INTERVIEW/ George Shultz: U.S. should seek 'working, constructive' ties with China

April 09, 2014

By TAKESHI YAMAWAKI/ American General Bureau Chief of The Asahi Shimbun

Given its enormous economy and influence, the United States should develop a “working and constructive” relationship with China to address global issues, such as climate change, former U.S. Secretary of State George Shultz said.

However, Shultz doubts that an era will ever come when the two countries co-rule the world.

In an interview with The Asahi Shimbun, Shultz, 93, predicts that China will soon realize that its aggressive military posture will only create an adversarial situation and will have to pull back.

Shultz, also a former Treasury secretary, emphasized that the best way for Japan and China to deal with their territorial dispute over the Senkaku Islands in the East China Sea is to “put it back to sleep.”

Excerpts of the interview follow:

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Question: Several years before you were born, China, then the Qing Dynasty, was in an extremely precarious position as a nation. But China is now No. 2 in the world in terms of GDP. Do you think China’s dramatic rise is a historical inevitability or mainly the product of chance?

Answer: I think the rise in the Chinese economy is the product of the adoption, in China, of market-based economics. And it goes back to Deng Xiaoping in the early ’80s, when he opened the Chinese economy. And I remember, when I met with him in the early ’80s, he told me, “China is now ready for two openings.”

He said: “The first opening is within China, and people will be able to move around and find good employment. And the second opening is to the outside world, and I’m glad there is a reasonably coherent world to open up to.”

He once told me that he started with agriculture and small firms because, “I know the Chinese people and they will respond, and then when they see something working, they will want more of it, so I expand.”

So he went about it very deliberately. But basically, the underlying policy was to adopt a market-based type economy.

Q: Since last year, the Chinese leaders, and even U.S. leaders, have used the words, and I quote, “the new type of major country relationship.” What do you think of these words in describing the relationship?

A: Well, China obviously is a large country, and it pretty much “has its act together” in economics.

You pay attention to important economic countries, and you have a lot of interaction with them, economically and otherwise. So that means it’s important to have a working relationship in many areas.

For example, I am convinced that the globe is warming. So, at this point, China is by far the biggest emitter in the world. The U.S. is the biggest emitter on a per capita basis. So I believe it would be a good thing to get together with China and say, “Let’s identify the things we can do, that you do, that we do.”

Q: What will be the new world order, for the decades to come, in the 21st century? Some say that the U.S. and China will basically manage the world system, like a “G-2” theory. Do you agree?

A: I think, looking at it from a U.S. standpoint, we have to conduct global diplomacy. Every place has its importance, and you have to be aware of what’s going on all over the world and try to construct a world that is peaceful and prosperous. I don’t think the world is set so two countries can rule it.

For example, everybody goes to Singapore. It’s a small and prosperous country. But it’s interesting. And they have views. And you learn there. It’s obviously important, from a U.S. standpoint, to have a good working, constructive relationship with China. But I don’t think we want to think that the U.S. and China can get together and decide how the world is going to work.

Q: You wrote in your book that we are in a world “awash in change,” that the United States must once again demonstrate its capability and willingness to take the lead.

A: Let me just recall the history to you. At the end of World War II, some gifted statesmen in the Truman administration looked back, and what did they see? Seventy million people were killed in the Second World War, let alone injured and displaced. They saw the Holocaust. They saw the Great Depression. They saw the protectionism and currency manipulation that aggravated it. So they set out to construct something better. They invented the Bretton Woods system.

We reached out to our adversaries, Germany and Japan, and said, “Come on in.” It was absolutely the opposite of after World War I. And, over a period of time, with the Cold War basically over, you could say that there was a security and economic commons in the world, and everybody benefited from it.

I think that commons has been badly eroded. And you look out at the world now, it’s a world awash in change.

So we have to figure, “How are we going to reconstruct that?”

And I think, at least in the period after World War II, the U.S. didn’t, sort of, dictate things and get its way. But when the U.S. comes with ideas, constructive ideas, and resources, and a willingness to work on something, things begin to happen. It’s a joint enterprise, but leadership is necessary. So I think it’s necessary for the U.S. to analyze things, work with our friends, and find a way to a better world.

Q: What do you think is necessary for the U.S. to re-emerge as the leader on the global stage?

A: The U.S. must get its economic house in order and once again produce a healthy and expanding economy without inflation. A sharp change in the present economic policy is absolutely necessary. That includes reform in the personal and corporate tax system, stripping out preferences--largely used by the wealthy--and lowering rates for everyone.

Reforming the social security system by changing the indexing of benefits from wages to prices is also an important step, in addition to the establishment of a regulatory framework that is easy to understand.

The essence of good policy is good strategy, both in terms of economics and diplomacy. The United States can regain its leadership on the world’s stage on the basis of economic and military strength and confidence in the freedoms we advocate and demonstrate.

Q: Many experts predict that China’s GDP may surpass the U.S. before or around 2030. Some experts also predict that Chinese military expenditures will reach roughly the same level as the U.S. by 2030. Do you think the U.S. will be able to take the lead again?

A: Beginning about 30 years ago, fertility “dropped like a stone.” So China has had a quarter of a century with a rising labor force and a falling number of people that the labor force had to support.

And the big increases in GDP have come from the rising labor force and the movement of people from rural to urban areas, where their value-added has been greater. That is about to change, almost like throwing a switch, as the generation that was the rising labor force retires, and the people who are part of the new wave become the labor force.

Furthermore, if you look at Chinese history, the “safety net,” in a sense, has always been the Chinese family and community.

With all these people moving to urban areas, how, exactly, will people in these more anonymous settings handle retirement? The Chinese are very well aware of this; they’re working on it. But they have an altogether different situation on their hands, looking forward. So I think this business of taking their growth rates of the past years and just projecting them are a fantasy.

Q: Will China eventually become democratized, in your view?

A: Well, take China, let’s say, over the last 30 years. Just go there. Look at people. It’s different. It used to be they all had the same thing on. Now everybody’s different. And there are colors. They’re exercising choice. They drive automobiles rather than ride bicycles. There’s more freedom.

Now, they don’t like it if somebody criticizes the state, and they put people in jail and so on. But that’s less so than it was 30 years ago.

What will happen as the future unfolds? I don’t know. But I think that the habit of openness in the economy and exposure for Chinese to see what goes on elsewhere will create continuing pressure for more control over how they will be governed.

And that’s been changing. I don’t think China will be a “democracy.” They will have it in their own form. I’d say they’ll have a more and more representative kind of government, where people have more of a chance to have a say, particularly in local areas.

I think they will always have a strong central government, but local communities will be more and more governed in a representative way. That’s happening already.

Q: Isn’t China’s increased military strength of concern to the United States and the world?

A: One of the things that’s happening to China is that it is aggressive around its borders. It is causing all of its neighbors to coalesce in objection to that. It’s creating an adversarial situation that, I think, may wind up feelings not to its advantage. As China asserts itself in its neighborhood, a lot of that is overly aggressive, and they’re going to have to pull back soon.

From a U.S. standpoint, it’s vital that freedom of the seas be maintained and that China not close off for open navigation areas that are vital to the world, like the Straits of Malacca or whatever, that have huge trade flows.

So the U.S. Navy has, over many decades, basically been a guardian of freedom of the seas. That’s not just for the U.S.; that’s for everybody. That’s for Japan; it’s for everybody. And it’s vital. So we will continue to do that, and if we “bump up against” China sometimes, we’ll have to work it out.

Q: You once fought against the Japanese military and then later had a close relationship with Japan when you were secretary of state. What are your thoughts about Japan today?

A: While I fought in the Marine Corps against the Japanese in Palau, etc., in the Pacific during World War II, all us Marines thought: “Well, the Japanese are tough fighters. They’re the enemy, but you have to respect them because they do well and they stand up for themselves.” So I carried these attitudes, and I don’t see anything that would change my mind.

What Japan confronts, however, is a rapidly aging society. Fertility is low, longevity is high, and so the average age of the Japanese population is rising. You don’t have that energetic, young burst. I think Japan has to think about--and I know you are thinking about that problem--figuring out how you’re going to live with that.

Japan has never been a country willing to have immigration. So you’re not going to have your age composition affected by immigration. So you should have more women in the work force, without a doubt. People should work longer, not retire early.

Q: Recently, more aggressive moves by China in the seas around the Senkaku Islands have put Japan in a difficult position. Quite a few Japanese people are concerned whether the U.S. will actually fight together with Japan if some conflict arises in that area around the Senkakus.

A: Well, those islands, historically, have been disputed, but they’re not particularly consequential. So, in a sense, they were “put to bed,” you might say.

Then, that stable situation was changed by Japan, in the purchase of the islands. If I were in office and trying to deal with it, my objective would be to put it back to sleep. There is no way you are going to settle it and say “OK, Japan sells it to China, or China sells it to Japan.” So let’s just forget it.

I think this is clearly a case where the U.S. has its treaty with Japan and will stand with Japan. I don’t think there’s any question about it. But I think it’s very important, for all sides, to put it to bed. If a big conflict should break out over there, it would show the stupidity of all parties because: “What are you fighting about?”

I think that the U.S. will conduct global diplomacy and will try to interact constructively with everybody. Sometimes it’s hard in some cases. Right now, it’s very hard to work with Russia, given everything that’s going on. I don’t see any particular reason why the U.S. can’t have a good working relationship with China and Japan at the same time.

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George P. Shultz, born in New York City in 1920, is known for his illustrious career in government, academia and the business world. He was secretary of the Treasury (1972-74) under the Nixon administration and secretary of state (1982-89) under the Reagan administration. He graduated from Princeton University with a B.A. in economics. He earned a Ph.D. in industrial economics at the Massachusetts Institute of Technology. He is currently the Thomas W. and Susan B. Ford Distinguished Fellow at the Hoover Institution. He authored the book “Issues on My Mind: Strategies for the Future” in 2013.

By TAKESHI YAMAWAKI/ American General Bureau Chief of The Asahi Shimbun
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Former U.S. Secretary of State George P. Shultz during an interview with The Asahi Shimbun (Photo by Yuko Lanham)

Former U.S. Secretary of State George P. Shultz during an interview with The Asahi Shimbun (Photo by Yuko Lanham)

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  • Former U.S. Secretary of State George P. Shultz during an interview with The Asahi Shimbun (Photo by Yuko Lanham)
  • George P. Shultz (Photo by Yuko Lanham)

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