A month after the 2018 midterm elections, chief executives of seventy-five of the nation’s leading manufacturing, technology, and financial firms gathered at the Four Seasons Hotel in the Georgetown section of Washington, D.C., to hear from top Trump administration officials. It was a chilly day and a gloomy time for the White House.
Republicans had come up short in the elections, losing control of the House of Representatives. The stock market was deep into a fall swoon. White House turmoil was deepening, as the chief of staff was about to resign. On that December 4, Washington was also preparing for the funeral the following day of President George H. W. Bush, who seemed like a leader from some Paleolithic period when politicians spoke civilly and soap-opera drama was reserved for TV.
The CEOs had a different concern on their minds: China. How badly were U.S.-China relations deteriorating? Was the trade war between the two nations spinning out of control? Should they remake their business strategies and assume that tariffs, sanctions, and indictments would permanently limit trade and investment between the two nations?
The group was part of what the Wall Street Journal calls its CEO Council—about two hundred companies that pay $24,800 a year to have senior executives join sessions in Washington and elsewhere around the world with policy makers. Sitting on a conference room stage, Wall Street Journal reporters and editors pepper administration officials with questions. The audience gets to vote on a question chosen by the editor, with the results displayed on an electronic screen at the front of the room.
The Wall Street Journal’s editor-at-large, Gerard Baker, an acerbic Brit, faced off with John Bolton, who was then the administration’s national security advisor. The formal topic was “American Business in the World,” but Baker moved immediately to China.
President Donald Trump and Chinese President Xi Jinping had met for dinner three days earlier in Buenos Aires, Baker reminded the audience. The two leaders had reached a ninety-day truce during which the United States promised to suspend its plans to raise tariffs.
“President Trump has certainly described [the meeting] in almost a 1938 Neville Chamberlain–type way. ‘Peace in our time,’” Baker said, egging on Bolton, who had sat in on the Argentina dinner.
“I wouldn’t say that,” Bolton responded, laughing.1
In quick succession, the blunt-speaking Bolton accused China of stealing U.S. intellectual property, forcing companies to give up technology against their will to their Chinese partners, and spying on U.S. firms. Sure, China was talking about buying more U.S. soybeans, he continued, and that was fine. But it was hardly enough to get the United States to back off.
“We don’t see the American future being a Third World country supplying natural resources and agricultural products to China,” Bolton said. “We need to see some major changes in their behavior. Structural issues, if you will.”
Without these changes, he continued, there would be more punishment. “How about a rule that says there will be no imports into the United States of any products or services that are based on the theft of American intellectual property?” he said. What Bolton left unsaid was just as important. Who would determine whether Chinese imports were based on theft? Obviously, some U.S. agency. How would it decide? Anyone’s guess. That could give the U.S. government authority to ban any import at any time—an enormous expansion of U.S. punitive power aimed at Beijing.
“Is that something the president and the administration’s proposing?” Baker asked.
“We may have some authority in that area already,” Bolton said. “We may need additional legislation. But this is what we’re talking about.”
The United States clearly had misread China’s rise, he went on. “American policy was based on the assumption of bringing China into the WTO [World Trade Organization] would increase pressure to conform to international norms in trade and business areas. That has obviously not happened. We had decades of people who said the modernization and economic growth of China would produce increased political freedom and more representative government. That hasn’t happened, either.”
Baker then posed a question to the audience: “Will the U.S. and China find themselves at war sometime in the next twenty years?” That is, a real war, between two nuclear-armed nations that account for 40 percent of the world’s gross domestic product (GDP), not simply a trade war. U.S. soldiers firing on Chinese soldiers; Chinese missiles raining down on U.S. aircraft carriers.
Half those voting in the audience—CEOs and other senior executives of companies whose predecessors had lobbied for China to join the WTO and who had counted on the kinds of political change in China that Bolton was deriding—said yes, the two nations were bound for war.
“I mean, actually, how do you respond to that?” Baker asked Bolton.
“Well, obviously, our strong desire is to avoid it,” the national security advisor responded. “But I don’t think it rests with us. I think it rests with China.” In the final vote tally, about one-third of the executives said the two nations were headed for war, still an astoundingly high percentage, considering the audience.
How had it come to this moment? Not long before, ties between the United States and China were so promising that the two nations seemed wrapped in a permanent embrace. “Chimerica,” academics called it. In Beijing, officials told Americans that their two nations were like an old married couple who needed each other, even though they might bicker. Now a senior U.S. official was threatening to cripple China by banning imports and blustered about the prospects of a shooting war. And U.S. CEOs had become so discouraged about the relationship that many of them figured war was in the offing.
Surely Donald Trump is part of the answer. Trump had made what he called China’s “rape” of the U.S. economy one of his go-to riffs during campaign rallies. As president, he had put half of what China sold to the United States under tariffs by the day of the CEO Conference, and was threatening levies on the rest of Chinese imports. Various parts of the government were also working on sanctions of Chinese firms for espionage and other misdeeds. No president had taken measures anywhere near this extreme with a major trading partner since the 1930s.
“Trade wars are good and easy to win,” the president tweeted in March 2018, as he announced tariffs on steel and aluminum imports aimed at pressuring China to shut down steel mills and smelters, a claim he repeated regularly afterward.
But Trump isn’t the entire answer. The trade and economic battle didn’t start with Trump and won’t end with him. Relations were souring before he took office. Chinese leaders also deserve a big share of the blame, as do U.S. business leaders, who for decades acted as Beijing’s lobbyists in Washington. Chinese President Xi Jinping was as swaggering about the outcome of a trade war as President Trump was. “In the West, you have the notion that if somebody hits you on the left cheek, you turn the other cheek,” Xi told visiting U.S., European, and Australian chief executives in Beijing, three months after the Trump trade war tweet. “In our culture, we punch back.”
This book explains how U.S.-China relations have sunk as low as they have and looks at where the United States and China are headed. Think of this as a romance gone bad. We tell the story from both capitals with insider detail gleaned from hundreds of interviews with government and business officials in both nations over the years the two of us have worked together. We started collaborating on U.S.-China stories when we both were posted in Beijing from 2011 to 2014. After one of us, Bob, returned to Washington, D.C., at the end of 2014, we continued to work together in a kind of binational arrangement. Lingling might get a tip in Beijing, work on it during her day, and then hand it off to Bob to continue pressing his sources during workday hours in Washington.
Our family stories blended with our journalistic interests and the economic saga we have tried to tell. In different ways, the two of us have been deeply affected by the changes we describe in the book. Lingling comes from a Chinese military family in a farm province in southeastern China, whose family prides itself on being part of the Communist Party’s “red roots,” because of her grandfather’s connection to Chairman Mao.
Zhong Fuchang joined the Chinese Workers’ and Peasants’ Red Army in 1932 when he was just thirteen years old. Obedient and studious, he soon became a member of Mao’s health detail and was by his side during the entire Long March, the six-thousand-mile trek by the Communists that established Mao as the undisputed party leader. Mao taught the young soldier how to read and write, and true to the proletarian values of the party, Mao changed Zhong’s name Fuchang—or “wealth and prosperity”—to Guang, which means light. Zhong Guang was the name he used for the rest of his life.
After the founding of the People’s Republic of China in 1949, Mao offered Zhong Guang a senior government position in Beijing, but Zhong wanted to return home to Jiangxi, a province of shimmering rice fields whose capital city, Nanchang, is known as the “Red City” because the People’s Liberation Army was founded there. But his party standing didn’t save him during the Cultural Revolution of the late 1960s when Red Guards interrogated him because of his party-arranged marriage many years earlier to a North Korean woman who had fled to China during the Japanese occupation. The Guards suspected him of being a spy. He was only saved when Mao made a trip to Jiangxi, heard about his old aide’s predicament, and declared to the province’s Communist Party secretary, “Zhong Guang is a good comrade.”
The story of Mao’s intervention spread and became part of local lore. When Lingling’s primary school and high school classes visited the mausoleums of Communist martyrs during spring breaks, her teachers would make sure to stop by her grandfather’s tombstone for the students to pay their respects.
Lingling’s family changed along with China. In the early 1990s, her father was discharged from the military after China drastically downsized its army, while her mother, Zhong Guang’s daughter, stayed on as a military doctor.
Lingling’s father, Wei Gengfu, became part of the new China that was opening up to the West. At first, he worked at a government agency promoting trade and attracting foreign investment. He helped local farms display their rice and oranges at the annual trade show held in the southern export hub of Guangzhou, known as the Canton Fair. He also spent a lot of time vetting proposed investments from Taiwan, a renegade province in the eyes of Beijing but a major source of overseas capital and capitalist know-how for the mainland. After his retirement in 2010, he became a consultant for private property developers and manufacturers looking to export overseas and stay in the good graces of the government.
For Lingling, her family history taught her about the enormous power of the party and its leader. But she started down a different path, as did many other Chinese youths who went to college in the early 1990s. China then was both opening up economically and keeping a close watch on students in the aftermath of the 1989 government crackdown on student democracy protests in Tiananmen Square and throughout the country.
Following her mother’s dream of becoming a writer, Lingling chose a career in journalism. But it didn’t take her long to realize how tightly the government controlled reporting. She attended journalism school at one of China’s elite universities, Shanghai’s Fudan University, which required months of military training before freshmen started classes. Mostly that involved learning how to march in goose step, studying Marxism-Leninism, and singing “Unity Is Strength,” a propaganda piece of the party. But on some days, she was handed firearms and dispatched to a shooting range for target practice. “Imagine the target is an American,” an instructor once told her.
The heavy-handed instruction pushed her in the opposite direction. Along with some of her classmates, she would stay up late listening to BBC and Voice of America on shortwave radio, trying to learn as much English as she could and imagining a life in a land of freedom. After graduation, she worked for the state-owned Shanghai Star writing about the frenzied efforts to turn former farmland in a section of the city called Pudong into a business and financial hub. Filling those pages was mostly a political exercise; over time, her desire to report more freely grew stronger.
After marrying a scientist in China, she and her husband moved to New York. Lingling went from a graduate degree at New York University in 2000 to an internship at the Wall Street Journal to full-time work at the newspaper. Along the way, she and her husband became U.S. citizens. Because of Chinese law barring dual citizenships, she had to give up her red Chinese passport.
In New York, she reported how once-obscure Chinese institutions and companies were gaining wealth and buying stakes in such marquee American financial firms as Morgan Stanley and Blackstone Group. She learned from Chinese officials how a glamorous real estate tycoon named Donald Trump donned a tuxedo to greet the chairman of China’s largest state-owned bank when he leased an entire floor of Trump Tower. A line in the essay she wrote to get the Wall Street Journal internship stuck with her. “By coming here to study, I hoped to get beyond the limits imposed by my government,” she wrote.
Still, her roots and her family are in China, a connection that pulled her back to Beijing in 2011 for a job in the Journal’s Beijing bureau. Since then, she has written stories critical of the government’s handling of the economy and its secretive decision-making process. Time and again, some Chinese authorities complained that her coverage was hurting China. Although her parents often remind her of her red roots, they remain broadly supportive of her work. The support didn’t fade when Lingling was ordered to leave China by Xi Jinping’s government in March 2020, along with other American reporters from the Journal, the New York Times, and the Washington Post. That was the biggest expulsion of Western journalists from China since the Mao era, as the coronavirus pandemic deepened tensions between the two nations. Relations were already strained by the trade war.
Lingling’s family roots didn’t save her, though some officials lobbied to give her extra time before she had to leave. The expulsion marked an abrupt end to her China dream of reporting from her country. She thought about quitting to remain with her parents, who are both in their seventies, but they rejected that idea as soon as she raised it. “Don’t give up,” her mother told her.
Bob’s family history traces a different side of the U.S.-China story—the impact of foreign competition on U.S. companies and workers, in this case the luggage industry in New York City.
Bob’s father, Michael Davis, was a factory man and inventor, who wound up with a half-dozen patents to his name. In 1953, he patented a soft-sided garment bag that kept suits less wrinkled. The clothing hung on plastic hangers in the inside of the suitcase, which folded in half. He wasn’t the only one to come up with the idea for a suit bag. It was an improvement on the garment bags used by servicemen like him during World War II.
Still, it was enough of an innovation to find partners, form a company, Crescent Mayfab Luggage, and set up a factory in the Bedford-Stuyvesant part of Brooklyn. Back then, well before the neighborhood’s hipster days, Bed-Stuy was populated by immigrants from Puerto Rico and blacks from the South. Mike Davis ran the factory, which consisted of rows of sewing machines and ancient equipment that used steam to bend wood frames. His partner handled sales. He paid workers about ten cents more than minimum wage, which he felt was enough to keep the union off his back.
His timing in the 1950s was impeccable. Business travel was expanding, powered by the postwar boom, the construction of the Interstate Highway System, and the growth of jet travel. Traveling salesmen and executives needed to keep their suits looking crisp. The family moved to a modest garden apartment complex in Queens, called Deepdale Gardens, where the mothers were housewives and the fathers worked as salesmen, factory hands, and shopkeepers.
There, Mike Davis stood out. He was Big Mike, the rakish factory owner, who flaunted his newfound prosperity and partied in Manhattan after work. Every two years, he bought a new Cadillac or Lincoln Continental—always a convertible—while most everyone else in the neighborhood drove Chevys. Sometimes he would flip the keys to a teenage boy he knew and tell him to park the car for him, knowing how much the kids wanted to get behind the wheel of the most expensive car in the neighborhood. To them, he was Mad Mike.
But by the mid-1960s, his timing was off. Imports from Hong Kong, Taiwan, and South Korea were making deep inroads into the luggage industry, especially in the soft-sided bags he made. Bob’s father told him he could handle the competition. How could dirt-poor countries make goods that competed with made-in-the-USA quality? That was a miscalculation made by many of his generation. In retrospect, Crescent Mayfab had no manufacturing advantage over Asia. It relied on low-cost labor to run old-fashioned technology to make mass-produced goods. Those same goods could be produced thousands of miles away by sewing machine operators who earned a tiny fraction of the U.S. minimum wage, and shipped to the United States at a price Mike Davis couldn’t match. Although luggage imports faced high tariffs, that wasn’t enough to protect the U.S. industry.
He tried making higher-end goods. In 1964, he moved into the golf bag business, creating “Gary Player Pro-Line” bags, endorsed by the great South African golfer. The bags, made of “pinseal Kangaroo” leather, retailed for $185. (One of Deepdale’s most memorable evenings during those years was when Gary Player stopped by the small Davis apartment, as scores of neighborhood kids stood outside, hoping to get a glimpse of the golfer. Player, an exercise fanatic, did push-ups on the living room floor.) Five years later, he tried fashion luggage, introducing a line he called DaVinci. B. Altman & Company advertised the bags as “a new name in luxurious luggage” and sold them for as much as $110 each.
None of it worked and all of it came at an awful time, when his wife, Bob’s mother, was dying agonizingly of cancer. Bob transferred from Syracuse University to Queens College, which was then tuition-free, to save money. His father’s drinking, always a problem, worsened.
By 1972, Mike Davis sold the company for a song and was out of a job. With the luggage world suddenly globalized, he was recruited to run a luggage factory in northern Mexico. He turned that down. Too distant; too foreign. He wound up in Ellwood City, Pennsylvania—a kind of exile for him—designing and making luggage for Airway Industries Inc. His new firm had started importing luggage from South Korea in addition to producing suitcases in its Pennsylvania factories.
With Airway, he took his first trips to South Korea to see the factories that had put him out of business. He told his son that he was impressed by the work ethic, quality, and cutthroat business practices of the managers there who quickly sized up the American importers. The Koreans didn’t want Americans nosing around. “Their motto is, ‘Get them in, get them laid, get them out,’” he said.
By the time he left Airway and retired to Florida in the mid-1980s, China was following the export-heavy development path pioneered by the Asian Tigers and had already grabbed the largest share of the luggage import market. As a consultant, Mike Davis designed suitcases for companies that manufactured in China, including Airway. The firm opened a factory in Hangzhou, about 450 miles east of Lingling’s hometown in Jiangxi, before it went bankrupt in 2006. His garage was like a luggage museum, with samples of the different bags he had made over the years and those of competitors, which he dissected to see how they were made.
He said he wasn’t bitter about China or other Asian exporters, even though the competition had wrecked his business and killed the entry-level jobs filled by migrants and unskilled workers in places like Brooklyn. But he was probably unusual in that regard among his generation of businessmen. He enjoyed the irony that his son was covering for the Journal the same competition he had experienced firsthand in business. For Bob, his father’s business life was a lesson in grit and timing and facing reality.
Mike Davis died in March 1998. A year later, Chinese Premier Zhu Rongji—Boss Zhu, as he was known in China—arrived in Washington to cut a deal for his country to join the World Trade Organization, a move that would eventually turn China into the world’s biggest trader and leave the United States wondering whether it had made the right choice in helping China prosper.