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Charlene Barshefsky, the United States Trade Representative under President Bill Clinton, was the architect and chief negotiator of the landmark deal that cleared the way for China to join the World Trade Organization. As trade representative, she also negotiated a global deal to eliminate tariffs on high-technology products. Her Clinton administration colleagues nicknamed her “Stonewall Barshefsky” — after Stonewall Jackson — for her pugnaciousness. After leaving the government, she was senior international partner at the law firm WilmerHale, participated in numerous advisory groups on China policy and met frequently with Chinese officials. She now runs an advisory firm, Parkside Global Advisors, in Washington D.C. The following is a lightly edited transcript of a recent interview in which we discussed what was happening behind-the-scenes during the negotiations for China to join the WTO, and how U.S.-China relations have panned out since. This interview is part of Rules of Engagement, a new series by Bob Davis, who covered the U.S.-China relationship at The Wall Street Journal starting in the 1990s, in which he interviews U.S. officials and policymakers about what went right and what went wrong; and what comes next.

Q: Put yourself back in that WTO period: I wonder what your goal was. 

A: The fundamental goal of WTO entry, from the point of view of the U.S., was to take China’s internal economic reforms, that is the reforms begun post-Mao under Deng Xiaoping, and to extend those reforms, deepen them, broaden the coverage to encompass essentially the entirety of the tradable economy in China — and thereby to move China’s own internal reform process toward market-based economics. This phase of China’s economic model — reform and opening — served both China and the global economy very, very well. We saw a pattern in China’s economic behavior and a trajectory on which we wanted to capitalize. 

You felt at that time they were moving away from statist policy?

Absolutely. And you see this in the results on China’s GDP growth and global GDP growth. China became a market for the world. The world, in turn, traded with China in a more robust fashion. Two-way investment began, further integrating China into this global economy. All of which was then further driven by globalization itself, which is to say, digital technologies, as well as essentially unrestricted capital flows globally.

It has turned out to be an amazingly important part of Chinese history and economic history overall. Did you have a sense of that at that time? 

I knew this was an enormous deal. Any WTO deal is an enormous deal because of the breadth and depth of the subjects that are covered and the commitments that have to be made to get into the WTO. Countries put huge resources behind these initiatives because these are very substantial commitments with very important domestic political implications. So you want to be sure you haven’t guessed wrong if you’re the country that’s acceding.

You want to be sure you’re not going to crater your economy in the process of trying to modernize it. But you also can see the benefit of more fully integrating with a global economy and with wealthier countries who provide markets, technology, expertise, and other forms of development assistance. 

I knew this was, certainly from China’s point of view, an enormous undertaking. From the U.S. and global point of view, it was also clear that the size and scale of the China deal would be almost unimaginably larger than any prior accession to the WTO. 

What surprised me was not its impact. What surprised me was the rapidity of the impact, how fast China moved in this direction once it set its course, and how determined it was to develop and to use economic policy as the key development tool in a broader sense. This was both quite prescient on the part of the Chinese side and also risky. 

If the shrinking of the state sector proved, for whatever reason, to have been a dreadful mistake, this could have driven the country into a chaotic situation. If the reforms made because of WTO accession ended up pushing people out of their jobs because they could no longer keep up, this would have enormous domestic consequences for China. 

Rush Doshi [Director for China, National Security Council], in his latest book, “The Long Game,” has done a terrific job of unearthing and translating party documents. According to his analysis, although the West thought China really wanted to be market-driven, what they wanted to do, through the WTO, was to defang the United States. So the idea of reform was very secondary. 

China was never going to become the United States. It was never going to become a democracy. This was crystal clear to me. Certainly, I thought economic reform might create over time a more pluralistic society, but it would take a very long time and would certainly not resemble democracy. 

You can look at Rush’s book in the following way. There have been two economic models since the demise of Mao Zedong. Reform and opening — that’s the first 30ish years — and then a statist model.

Why did China shift from an economic model that was so successful to a statist model? Two reasons, I think. One had to do with China’s perception of the West and of the U.S. in particular. As China’s reform and opening produced dramatic results in China’s GDP, and other metrics, China perceived the U.S. was getting increasingly uncomfortable with what was becoming known as China’s rise. And that discomfort was viewed by the Chinese as the harbinger of a potential policy of containment, so that if China became dependent on the United States for its future prospects, it would be stymied. 

And the area where China believed it was most vulnerable was the area that is the single-most important for China’s development and its future ambition — and that is technology. The U.S. and West had it all. China had very little. So it moved away from reform and opening to a statist model. 

The result was to effect a mass mobilization campaign. The state harnessed the power of business, both state sector and private, and it harnessed the population. It threw in massive subsidies. It discriminated against foreign companies to weaken their power in the market. It extracted technology and intellectual property by whatever means necessary. It engaged in cyber theft, all to address this vulnerable gap.

The second feature, why China moved from reform and opening, in my view, was 2008. China saw a market-based system, most particularly in the United States, that was completely out of control, that produced a near depression, that produced social chaos. 

And the area where China believed it was most vulnerable was the area that is the single-most important for China’s development and its future ambition — and that is technology. The U.S. and West had it all. China had very little.

China looked at this and saw two things. Number one, we’re right to depend on the state, because market-based systems can lead to completely unacceptable results. And second, U.S. financial chaos forced it to abandon the field for nearly 10 years.

China saw an opportunity to become much more involved in international organizations. It started its own parallel institutions to the big multilateral agencies, through the AIIB [Asia Infrastructure Investment Bank], the BRICS Development Bank, and so on. And it began to harness its potential in the UN, which the U.S. had also shunned. 

The statist model, in China’s view, has been demonstrated in 2021 to be able to do three things: growth, innovation, even if not at Western levels, coupled with absolute socio-political control — a combination the West said would be destined for failure, but which in 2021 is producing quite nice results from China’s point of view. 

The alternative interpretation is that it’s always been a Leninist system, we just misread them.

It’s very clear what China’s political system is. That wasn’t going to change. WTO entry wasn’t an attempt to change its political system, from my point of view. It was an attempt to change its economic system.

There is no way of looking at China’s state of development at the time — looking at what was clearly a series of domestic economic reforms — and walk away from that and say, “Oh, none of that matters because they’re always going to be Leninist.” Really? That’s your response? Or is the more rational response to say, “Let’s see if at least we can move them economically.” If over time their economic system becomes more compatible with the West’s, the advantages for global growth, poverty alleviation, and so on, are enormous. 

But at the time, Bill Clinton talked quite a bit about how economic liberalization would lead to political liberalization. And several times in Congress you testified, “By helping to open and liberalize China’s economy, WTO accession will create many new economic freedoms for Chinese citizens and promote the rule of law in many fields not dominated by state power control.” Do you think Clinton and the administration over-sold it?

Clinton’s rallying cry was, “Only the Chinese people can determine the kind of government they want.” He said this repeatedly. What development and wealth can do is give people more choices, but it’s their choice to make. He was very clear about that. 

With respect to what I said, look, what do you do with a country that is not like you but is big and, because of its scale, will have an outsized impact over time?  

Let me tell you a couple of other points. What is one of the lessons one draws from [former Russian leader Mikhail] Gorbachev’s glasnost? He tried to undertake political reform first. He hoped for economic reform second but, of course, he didn’t have time to get to economic reform because political reform without economic reform doesn’t support political reform.

So, what we did was the reverse. Why do you start with economic reform when you have a regime that’s authoritarian? Because first of all, everyone understands trade. Everyone understands investment. Every country trades and invests, whatever its political system. And so that’s a common area of discussion. 

But more than just the trade and investment side, you have the development through trade and economics, of a rule of law. The most fundamental rule of law area in the economic field is contracts. If you have an authoritarian country, what does the rule of law mean? Without a rule of law, the state is saying, “What’s mine is mine and what’s yours is mine.” If you have a rule of law and contract in the economic field, then the state is saying, “What’s mine is mine. But I’m now agreeing that a piece is yours.” That’s the beginning of reform of an authoritarian economic system, and the beginning of inculcating these concepts into a country that hasn’t had them.

As to the rights of people in China. I’ll give you a small example but there are hundreds. When we did the WTO accession, China had state trading entities. All of the trade of the country had to go through one or another of these entities. Individuals had no rights to trade abroad. Companies had no rights to trade abroad. 

China offered us, in the WTO accession, to treat our companies the way their companies were treated. And we said, no, thank you, that’s the sleeves off your vest. Let’s do this: You give your companies and your people rights to trade without going through your state trading entities, and those will be the rights you give to foreign companies. That’s exactly what happened. This opened up a whole new line of commerce and of economic growth for people on the ground in China, which they never had before. 

There were many areas where you had to first reform the Chinese economy so that foreign companies would be able to benefit from the new economic freedoms granted to domestic companies. 

Do you think it is a feature of the American system that when you’re trying to sell a trade deal, whoever the political person involved basically oversells?

I think that is absolutely a feature. That has characterized every trade agreement, every trade agreement that the U.S. has done since [NAFTA]. 

Including China? 

I don’t think the agreement was oversold if you look at the result. But I do think what was never fully appreciated, which should have been part of the equation, was how fast China would develop and how the West would be caught behind the curve. 

Now I’ll add one point here and that is we did think at the time that imports from China would surge. Which is why we had in the agreement a mechanism called a “special safeguard,” which meant if imports surged into the U.S. the President had the means to stop those imports and impose tariffs. There was an administrative process to determine whether the imports were problematic or not, and so on. 

[President] George W. Bush had four or five chances to impose this mechanism and declined every time, which was unfortunate. Because had the special safeguard mechanism been used as intended to stop surges, China might have actually shifted some of its trading patterns, which might have reduced the kind of political angst you see today. 

So we did understand at the time that surges were possible, certainly, and even likely to happen. We had a mechanism designed to address it. Bush never used it once. [President] Obama used it once. The failure to use the mechanism was, to me, one of the most puzzling aspects of U.S. action on China. 

Let’s go into some of the details on these negotiations. As you know, Zhu Rongji, the Chinese Premier, was coming to the U.S., hoping to finish off the China WTO negotiations. Bill Clinton at the time had no intention of finishing it as he felt it wasn’t politically the right time. How crazy did that drive you, when you heard Clinton’s decision? 

Completely crazy, because it was a political calculation, and because it was so crazy to have made it the way it was made. The President tried to reverse it the next day after Zhu left the U.S. for Canada. He tried to get Zhu to come back to the U.S. to finish the deal. That’s a mark of how bad the decision was, and that became apparent as details of the agreement were provided to the public. It was a massive agreement. People were stunned at its breath and its depth. Nobody expected it. So, I think the President was ill advised at the time, confirmed by his own deep regret at the decision he made and his desire to turn it around. 

Of course, Zhu rightly said, I’m not coming back. You sucker punched me once, you aren’t going to do it a second time. And of course, then there was the mistaken bombing of the Chinese Embassy in Yugoslavia [in May 1999]. And so we had perhaps a five or six month hiatus, and then the two presidents talked. We got back on track and ended up finishing the deal.

You had flown to Beijing, and you were going to meet with Zhu, and you knew what Clinton was going to do.

I knew what he might do. 

Okay, but meanwhile, you’re meeting with Zhu Rongi who wants a deal. How did you try to handle that, knowing that Clinton was probably going to say no, whatever Zhu says?

I was honest with him in the sense that I made clear that even if he and I finished the deal when I was in Beijing, the only person who could say yes or no would be Bill Clinton. And I couldn’t guarantee it would be a yes. I also couldn’t guarantee it would be a no. 

You then decided to publish the results of the negotiations up to that point, which is a big departure from the way trade officials usually operate — the mantra of “no deal until there’s a final deal.” Why did you do it? 

Only one reason: To hold China to it. If we didn’t make it public my concern was China would say that the agreement was different, that China would say, it had not made the concessions that they obviously had made. I was afraid there would be enormous pressure on the Chinese side to pull back on what they had agreed to do. 

And how did you deal with blowback from the Chinese?

They weren’t happy, but you know, they have a very long history. They seem to always recover. 

What’s your view of Zhu Rongji? Critics of the WTO will say that, sure, he wanted to liberalize, but to liberalize with the intention of consolidating state power, that he was one in a line of Leninist leaders. What’s your view?

Even slimming down the state sector, giving more room to private enterprise, to begin to develop and flourish was, in and of itself, extremely important. If you take a statist system and you hybridize the economy, you’ve made progress. You’ve moved the economy again in a direction toward greater compatibility with Western norms. Any diminution of the state sector, any slimming down of its portfolio, creates more room for other actors in the economy. That means a slightly different distribution of wealth in the economy. And that is all to the good if we think about wealth-creating choices.

Let’s go back to 2001, ten years after the fall of the Soviet Union. South Korea had changed from dictatorship to democracy; Taiwan, a traditional Chinese society, changed to become a democracy; lots of parts of Latin America became democratic. How much did you hope that China would be the next? 

I never thought of China as on the democratic bandwagon. But I did believe that the political system over time might become more pluralistic, have a greater number of voices, not just the party voice.  

That aspiration doesn’t stem for me personally from a notion that everybody should be a democracy. It stems from the notion that if you can increase the surface area for cooperation, even though you’re different, that is absolutely a net positive. If you can increase commonality of interest, even if only in a narrow sphere of economic policy, you increase that area for cooperation. 

Do you ever feel regret in the sense that the deal that you negotiated helped make China that much stronger, that much richer, that much more capable?

I’ve never thought it should be U.S. policy to hope poor countries remain poor. China would have developed; China would have grown. China would have become immensely powerful, I think, particularly in manufacturing, because of its enormous manpower reserves and scale. 

The way I think about China’s WTO accession is the use of economic policy, not only as a driver of growth, but as a driver of peace over time. So, it is a rather Rooseveltian view. But I’m not quite sure what the alternative is. What’s the counterfactual? 

I think the counterfactual would be you don’t help China, you block it from getting into the WTO, which the U.S. could have done.

If that is what we had done, the conversation today would be: “Bill Clinton lost China.” Because at the point at which China said, “We’re ready to enter,” he would have repudiated China. The mantra would now be: “You lost China. Look where China is now.” That’s what the conversation would be right now.

And you would imagine a very hostile China: I mean, it’s hostile at the moment, but I mean, way more hostile.

I’m reminded of a line from one of my favorite movies, My Cousin Vinnie: ‘You think I’m hostile now, wait till tonight’. I think you would have faced not only a hostile China, but you would also have driven China closer to Russia earlier on. Russia might still have been the big brother then, but slowly that would have flipped. And we would also have driven China closer to the other miscreant countries. 

Switching to the impact of China on the U.S. Obviously, there are a lot of very positive parts to China’s emergence. But also clearly it had a negative effect, the so-called China shock. Chinese imports decimated some places, which then became the nodes of populist sentiment. Was there any part of the WTO deal that you think might have dealt with that? 

I think one of the deficiencies in the entire trade debate — and this has been the case forever — is the absence of any discussion about domestic policy. The purpose of trade is to increase aggregate GDP and to shift the locus of job creation to higher value-added jobs. And trade does both. How growth in the aggregate GDP is distributed within a population is domestic policy. And what you often find is that people blame trade policy because of an absence of effective domestic policy.

Why do you think China succeeded? The narrative has grown up that they cheated their way into success. 

You have a nation, at that time of 1.2 billion people, with a long history of entrepreneurialism, with a storied history as an innovative, inventive economy, except for the last 600 years or so. They were the world’s inventors for millennia. You have an ethos that inculcated industriousness. The idea that they would have been nothing but for us is completely false.

But where they have been particularly helped is on the technology side. If you look at the situation now, China is increasingly innovative. And that’s extremely impressive. It’s why on quantum computing, for example, they are ahead of the United States. 

So generally speaking, with exceptions, they earned their way to the top? 

I wouldn’t put it that way. State policy made clear that getting all sorts of technology, by whatever means necessary, was required. And I say that because if you look at “Made in China 2025,” you have a policy that is both aspirational, and highly prescriptive, with revenue targets, market share targets, and an import-substitution philosophy. The only way to meet these targets was through theft.

There’s no question that they have been effective in stealing massive amounts of IP and technology. But I can’t say that means the Chinese aren’t capable technologically. I don’t think you can make that case. We also have to take into account that stolen technologies benefit many other aspects of the economy in China and those gains may not be kosher.  

There’s no question that they have been effective in stealing massive amounts of IP and technology. But I can’t say that means the Chinese aren’t capable technologically. I don’t think you can make that case.

A couple of times, you’ve talked about the U.S. falling behind over the last 15 years. I know you’re no fan of Trump. But the last 15 years includes Obama also. 

Each of the Presidents missed opportunities and did at least one good thing. George W. Bush was passive when it came to China. He refused to employ the mechanisms provided for in the China WTO agreement to stop Chinese imports. But he worked remarkably effectively with China on the financial crisis, which was critical. And the [Treasury Secretary Hank] Paulson-China dialogues are really a testament to effective cross-border policymaking. 

Obama engaged with China to excess. At one point it was reported that there were 60-plus working groups with the Chinese side, as conditions on the ground in China actually worsened for American and foreign companies. In addition, you have cyber theft, which was rampant, and the build-out of the island features in the South and East China Seas by China. Obama attempted resolute action by getting agreements from Xi Jinping that these activities would stop. But we know now they did not stop. 

On the other hand, Obama did TPP [the Trans Pacific Partnership], which was the single most important thing we could be doing right now in Asia. And he undertook an enormous array of enforcement actions against China. They were successful in all, even though China’s fundamental economic model didn’t change. But there was some incremental progress on the ground. 

Trump decided that the way to engage China was to bludgeon it. Unfortunately, he was also bludgeoning our allies at the same time by imposing sanctions and tariffs on everyone and every import he could find. In the case of our allies, of course, most of that has been rolled back. Trump’s actions were irrational and insulting. At the same time, Trump also pulled us out of TPP — a drastic mistake.

In the case of China, the policy implemented was a complete failure. Think of it this way: At its height, he imposed 25 percent tariffs on $370 billion worth of Chinese goods, and it was the U.S. who blinked first by accepting a Phase One trade deal Trump himself had said they would never take.

On the China side, of course, the Chinese are tough, and they adjusted to the tariffs. On the U.S. side, consumers were not so lucky. Various estimates indicate that the increase in prices because of the 25% tariff hit pocketbooks directly, wiped out the benefit of the Trump tax cuts to people and reduced consumer choice. It was an irrational policy, a complete and utter failure truly. And all that time China kept growing, and conditions on the ground remained essentially unchanged.

On the other hand, the Trump administration did reaffirm what other administrations had said but they did so in a much more fulsome way, indicating the range of practices that China was engaged in on the trade side, particularly on technology, that were problematic. Trump’s sanctions worked in part, with Huawei being the key example. But Huawei is pivoting. They will continue to pivot, maybe into a cloud computing company and they’ll end up being quite successful.

Biden has not rolled back the Trump tariffs even though he has a more robust exclusion process, which is a politically more palatable way of in fact, rolling them back. I think they should be rolled back. They’re just hurting us and they’re not doing anything to stem China’s trade or alter its statist model.

But I think Biden has it right in saying that the U.S. has to get its act together. And that’s job one. He’s right in reconnecting with allies. We see the benefits of this now with Ukraine. He’s right that we have to be ferociously competitive with China.

Where he falls short, thus far, is an absence of a robust trade policy, including in the region. If the U.S. wants to ensure that its positioning in Asia remains strong, and ensure that it can counter China, in Asia and elsewhere, the U.S. needs to embed itself further in Asia, integrate further in Asia. One of the most effective ways of doing that is through additional trade agreements.

To put it another way, our absence is China’s opportunity. And they are using it by having created the RCEP [Regional Comprehensive Progressive Agreement], which excludes the United States, but includes 13 or 15 other countries in the region. And of course, China has applied for membership in CPTPP [the Comprehensive and Progressive Agreement for Trans-Pacific Partnership]. I think they’re a long way away from membership there. But I think it’s very conceivable that in the interim period, they could ask for observer status. That’s just enough to put their finger on the scale in whatever the group does. And again, the U.S. is absent here. 

There are people in the Biden administration who would like to do TPP. The president is clearly not committed to doing that. How would you advise them to proceed?

Well, obviously, you can’t use the name TPP. But I could imagine the U.S. could take four or five or six countries in TPP, with whom Congress is familiar — Australia, New Zealand, Singapore, several others — and structure an agreement that is a fulsome agreement, and invite members to join. You would have to have market access elements, but we would obviously get something in return.

You pointed out that in 2008, the U.S. and China worked very closely together. Certainly, under Trump — and it hasn’t changed really under Biden — there’s been no coordination on two of the biggest problems: the pandemic and Russia’s invasion of Ukraine. Does that argue that engagement is over?

No, I don’t think so. Just a word on the 2008 period. The global financial meltdown resulted in a dearth of global demand. China was the only country that supported demand for the world, including for the United States. So, its role became extremely important.

On the pandemic, this is a multiple systems failure where we spent more time accusing each other than we did trying to solve the problem. This was, I think, unfortunate, and frankly doesn’t bode well for the global economy going forward. Something that should have driven countries closer actually was used as a wedge issue. Given Russia’s actions and the February 4 manifesto between China and Russia, engagement with China now, in my view, is more important than it’s ever been.

It seems almost inevitable that China will become the world’s number one economy. How do you think that will affect American politics? 

Even if we’re smaller in economic size, do we, because of inertia, or our rule of law, or the dollar or other features of our economy or national character, nonetheless remain preeminent? I have thought about that a lot. I don’t know the answer. If you’re not predominant, can you remain preeminent? I think the answer is yes. But then you really have to make the kinds of domestic adjustments that the Biden team is looking at and that others will look at over time. 

When was the last time you were in China?

Right before the pandemic. I haven’t been back since, which is very difficult when you’ve spent so much time there over so many years.

I like the people very much. They have a number of very smart, really gifted thinkers — academic, think tank, scientific, in so many different fields. And reading and talking with these people is always energizing and informative.

I miss the smells, the sounds. It’s very odd not to be back for all this time. And I think every policymaker or former policymaker will tell you, it’s important to go. You pick up those nuances. You have those conversations, you certainly can’t do on Zoom, let alone by telephone. You lose those strands. 

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