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GOP presidential candidate Jon Huntsman on China

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HH: Pleased to welcome back now former Utah Governor, Jon Huntsman. Governor, it’s great to have you back on the Hugh Hewitt Show.

JH: Hugh, it’s a pleasure to be back with you. Thanks for having me.

HH: Governor, I really want to focus on China. Before I do, I want to ask you about your press release today, the unemployment rate, 9.1%, another day of extraordinary market turmoil. What are the markets telling you?

JH: The market’s telling me that there’s zero confidence in this country of ours. The President has had two and a half years to get it right. He’s had two and a half years to infuse a sense of confidence in our direction as a sense of predictability for small business and entrepreneurs and innovators. He has failed in that task. And here we sit, the market’s collapsing. We desperately need competitive tax reform, desperately need to get the regulatory monkey off our back, and desperately need to start doing things like moving toward energy independence. None of that has been done. The bully pulpit hasn’t been used, and here we sit, paying the consequences. And it’s a high price for we as Americans to be paying.

HH: You mentioned tax reform in the press release this morning. What tax reform would you push for if you were elected president?

JH: I would push for exactly what we did in the state of Utah. We achieved a flat tax. We basically took 30% out of the income tax. I would do that for the business tax here in the country. When you look at our business tax, second highest in the developed world, it’s totally uncompetitive. You’re not going to attract brainpower, you’re not going to attract capital that you can amass for the creation of jobs. I would phase out the loopholes, the deductions, the innate biases in this dilapidated, anachronistic tax code. I would lower the rate, I would broaden the base in a revenue neutral fashion. We did it in Utah. I’ve been there and done that. That would speak to competitiveness once you get rates down far below where they are, maybe in the 24-25% range. That would speak to competitiveness, that would speak to our engagement with the real world of international competition. Right now, we’re falling behind. The rest of the world has gone through tax reform. They probably have an average business rate, on the tax side, of 25%, and here we are pushing 40%. You can’t survive at that level.

HH: Do you think the President’s advisors have any concept, Governor Huntsman, of what the marginal cost of this higher rate of taxation is to the United States?

JH: Well, I think it helps to have been in the private sector. You know, I just did a round table here in Nashua, New Hampshire, and a lot of small businesses, local community business folks sitting in the room, and they all say the same thing. You know, we could get this economy going again if we believed in our tax code, if we knew that there was going to be some movement, some interest, in creating jobs. It helps to have been in the private sector to know the environment needed to create those jobs. It helps to have been a governor, where you don’t create jobs, you simply create an environment that speaks to competitiveness, and where you let the private sector, the innovators, the creative class, fill in the blanks. But they’re not going to do that unless you have an environment that speaks to growth. And right now, we don’t. So you’ve got a lot of pent up energy in the form of great ideas in Silicon Valley. My friends there say that all the good ideas, with respect to our industries of tomorrow, are sitting in the pipeline, but they’re languishing there, because nobody wants to move them forward in an uncertain environment. And my friends in the financial services world say there is capital in the marketplace, but nobody’s going to deploy it, because there is uncertainty about the regulations in the financial services sector. So we are stuck, and the longer we remain stuck in neutral, Hugh, we fall behind.

HH: So Governor, do you hear, when you talk to businesspeople like that, that the looming threat of Obamacare is holding back job creation?

JH: You know, I hear that everywhere I go. And I’m just not using this as a gratuitous punch. I’m saying I’ve sat down with health care experts, I’ve sat down with medical professionals, I’ve sat down with the business community, and I hear across the board, from people who shouldn’t be saying this, that we’ve got to repeal Obamacare. They say that you’re running headlong against a world in which you’re going to have states that are going to ask for carve outs and exemptions here and there, you’ve got states who are doing their own health care reform, like we did in the state of Utah without a mandate, basically, a free market-based exchange where our 13% uninsured are able to find policies that they can afford, and policies that are consistent with their individual circumstances. That’s what health care reform will look like, I think, as we go forward, something that’s based on the marketplace, something that’s based upon broadening and expanding choice, and broadening and expanding options that are available to the consumers out there. Today, we don’t have it. We’ve had a $1 trillion dollar health care bomb dropped on our economy when we can least afford it. It’s not only presented more in the way of cost, when you look at Medicare and Medicaid, but it has infused tremendous uncertainty into the marketplace in the sense that small business folks are saying you know, I’m already struggling with health care cost inflation. I can’t stay on top of that. And trying to anticipate and guess what 2014 is going to bring, when all of this kind of comes to fruition? It’s too much for them. They’re not going to deploy capital in the market, even if they have it. They’re not going to hire new people, which is desperately what this country needs, because of the uncertainty around Obamacare.

HH: All right, Governor, I want to turn to China. The financial crisis we’re seeing unfold is actually a sovereign debt crisis that is international in scope. And China had a former central banker today, Yu Yongding, come out and say look, we’ve got to let our currency float, we have to stop running up these surpluses. To what extent is China involved in this, responsible for, the imbalance in the world currency markets, given their refusal to let their currency float?

JH: They’re a huge contributor to it. I mean, you’ve got a lot of countries around the world who artificially manipulate their currency in a most uncompetitive way. If you look at China’s currency, called the renminbi, it basically is 17% discounted, so they have a huge advantage in the marketplace. They’ve manipulated it to the point where it has had a distorting effect on our bilateral trade balance, obviously. But it also has a global international economic imbalance as well. And what they are embarking upon, and it’s interesting to note, Hugh, that we now kind of look at forty years of the U.S.-China relationship, Nixon went there in February of ’72, we’re about to get to the forty year mark, and so we’ve got from zero trade back in ’72 to about $400 billion dollars in trade today, soon to overtake Canada as our largest trading relationship anywhere in the world. So is there a responsibility that China has to begin getting some of their fundamentals right, and in accordance with free market principles. Absolutely, they’re a major player, they’re on the world stage. If we’re going to trade with them and expect them to live up to obligations, as everybody does, and they’ve shown, in some cases, very little appetite to do that, you know, we’re going to have problems. But I’m here to tell you that they are undertaking, because they have to, they want to go up the economic ladder, they want to create the largest middle class in the world. Today, it resides in India, probably 300 million strong. But they’re transitioning slowly from the largest export machine this world has ever seen to what will more and more look like a consumption based model. It’s going to be a long, difficult journey for them. They’ve just started it. There’s no certainty that they’re going to get to the end point. And as they move through this transition, I think there are going to be some real disruptions for them, politically and economically, domestically, and I think they know that. But as they proceed with this transition toward more of a consumption based model, they’re going to have to take their currency closer to market valuation, which means that our exporters in the United States are going to have more opportunities to penetrate the Chinese marketplace. We’re going to have more of an advantage, increasingly, because their currency will begin to take on more of a market-based orientation. That’s a good thing. That’s going to take a little bit of a while, a little bit of time. But as this happens, it’s going to be interesting for people who are interested in the subject matter to watch how this thing plays out, because what the Chinese authorities, the party, effectively has to do, they must convince the average person in China to begin taking out their currency, their savings that they usually keep under the mattress, out from under the mattress and deploy it into the marketplace, to become shareholders in their own society. They’ve been very reluctant to do that, because it seems that every 20 years or so, there’s a major upheaval, political upheaval in Chinese society, so you take out your money and you run, because there’s never been any long term stability in the country. So they have to convince their population that they should be investing that money in society. In order to convince the average citizen that this is a good thing to do, they’ve got to build confidence in where China is going. That’s going to be a very expensive undertaking for them. It means they’re going to have to address things like health care reform, with 900 million people in the rural parts of the country. You have to remember that the iron rice bowl is gone, the days of the iron rice bowl. That’s no longer the case. They’ve got to address health care reform in the rural areas. They’ve got to address things like affordable housing. They’ve got to address things like retirement and pension programs. So we look at $3 trillion dollars in foreign exchange reserves that they have, and we say geez, that’s mighty impressive. Wouldn’t it be nice to have that here. But just remember, they’re going to be drawing down on those foreign exchange reserves considerably to make this economic transition completely. All the while, they’ve got serious inflation problems, they have labor costs that are increasing 15-20% per year in the southern manufacturing zones of Guang Zhou, and they have corruption, which is endemic in the system. And all of this is playing against their desired outcome, which is perfect harmony and stability.

HH: Now Governor…

JH: So the years ahead are going to be very, very interesting to watch play out.

HH: Last month, Dr. Kissinger was my guest on the occasion of the 40th anniversary of his secret visit to lay the way forward to the Nixon visit in February of ’72. And I had finished reading On China, and thought it was fascinating, but at the end, he talked about the rise of the tigers within the People’s Liberation Army, within the political elite of Beijing, aggressive, aggressive, you know, this is our century, the United States is a worn-out superpower. To what extent did you run into them in your two-plus years as ambassador? And how much do they worry you, these tigers?

JH: You have a split within the generations there. You’ve got the older generation, and I’ve worked with both generations over the years. I’ve been engaged in this business for 30 years. The older generation lived through the great leap forward – 1960-1964, where 30,000 people starved to death based upon these disastrous Communist policies, these utopian economic policies that Mao promoted. And they lived through the great cultural revolution – ’66-’76, roughly. So they’ve seen China at its very worst, they’ve seen society in complete disarray and upheaval. They don’t want to repeat those days, and therefore, their level of hubris, of arrogance, is generally low. The younger generation coming up, Hugh, that didn’t live through those periods, all they have seen for 30 years now is 8-9-10% economic growth. All they’ve seen is blue sky. They’ve seen deterioration here in the West. They think, as Dr. Kissinger mentioned to you, that we have seen our better days in America. We’re going to prove them wrong, by the way. But they think we’ve seen our better days, and it’s all blue sky for them as they move into the future. That’s the generation that I would term to be a little more nationalistic. And that’s the generation that we are about to begin working with. And when people ask me, you know, what is the best policy that we should be deploying toward China, how do we deal with this in the future, you know, I can give you fifteen different academic answers to that. But the real answer is we’ve got to get our core in this country fixed. If we can’t fundamentally rebuild our core, get our own house in order, get our economy working again, we have no leverage, and the Chinese know that. And you sit at the negotiating table, whether it’s in economic talks or whether it’s in security or military talks, they know that we’re discounted right now because our economy is weak, and that is taken advantage of. So if we want a strong, forceful China policy going forward, it actually starts right here at home with an improved economy, with the leverage that we get from having the largest economy in the world, because that speaks to strength.

HH: What do you make of, Vanity Fair has a couple of articles on unrestricted cyber warfare, and what apparently is a series of attacks on international agencies, not for profits, corporations and governments coming out of Beijing? What are they doing? And what, if you were president, would you say publicly to get them to stop? And do you believe it’s them?

JH: It’s a serious problem, Hugh. Suffice it to say, we tracked it very, very closely in the embassy. We think we know where it’s coming from, and the penetrations here in the United States are widespread, and they go well beyond just the government. They go on to the private side, non-government side, and it’s pervasive. I see it here as an opportunity for the United States to achieve two things. One, we ought to come up with the best technology in the world that would act as an early warning system, and countermeasures against that kind of behavior. That ought to be developed in this country, and we ought to be able to deploy it. So A) we ought to see it as an economic development opportunity. We ought to be sitting down with the smart people in Silicon Valley and say we have an opportunity here to develop new technologies that we’re going to need in the years ahead, because this cyber warfare, cyber intrusion issue isn’t going to go away anytime soon. And two, we need to be very, very aggressive in how we push back.

HH: You know, Governor, they’re about to launch their first aircraft carrier, it’s a Ukrainian one, it’s rehabbed.

JH: Right.

HH: They’ve got this new J-20, they’ve got their anti-ship ballistic missiles, they’ve got submarines, and against the backdrop of Dr. Kissinger’s theory that they believe in strategic blows, sudden, sharp, table-changing, table-turning over events, what’s your level of concern about the aggressiveness, especially in the South China Sea, but internationally and cyber land with China?

JH: I’m going to give you a statistic that I think is important for you and your listeners to know. Let’s take a look at who they actually fear most. Is it people within in the country? Or is it people on the outside? Just take a look at their budget most recently, and look at how much money has been spent on the Defense side. Now we outspend them about five to one in terms of our Defense dollars. Their Defense dollars, though, are focused laser-like on things like maritime expansion, a blue water navy, submarines you mentioned. The aircraft carrier, which I’ve seen, it’s parked in Dalian. They haven’t done an arrested landing, which you need to do on an aircraft carrier, although they’re training for that. They don’t have a carrier battle group, yet, that they can deploy with the carrier. And you’ve got to remember that when you deploy a carrier battle group, you’ve got to have at least a couple of others that can rotate along with that one carrier battle group if it’s going to be at all effective. And then remember as well that the first time that carrier battle group sets sail through, you know, the East China Sea, and down through the Yellow Sea, East China Sea, and down to the South China Sea, imagine how the neighbors are going to start responding to that, which provides a real diplomatic opening for the United States. So the spending on Defense is targeted, and it’s directed at maritime capabilities, and two, it’s directed at their missile program. Now take a look at what they’re spending on domestic security. So the money that goes into, say, the ministry of state security and the ministry of public security, which are the two big organizations that basically keep a lid on everything domestically, and keep an eye on folks. The money is far more that they’re spending on their domestic security than they are on external threats. That should tell you something. That should tell you that they’re more concerned about the years ahead, and what could be a very restive population as they make this economic transition, as inflation gets out of hand, as corruption begins to boil over, as you see a huge, rural population that still isn’t getting a lot of the economic uplift that we see in the big cities like Beijing, Shanghai and Guangzhou. There’s some real concerns on the domestic front, to say nothing of the external side.

HH: Last question, Governor, then. Why are they cracking down on the Christians? And what is your message to them about that, given that the Christian Church is hardly the most subversive of organizations in the world?

JH: It doesn’t matter if the organization is subversive or not. If an organization brings people together, and if that organization is teaching something that is superior than party doctrine and philosophy, if someone is willing to follow a leader other than a party leader, that causes them great concern and consternation. And when you get the spiritual needs of people met, which increasingly, these very brave people are doing in many of these house churches in China, when people get their spiritual needs met, they find that there’s less of a need for time spent with the party, and reading party propaganda. That, longer term, is a threat. The Chinese have figured that you may as well break these things up while they’re small, or they could, like the Falun Gong of recent years, get to be very large, in which case the demonstrations in Tiananmen Square, or outside of the Great Hall of the People, or Zhongnanhai, the leadership compound, can be very big and very destabilizing. So the lesson learned for them is when these movements are in their most nascent form, break them up, make sure they don’t get too big, and never pose a threat to party stability.

HH: And last, if you were the president, would you demand religious liberty of our friends in China?

JH: Let me tell you what we need to go going forward. We’ve had 40 years of a transactional relationship with China, which is fine. You know, we trade and we invest. We do all the things that any two countries would want to do. But our future is going to be dependent on how effective we are in infusing shared values into this bilateral relationship. We don’t have that today. We have shared interests, but we don’t have shared values. And the shared values would include freedom of religion, greater political freedoms, recognition of the internet in society, transparency of their government. You have 500 million internet users in China today. You have 80 million bloggers, for Heaven’s sake. These are voices that are increasingly speaking out and demanding more, and I have every belief that those voices increasingly will be heard, and increasingly accommodated because the party has no choice going forward.

HH: Governor Jon Huntsman, thanks for spending time with us today, talk to you again soon, I hope.

JH: Hugh, it’s a real pleasure.

HH: Thank you, Governor.

End of interview.


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