00:00China and the United States play an indispensable role in settling political issues such as improving AI governance.
00:08That was a message from China's ambassador to the United States at an event celebrating relations between the two countries
00:14in New York.
00:15The United States Treasury Secretary Scott Besant was also present at that event.
00:19He said both countries will cooperate in managing the risks posed by artificial intelligence.
00:24Besant also called for a much more balanced trade relationship between the world's two largest economies.
00:31Right, so let's analyse exactly the outcomes from that particular event.
00:36David Henning is the director of the UK Trade Policy Project at the European Centre for International Political Economy.
00:41Thank you for your time, David.
00:43So the US Treasury Secretary pointing out that the approach here is, in his words, to de-risk, not decouple.
00:49It's a pithy phrase, but what does it actually mean in policy terms?
00:52What I think this means is that both China and the US want to reduce their dependencies on each other,
00:58that they fear in certain instances could be turned into some form of economic weaponry,
01:04and this is, for example, China's control over raw materials.
01:07But equally, I think that the US is starting to realise that it cannot fully remove itself from Chinese goods
01:15into the marketplace.
01:16It also wants to do business in China. Its companies want to do business there.
01:20So really, this is about saying there are some things which are too important where we want to put up
01:25barriers,
01:26but there are other things we can't control.
01:28So it's a sort of part managed trade and part will leave to the market, I think.
01:32So both countries say that they want to set up a joint body, right,
01:35to manage the risks from increasingly capable artificial intelligence systems.
01:39But these countries disagree on so many things when it comes to AI.
01:43What can they really achieve?
01:45I suspect they agree on one very important thing between them, which is that nobody else should set the rules,
01:51and that it could be quite a powerful incentive for the US and China to, in effect, form a cartel
01:57to keep others from setting rules.
01:59And those others include the European Union, which has in the past had quite a power to set rules.
02:05So I suspect both the US and China could find roots in.
02:09Clearly, the Chinese would have a more statist approach in general,
02:12though they also have open AI models, which are somewhat different to those of the US.
02:17I think it is possible that they come to this sort of conclusion.
02:21But obviously, they will be in competition with others around the world who want to have their say as well.
02:26So I think we don't know yet how that one is going to work out in terms of AI rules.
02:30But I wouldn't rule out the US and China being able to come to an agreement.
02:33The trade truce between these two countries, that's been extended all the way through to January.
02:38Should we expect any progress, though, in terms of tariffs or market access questions when the two heads of state
02:44meet in Shenzhen?
02:45I don't think we're expecting next week's meeting to be significant in terms of new commitments.
02:50I think we're still running on the existing agreement or the truce, if you like.
02:56And I think that's where we are between China and the US.
02:58We're in a state of detente, if you like, where neither side wants to go further and spark a trade
03:04war.
03:05But equally, both sides want to protect their ground.
03:09They don't want to give anything away as well.
03:11So what I'm expecting to see is a continuation of a sort of accommodation, if you like,
03:17between the US and China that in some circumstances they'll trade in other places they will protect.
03:22They will manage it jointly in some way, they will be suspicious of each other, but trade will flow and
03:28there won't be a trade war.
03:29That's my central assumption at the moment.
03:31Right. And so assuming both sides can hit the broader macroeconomic targets, right?
03:36China raising its domestic consumption as a percentage of GDP and the Americans looping back to the point you made
03:41a little earlier, right?
03:43Cutting their import reliance, especially with respect to China.
03:45Now, what effect would that then have on European economies?
03:49Well, I think it would, but it potentially has quite a negative effect on Europe because it's the US has
03:56a deficit, not just with China, but with Europe, with the rest of the world.
03:59So the US is a huge source of demand for goods for countries around the world, including within Europe.
04:07Now, if the US did succeed in balancing its own economy, then that has a negative effect potentially on Europe.
04:13Now, I'm not sure the US will be able to achieve that.
04:17The US is primarily a services exporter and a very successful one at that.
04:21I'm not sure that reindustrialization and bringing back manufacturing to the US is actually working.
04:26So at this stage, I think I'm not seeing that that rebalancing between the US and China is likely to
04:33continue.
04:34If anything, I think that where Europe needs to worry is the potential that actually that continues.
04:39The US becomes the services supplier of choice around the world.
04:42China becomes the good supplier of choice around the world.
04:45And the EU is somewhere in the middle and struggling there.
04:50David Henning, thank you very much.
