been announced in Beijing. So tune in tomorrow for that. Now back to Thil. Thank you so much for coming on the show. Happy to be here. To start, I'm hoping you can tell us a bit about yourself. Were you born knowing you were going to be an economist? You know, about six months after, no. I would check it, I would believe it. From a fairly young age, actually in undergrad, I wanted to be a college professor, which I was for the first half of my career. I really always loved understanding how big complicated systems worked. And you know, economics is, the economy is certainly today big and complicated. I'm so thrilled you're here to make it slightly smaller for us. We'll see. Incrementally more comprehensible is my goal for this conversation. We'll see if we can get there. Amazing. Okay, so just diving into the summit, in terms of the economic and commercial issues on the table, what do you see both sides looking to achieve? And then what do you expect will actually be achieved? Yeah, it's a great question. I mean, we're all thinking about that, I guess. Well, early on, I was sort of thinking from the US side that the weeks of news leading up to the summit would kind of drive the things they thought they needed to get out of it in some sense. I felt like this was that case in the last summit, where it was weeks and weeks of talk about US agriculture and how bad the soybean situation was. And that sort of led to sort of some of the conversations. The information ecosystem has just been so fractured, given how much is going on, that doesn't seem to be quite the same pressure. Again, reading you all and other excellent China scholars, I sort of think that everyone kind of wants some level of continuity and normalcy. I think they're going to want small wins. And in that sense, I think they're going to make small swings of the bat. On the US side, I think they're looking for purchase agreements, at least things they can announce, whether it be soybeans or corn or other things like that or bowings. And on the Chinese side, I think, hopefully, I would imagine that they're looking for a sort of normalization of tariff rates. So a lot has happened over the last year to put it to the final. It's been busy. Yeah, exactly. Tariff rates on China have changed a lot over the last year. They went from about 20% at the end of the last administration. At some point, the highs, they went up to 100%. But that was kind of crazy and for a day or two, they were stabilizing around like 50% for a while there. And now they're down around 30. And that delta between the Chinese rates at about 30 and our sort of partner rates at about 20 is about as low as it's been in over a year. You might argue it's been as low as it was since maybe 2018. So in some sense, China isn't a better place in terms of the tariff rates relative to our partners than they've been a long time. I would sort of imagine they want to make a little bit more progress there, but in some sense, solidify where they are. So help us understand the effective tariff rate because for China, so this includes the 301 investigation that goes all the way back to the first Trump administration that was originally based on, I think, IP violations and became a whole life of its own. So there's that. Then there's, I think, additional tariffs layered on more recently. Can you just, like, what is the tariff rate really? Yeah. So why? Yeah. Why is the harder question? I can tell you what it is. So just to go back even step further, when I say effective tariff rate, basically what we mean is tariff codes are for all different types of products. Some of them are big in terms of the trade. Some of them are small. So you basically take like a weighted average across goods in terms of if you buy 50% of all your trade is in one category, you weight that rate at 50% of the total. So it's an average, a weighted average. How did we get here? To your point, we've had some narrow tariffs on China for a long time. So in the previous world where we all sort of agreed to what was called the most favorite nation principle and we all sort of assessed tariffs on each other at the same rate or one country's tariffs were the same across all partners. And this is like the world where the WTO was a thing. Exactly. Exactly. And that bygone era. So, you know, there are narrow ways in which we had pretty high tariffs on China, whether it was because of steel dumping into the steel market or other things. But generally speaking, they were pretty similar China versus other countries. As you noted, in 2018, the Trump administration put on pretty large tariffs, 301 tariffs, which were for forced IP transfers. 301 is a statute that basically says, hey, you're doing a thing that is bad and harming our economy as a punishment to incentivize you to change your behavior. We're going to impose a tariff. That's basically the logic there. Those stayed on through the Biden administration. We actually increased them. And in addition, we put on tariffs on China and other partners for national security reasons. So these are 232 tariffs. They're on everything now from steel and aluminum to cars to softwood lumber, which of course is a giant national security concern. That's a joke. And in addition to that, we now have, because the IEPA tariffs were ruled unconstitutional, the administration is now putting tariffs in place under section 122, which I won't go into a huge amount of detail, but basically allows the administration to put a universal 10 percent tariff across the board. And that universality of the tariff is part of why the tariff differential is compressed. Because they're using this across the board 10 percent tariff and they lost some of the leverage from the IEPA tariffs that were higher on China, tariffs have normalized somewhere where there's a smaller delta between Vietnam, which in previous administrations we'd been asking companies to move to, to de-risk from China, and now the Chinese market itself. So I think that the one plus one dynamic you're talking about is really important, which emerged as a result of the original Trump tariffs on China. This idea that U.S. companies maybe weren't going to pull out of China necessarily, but when they're thinking about growth, they were thinking about Southeast Asia, about Vietnam, Malaysia, India, other partners of the United States. And the tariff differential was a big part of how those trends started to happen. And I can remember even back then where initially the Southeast Asian countries were really, really worried about the tariffs on China. They were worried it would be a drag on growth for the whole region. And then at some point they started to look at their own investment numbers and be like, maybe this is okay. But like whispering it because they don't want to like get in trouble. Yeah, they still want to come in to us. But they were real benefits for the region because of the spread. Exactly. And so now going into the summit, would you expect the tariff rates to change on China from where they are now? Do you see that as part of the discussion? And what could that mean for the spread? Like if it's currently 10%, which is pretty small compared to where we've been, do you think that will change? And then what would the broader market implications be? Yeah, so I'm fascinated to learn when we're thinking about what are we expecting out of this summit. I mean, if you ask me that question, I'm going to shamelessly punt. But what I will say is like, look, where that delta shakes out will be a super interesting thing to look at. I don't imagine it widening coming out of the summit. I don't imagine the Trump administration saying the tariffs have gone up on China out of this. If it narrows markedly, that would be a pretty big deal, I think. Because at this point, given the differences in labor costs and just production costs, we're hearing from a lot of industry that they can eat this. This is not affecting their calculus in a broad way. So again, if you're thinking about a policy that incentivizes de-risking or even just puts pressure on China to amend its ways of stealing IP, this differential doesn't really do that. To your point, though, what should we expect? Because there are many other tools in the toolbox and because this administration, the US administration seems reticent to get into an escalatory spiral and thinking about the rare earth controls, I just don't see them wanting to push very hard on that. And yeah, to your point, there's a reason that trade economists like the most favored nation principle, which is like the United States charges the same tariff on steel to every partner, because it doesn't incentivize or disincentivizes that tariff jumping, the diversion of trade. But in a world where you do want to reorient global supply chains, you do want to incentivize people to get out of China, that sort of differential is incredibly helpful. But we are both through the uncertainty we're creating, meaning companies can't really plan for what the tariff rates are going to be tomorrow. And for the degree to which that delta is smaller than it used to be, both of those things make companies want to wait in terms of trying to de-risk or de-invest from China. So that bridges well into this idea of managed trade, which we're hearing a lot about. There's a sense that it's what the US wants to institutionalize in the context of the summit. To the degree there is a deliverable verging on structural, rather than purchase commitments, it's this idea of managed trade. So what is it, especially in the context of US-China relations, but more broadly, what does that mean? Yeah, well, I'll tell you, it doesn't sound like a free trade principle. So being a little bit less glib, I think in a glass half full way of thinking about it, I actually think it's a good thing they're talking about managed trade. In the sense that I think, at the beginning of this administration, I was saying that, look, we may have many conversations, but we're not going to have the important conversations. And to me, there are two really big important conversations to have with China. One is, are we comfortable buying from and selling to each other? What are the things we're willing to trade in terms of creating vulnerabilities in terms of those supply chains or just sharing technology, things like that? A discussion around managing trade in this way is at least tangential to that. What are we willing to trade with? The other piece, which I think a lot of people have thought about for a long time and in some sense, a failure of the WTO architecture is, it doesn't work great for an economy that's not supermarket based because the whole idea of the WTO system is we will lower tariffs and through those tariff rate changes, the price changes, which tariffs are, trade will equalize. Well, if you have a pretty centralized economy that relies hugely on state subsidies, you can lower tariffs all you want, but you're still going to have China with a $1 trillion trade surplus because of the internal policies. So that second piece is, how do we manage trade in a way that the balance of trade is considered fair? So it's what do we trade and how are we making sure both sides think it's fair? That would be my, to the degree to which a word of trade or a conversation around managed trade can be productive, it does get us closer to talking about those two things in a way that we kind of have. Now, to the glass half empty version of that, that conversation is best had among technocrats at a working level around like, these are really, really complicated things. They shouldn't be about gross trade flows, meaning I'll sell you a billion dollars worth of planes versus soybeans, right? It should be about the value added, it should be about the actual content being traded between countries. So that part I'm less optimistic about, but it's at least starting a conversation where candidly we weren't really talking about this stuff before. And it seems like one of the outcomes of where the Busan summit between Trump and Xi landed last year is that we've basically stopped talking about the non-market policies and practices on the Chinese side that create that a started trade relationship in the first place. Whereas in the past, going back, however many administrations, the fact that Chinese policy is the fundamental problem in why Chinese trade takes these distortive forms. That seems to have been put aside. There seems to be much more of a focus now on almost more of a tactical conversation about how to try and just move numbers around the board to restore some kind of balance without dealing with the underlying problem. And on some level, I see how that makes sense because if we haven't had all that much luck convincing China to change their model of growth in the past, however many decades, like are we going to do it now? But then I struggle with seeing how this is actually a better and more effective solution because you're not dealing with the source of the problem. So how do you look at that? Yeah, I couldn't agree more. I think that's exactly right. I think to your point, we have sort of moved away from the axe policies and practices conversation to USTR parlance. And I think that's a problem. I think the folks who would be sympathetic to that idea is look in the Chinese system, any box you want to draw around what they can and can't do, they'll color it right outside it in a way that defeats your efforts. That's all well and good, but I think that's necessary to build the larger coalition to address these challenges. Right? I think right now we have the Japanese, the Koreans, the Europeans all willing to talk to us about the actual policies that China is taking that you could build more pressure that way. So I think that's a bit of a missed opportunity. To your other point, to the degree to which it's tactical or sort of very sort of surface level or at this individual trade basis, you're A, not solving the underlying problem. And B, this is the soybean problem, which is the thing that you decide to focus on will in part just be like whatever political pressure you're feeling that day. It doesn't mean it's the right thing to solve. And for the US economy, soybean farmers are important, but is that the most important thing for the US economy to be focusing on right now? I'm not sure. It maybe it is, maybe it isn't, but I'm not convinced that we came to this in the most thought out process. This is very similar to with this administration, if you want to get your export licenses approved, you need to have the audience. So this sort of top level decision making leads to sort of very potentially sporadic decisions that I think a market outcome would not create. I'm really excited to talk to you about soybeans, which is not my usual view of soybeans. You and your team have done some really great math on the soybean trade between the US and China and South America and China, which is a very big part of the story. So can you walk us through the soybean trade, since this does seem to be, as you mentioned, at the very top of the list of US priorities for the summit? Yeah. So it's a fascinating story where, this same story basically played out in 2018, where as a result of the trade war, China stopped or bought a lot less of our soybeans. They're by far the largest market for US soybeans. That's not only just for consumption, but also for animal feed. So pork eats a lot of soy products and for processing. So a lot of vegetable oils are processed in China. So a lot of the demand for soybeans in China is for processing and re-export. For all those reasons, they are a huge consumer of US soybeans. The other thing that's really fascinating about soy exports is, not surprisingly, there's a harvest season. And if you don't sell in that season, you can store them for a while, but there's a lot of cost of keeping them stored. They degrade. This is a shelf life. So you can, if you time things right, put a lot of pressure on an economy if they care about their farmers, which most economies do. So basically, our growing season, our harvest season is sort of like October through January, February. And in the lead up to Busan, which was the October, they had basically not bought a single soybean for most of the year, basically. And we largely missed that entire season. Coming out of Busan, they were supposed to buy some 2 million metric tons. They simply didn't. So we're sort of in the low period where they wouldn't be expected, basically buying from Brazil during right now. But as we move further into the year, again, we sort of have a big hole in our sales that didn't get purchased. But the pressure is going to sort of build and build as we sort of get to the later summits of the year as well. And so just to make sure I'm understanding this right, so the soybean exports from the US, let's say at the beginning of 2025 were more or less normal. Yeah, just about normal. Yeah, exactly. And then the trade war hits and purchase orders go to zero. And then we get to Busan. There's a commitment on the Chinese side to restore purchase commitments. So I think your numbers showed that even their commitment was lower than the status quo ante exactly levels of purchasing. And then they, what you're saying is they didn't even buy those soybeans. No, not at all. Yeah. So even if they had, so they normally, I think it's around 28 million metric tons, they had bought very little over the course of a year. If they had come through on the 12th that they had said there or that at least Besson said they were going to buy it, they would have maybe gotten to about 70% of what they were going to buy a normal year. Not even that happened. They stopped the sort of boycott of the US soybeans, but still far below sort of normal levels. I mean, one of the reasons I started looking at this data, I'm not an agricultural economist, I'm a trade economist. This kind of came out of work that I did in the last administration on sort of the use of agriculture as a economically coercive tool. It's a pretty good tool because it's very hard to reroute agricultural products in the short term. You have phytosanitary conditions with different countries. You have long-term purchase agreements. It's pretty easy to turn away shipments for all sorts of reasons. And people don't like upsetting farmers, and that's pretty universal across countries. China as a large consumer of US agriculture, this is a tool they have. And I think one thing that candidly US soy industry did not really heed in the first trade war was they were really over concentrated on China as a market. And they're sort of seeing that now. I would say that, again, hopefully this summit will be such a success that this will all be a thing of the past. But I think this is probably closer to the new normal. Other countries are investing in their ability to export to China, not just Brazil, but Southeast Asia. Brazil has invested in northern deep water ports that are going to allow them to export even more, more cheaply. So I just don't think we're going to go back to the old days of China being this really lucrative big market for your entire culture. Yeah. It's interesting because I think we don't always sitting in Washington contextualize what's happening in the US in a global framework. But if we look at how China crafted its retaliation over the course of the 2025 trade war, you see it deploying in some ways, it's very classic tools of Chinese economic coercion. I can think of it's effectively undeclared, so weird how no one's buying your whatever agricultural products are very important to a particular part of your political base. So weird how the Philippine bananas stopped getting through customs after South China Sea, that kind of dynamic, but on a much larger scale. And especially because you've done so much work on the theory of economic coercion, would be interested in your thoughts on that. So you have the classics. Yes, exactly. And then at the same time, you see China building out a regulatory structure for in some ways a much more sophisticated and in some ways a more US inspired toolkit of economic coercion based on, I mean, an ostensibly transparent set of requirements and restrictions. And that's where we get into the rare earths. 100%. Yeah, no, I think it's fascinating to your point. I mean, the use of agriculture as a coercive tool is by no means new and definitely not new to China, or this is something they've used sort of access to their market and importantly, sort of in these gray zone ways where it's not usually explicit, it's just, well, you know, a ship is just that port for a while and they don't have the right paperwork or there's some bugs with those bananas or things like that. It's a very powerful tool in this sort of gray zone coercive way. That's hard to deal with for a lot of reasons. But, you know, to your point, it's very different from a more US modeled approach of we are going to build out the legal framework for the regime that allows us to control choke points that we have, they're going to have real economic damage, right? So again, much of what they've built out over the last few years has been modeled either, you know, intentionally to signal to us or just, you know, trying to model best practices of, you know, the US export control system and the US sanction system, right? And they now have a tool that, you know, leverages choke points that are not dissimilar from our, you know, leveraging of choke points over our, you know, supremacy in the financial system or our control over, you know, technology that's embedded in tools for semiconductor production, right? And to your point, I think the thing that's, you know, now much more understood is that extra territoriality has really been built into this, right? They're not only just controlling access to their market or direct exports of their goods, they're now more and more saying, we export a thing and we're telling you whether you can export that on or under what conditions, which is again, very much similar to our use of export controls as well. Yeah, I like how for however many years China felt very strongly that extra territorial authority over commercial transactions was hegemonic and very, very bad until, you know, whatever day, last year where they're like, it seems fine. Yeah, yeah. I mean, you know, not dissimilar from the French, they also, they didn't like it until, you know, until it was helpful for Ukraine, which again, it is very helpful. But, you know, it's always, these tools are, they look less attractive until you need them yourself. It's interesting how we learn from each other. So where are we on rare earths? Is China implementing its side of the bargain from Busan? And is that enough? Yeah, of course, we have export controls on both sides. You could argue that the rare earth controls are largely a function of sort of post-liberation day tariffs, at least to some degree. I mean, I think the infrastructures are there obviously. By all accounts, they're, you know, implementing it enough, right? You know, of course, there are delays and I think, you know, there are delays on our side in export control licensing. You kind of have to read the tea leaves to some degree, whether those delays are intentional, simply the difficulty of actually implementing this stuff, you know, a slight building of leverage in the lead up to a meeting. I think we're in the range of seems like, you know, not unacceptable. I think to the broader point about like, where are we going, like what should come out of this? It seems to me in talking to folks, everyone kind of wants to kick the can down the road, roll this forward a little bit, just kind of continue this sort of, at least to some degree, the status quo. One reason why I think that's probably going to happen is because I could argue that that's a win for both sides. For China, that would mean that the US is not, you know, increasing tariffs, increasing that delta in a really big way, nor is it increasing export controls, either by reinstating the affiliates rule, which dramatically widen the number of entities that you couldn't ship technology to, or by putting more restrictions on technology. I think China for a long time has sort of thought that like, we're on this sort of inexorable one way ratchet to increasing pressure. So if we are simply holding Pat, you can imagine that sort of being thought of as a win. For the US side, I could also argue that this is a win because the US, I would argue, this administration is now playing for time. They know this is a choke point that China can sort of exercise. There's very little we can do about it right now in terms of actually ameliorating the control they have over these critical minerals. So what the administration is focusing on is solving that in the long term, making big investments, using the massive purchasing power of the Department of War and other tools to solve this problem. But candidly, that's like a decade long task. So in some sense, if they're not using the tool today and you're investing to mitigate it in the longer term, that's also a potential win. So I think the incentives are largely aligned to like kick the can't down the road. And how do US export controls fit into this? Because it seems like as you alluded to coming out of Busan, part of the deal was that in exchange for China rolling back most of its rare earth export controls ostensibly, the US was for its part supposed to pull back the affiliates rule. So pull back this plan to apply export controls to the subsidiaries of entities that are subject to export controls, which is by the way how financial sanctions have always worked. But we're not going to do that now, at least for the one year duration of the deal, which will probably be extended, but we'll see. And then also it seems like there was a more implicit understanding that the US just was not going to do new export controls targeting Chinese entities in any significant way. So where does that stand? Do you expect the US to stick to that approach? I mean, all of these arrangements are on a one year clock from last October. So how do you see that clock playing out as well, especially in the context of the talks in China this week? Yeah, I mean, so I've seen no talking to folks and just reading the news and all those things. I've seen no indication that the administration is working up plans or thinking about sort of ratcheting up pressure in this space. So whether they sort of is a to your point an implicit agreement that we're not going to increase pressure in these ways or not, they seem to have very little appetite for doing that. The Commerce Department, BIS is doing very little. They're not approving a lot of licenses of products to China, but they're not increasing the sort of their statutory reach or sort of the broader reach. Again, whether that's fear of escalation or purely a difference of opinion in terms of what the right level of controls is, I could certainly argue that like there are certainly those within this administration who think that the last administration got it wrong in terms of the sort of promote, protect in terms of how much we want to sell goods to China to keep them sort of integrated in our systems or get revenue that needs to go into R&D versus cutting them off. I think there's genuine disagreement there. So I just don't see a lot of appetite for sort of further tightening right now. There's obviously the wild cards of the things that don't make a huge amount of sense in the broader strategy like the H200s. I'm going to put that in a different bucket of- And this is when the administration is kind of unilaterally offered concessions on providing China access to higher end invidia chips for stage 20s and then even a higher end. Exactly. It's 200s. Exactly. Kind of apropos of nothing. Apropos of nothing or just the right person getting to the Oval Office or whatever argument you want to argue. But putting those things aside, I just don't see a lot of appetite for expanding controls. The last thing I would say though is part of this is not entirely within the control of the administration though. So obviously the summit will be in the control of the administration. But more and more because the administration has not been acting on expert control, we're seeing more and more legislation being introduced which is trying to make the administration put controls into place. The MATCH Act is a really good example that basically tries to force the Secretary of Commerce to implement rules that would basically force both the Dutch and the Japanese to mirror our controls on China. Now there's a lot of debate as to whether the Commerce Secretary would have to do it. But at least that's one point that of course the executive branch is not the only player here and there's certainly plenty of hawks on China still left throughout the US government. I always appreciate the stories that leak every few weeks but like literally no one in Trump's cabinet supports loosening technology protections. Yes, exactly. And then clearly there are other perspectives from other people. Yes, exactly. Yeah, again what I've been laying out is kind of like what I think is going to happen, what I think makes sense based on sort of the interests of both sides. There's obviously just giant wildcards, right? Like I know a lot of people in the administration are trying very hard to keep a $1 trillion investment idea as far away from these discussions as possible. There are certain US automakers who are more interested in joint ventures with China. Boeing would like to sell a lot of planes and if transfers of certain technologies go along with that, we know that might be interesting too. So there's a lot of ideas but I'll be curious to see how many of those materialize. I'm glad you wrote up investment which has been on kind of an interesting trajectory over the past year or so where I'm old enough to remember when increasing opportunities for Chinese investment in the US was an ask from the Chinese side that came up in a few different contexts including I think in the TikTok negotiations at some point. And then at some point in more recent months that conversation flipped. Investment in the US is now potentially an ask from the US side. So this has gone from something China would pay to get to something we're going to pay to get. But honestly even throughout that whole evolution of the issue, it seems like there isn't a lot of concreteness to the conversation and we all appreciate the administration's interest in big headline investment numbers. But if I'm a Chinese company, I mean it seems like this is a pretty horrible economic proposition of putting significant money into an investment where they know that their political license operates quite limited at the same time. I mean Chinese companies will at the end of the day do what they're told to do from the government side. And if the Chinese government feels they can get something more important from spending this money in the US or acting like they're going to spend this money in the US, then maybe that's a trade they're willing to make. But what does that look like for you? Like where do you see actual potential if anywhere for more investment from the Chinese side in the US and is that a good thing? Is that something the administration thinks is a good thing? Yeah, I mean it's a great question. I think whether the administration thinks it's a good thing, I don't think there's a monolithic view at this point. I think there's probably very divergent views. Though I mean as a card-carrying economist and trade economist at that, I do think I have to say that obviously I think more economic integration between our two countries is a good thing. Right? I think in a lot of ways like trade can be sort of the cooling saucer for worse intentions. And I think we'd both be sort of dealing with each other worse if we didn't have all these integrations. So like that, putting aside all the sort of big security risks, I think some integration is good in that way. So that's good. And investments in the United States, look, we have an aging grid. We have automakers who don't make the best cars relative to Chinese makers. So there's possibilities for good things there. Why I don't think that's all too likely is because, okay, you can have a trillion dollars. You can write the one with all the zeros after it. But then you got to say, okay, where do we feel comfortable with those investments going? Where do we feel comfortable having ownership over these assets? And I think in the current context, that's a really small, if not null set of sectors. Even things down to like farmland, these days is quite complicated. I think the idea of a joint venture or a primary stake in a US automaker would be politically inviolable. Certainly not in anything closest to things like biotech. So I think the list of technologies and issues makes it really tough. The last thing I was just saying. Just especially, I mean, you mentioned like our aging grid. I'm just thinking about all the conversations we have in the Philippines, for example, being extremely concerned about the Chinese ownership of part of their grid consortium. Yeah, exactly. So that's the last thing I was going to say. It's like, okay, everything I just said is just how do we feel about China owning parts of our economy? The second piece is, well, that seems like it would make harder for us to tell other countries that China can't invest in their economies. So we're working really hard to make sure that, say, Mexico and Canada don't allow huge amounts of Chinese investment. That's going to be, I mean, not saying we're always above hypocrisy, but it's a much harder case to make if you accept that. You need to be like a certain margin below it. Exactly. Before it gets unsustainable. Yeah, $1 trillion probably isn't it. So I think for all those reasons, I think there's just a lot of reasons why that's just going to be a really hard thing to sort of implement. So we saw that Secretary Besant, who's been leading the trade talks with China, but also, I think, basically being the chief diplomat for the US China relationship for this administration, we saw Secretary Besant and his Chinese counterpart, Haley Feng, scheduled last minute negotiations in Seoul that are just finishing up as we're talking now. What are those talks about? What do you think it means for the summit itself that there's this rush at the end to do the prep work that seems to have been somewhat lacking earlier in the process? So I don't have good insights into what those conversations are about, but I think to your last point there, I think this is an indication of maybe not the lack of preparation, but where we are in that process and there probably would be more in a more typical administration. I think one thing, and this is outside of my sort of realm of economics, but I think it's useful to think about is because the president is so dynamic and has so many things on the table and is willing to consider a lot of options that would normally be outside the scope, and because the decision making is so centralized and it really does flow from him, it's really hard to do that pre-planning because you need to make sure you sort of maintain decision space so that the president can go in a lot of different directions. And if you're trying to maintain that decision space, we're seeing this in the war in Ukraine, right? You can't prejudge whether the negotiations with Putin are going to be successful or not, so you have to leave a lot of space for whether that goes in one of many different ways. And again, normally, I mean, you were certainly in this process, both at state and the NSC, like you'd normally be doing a huge amount of blocking and tackling to get even... Exhausted just thinking of it. Exactly. Right. I just don't think that's happening because they don't know, they don't have the clear direction. So I think a lot of this has to be at sort of the secretary level the week before. Add to that, of course, we have everyone's very also distracted by a war in Iran and the sort of economic fallout from the closure of the Strait of Haramud. We should talk about Iran. Sure. And the economic fallout of it. And how that is shaping the context and the incentives in which the summit's unfolding in China. Yeah. I mean, it's fascinating. I mean, look, we've had a lot of huge economic shocks over the last, you know, half decade or so. It's hard to overstate how what a big economic shock this is. Not only has sort of the law of the sea kind of gone out the window, but the Strait that controlled access to 20% of all oil in the world has been shut for basically two months. We're talking about hundreds of millions of barrels of oil. That's not just like held up in the Strait. It's not in the market. Right. This year, we'll have hundreds of millions of less barrels of oil than your normal year. That's going to result in much higher costs for everything from diesel to heating fuel to jet fuel to fertilizer. Urea prices, which is a really critical fertilizer, have skyrocketed. Right. So the global economy impact of this is A, enormous, and B, going to be long lasting. Like we're not going to be through this until 2027 or beyond. There's going to be food insecurity, and a lot of things going to happen between now and then. Well, how it plays into this meeting, I mean, of course, it will be a large part of the agenda, I think. I don't really have a good sense of how much, if at all, China is willing to use any of the leverage it has over Iran to make change here. I'm going to say not really. That's my guess. That seems like a very safe assumption. Not that they want the war to continue. No, no. But also not that they see it as their problem or that they're feeling economic pain in an urgent enough way to make it their problem. Yes. I defer to China experts on that. Every China expert I've talked to, including yourself, seems to agree with that. I think that's a little short-sighted either by somebody, whoever. Because look, this is an enormous shock to the global economy, and I think every day this continues, the odds of a global recession are increasing at an increasing rate. China is obviously making itself very resilient economically in terms of its domestic ability to maintain itself. But every day it does that, it also makes itself more exposed to the cycles of the global economy, because now it has, it's basically the growth engine of its economy now is they've doubled down on exports. If exports collapse because the US and Europe and other major economies go under a session, or if we have a developing country crisis that metastasizes, or any number of ways this can unfold, that's really, really bad for China. Again, I agree with you. I think they see this as our problem that we have to solve. But I think that purely speaking as an economist, I think that's a bit short-sighted. The last thing I would say really quickly is they do have a huge amount of leverage over Iran. They are a huge lifeline in terms of trade with Iran, and especially in things where Iran is going to need to rebuild. It's going to need a lot of machine tools and other things that have been destroyed or degraded. It used to get a lot of those supplied from Western companies through the UAE. I think it might get less help from the UAE in the near future. China's going to be a really important player economically for Iran in the rest of this year on forward. Again, I agree with you. I don't think they're going to use that leverage, but they certainly have it. Okay. So we're almost out of time. I just want to ask on a final note, what do you think it would mean for the US or China looking at the commercial, the trade, the economic part of the summit? What do you think it would look like for the US or China to win? Yeah, it's a great question. I think I said I was going to punt on this earlier, so I'll definitely do that. I would say- I locked the door. I'll put it this way. I think my basic expectations are we're going to have kind of a kick the can down the road summit, not a huge amount of headlines. The administration will talk about how amazing the outcomes are and we'll check back in a year and much of that will not materialize. But I guess on a scale of what's possible, recognizing the swing space is probably not huge. What would you be looking for, seeing what comes out of the conversations in Beijing? What do you see and say, oh, China did pretty well here. Oh, the US did pretty well here. What are those indicators? Yeah, I think the things I would look for there, I think on the Chinese side, I would say, again, if there's no movement on US export controls, no further ratcheting, and a reduction in US tariff rates or some head nods towards that, I think that's a huge win for China. I think they would sort of be continuing to sort of solidify a system that if it doesn't advantage them, it certainly puts them in a pretty good spot relative to partners. On the US side, I mean, I think it depends a little bit on what they're looking for. I mean, I think they're going to largely be looking for sort of like to your point, those big ticket items. I think those are going to be, I'm skeptical how many of those are going to come through. But candidly, I have a harder time thinking about how this looks like a sort of unmitigated win for the US than I do from China. Well, on that optimistic note, Phil, thanks so much for coming on the show. Oh, always a pleasure. Thanks so much for having me. To our listeners, you can look more deeply into Phil's work by checking out the CSIS economics program page. His team just put out some great new soybean math. You should take a look. And as always, we'd love to hear what you thought of today's conversation. You can write to peckingology at csis.org. And if you haven't already, please rate, review, subscribe to the show. We'll be back in your feed tomorrow with some quick takes on the summit outcomes with John's Inn. So we'll see you then. If you enjoyed this podcast, check out our larger suite of CSIS podcasts. You can listen to them all on major streaming platforms like Apple Podcasts and Spotify. Visit csis.org slash podcasts to see our full catalog.