 Think Tech Hawaii, Civil Engagement Lives Here. Welcome in Aloha. My name is Mark Schlaufe. I'm the host of Think Tech Hawaii's Law Across the Sea program. Today we're going to go across a turbulent sea, a turbulent economic sea, and talk with my guest Roger Epstein about building bridges over that turbulent sea. Roger has been working with businesses in China for about 45 years. He has formed a company called the Asia Pacific Group with other American business people to assist Chinese and Americans invest in each other's country. Roger has recently returned from Beijing where he spent several months teaching at Baywai Foreign Studies University Law School and helping the Asia Pacific Group develop its business plan. I've asked Roger to give us his insight on the current and the future prospects for cross-border investment for both China and the United States with each other. Roger, welcome. It's good to see you. Welcome back. How are you doing? Terrific. Thanks, Mark. So nice to be here. Well, there was a notice that came on my internet this morning that stock market plunged again because of tariffs. What's going on? What's going on between China and the United States? What's the economic climate like? Where are we? What's the current status? You know, interesting. I was in China this year, as you mentioned. In February, I went and began teaching for four months in Beijing at this Foreign Studies University, which has a lot of diplomats there. A lot of that, about 70 percent of Chinese diplomats were trained at that school. And so they're all thinking internationally. And the United States has always been a huge focus for not only their lawyers, but the whole school. They do teach 93 different languages there. But I was teaching two classes in legal writing in English using American case law and another class to graduate students on U.S. tax law. So what my perception in the many years, I've been going to China since 1982, Hong Kong since 74. As you well know, since 2011, I've been going twice a year for our lawyers program, where we were bringing lawyers to the United States to stay here for three months, Chinese lawyers. My perception has always been that the United States is the model for China. That's what they want to be. All their development, everything they've done from 1978 when they got off the Communist program and got into what they call socialism with Chinese characteristics and began to let people own property. It's always been about how do we get to where the U.S. is. That's what we want to be. You see people walking around China everywhere wearing T-shirts in English. They can't even understand it, some of them. I had a friend, you know, Kingward Gunn. I had a contest one time, whether his three-year-old son's Chinese was better than my, his three-year-old son's English was better than my Chinese. So that's how important the United States is to them. And my students were shocked, literally, when they began to see Mr. Trump, President Trump, adding these different tariffs on. They were disappointed. They were confused. What's the United States trying to do? What do they want? And what's the goal? And why are they doing this? Because they felt they were a good partner or something like that. Exactly. Their sense was what I would call competition. I would call it business competition. So we want to emulate you. We want to get better. We want to be like you. We want to collaborate with you. We'd like to learn from your technology. You are the master. You are the student. Now that's gone from 1983, when they first started having laws there, to today, 35 years later, they're catching up. But the standard of living in China is not as good as it is here. Yet people are optimistic. And here, our standard of living is higher, but it's going down and people are pessimistic. So what I see is, as I said, I was teaching two classes in legal writing to undergraduates, law school's undergraduate there, and we were using American case law doing this in English. So I'm just trying to give you a feel for... Their goal is to emulate America. Yes. And you know, in history, and there's a number of books recently out on this, about how things change economically. Some country like the United States has been dominant for a long time, particularly since after World War II. We were the supreme economic power in the world and one of the two major military powers and then the major one. And then we can't sustain it forever. So we begin to come down. The Chinese are the new guy on the block starting to come up, and how do we deal with it? There's investment from China and the United States and U.S. in China. Enormous. What's happening to that? Enormous investment. With respect to these tariffs. Well, with respect to the tariff, first of all, the investment in China with the big multinational companies is huge. Everywhere you go, you see Starbucks, you see Kentucky Fried Chicken on every corner. And so our investment there has been enormous. Now the tariffs have had, like I said, kind of a shock treatment. I think this is President Trump's approach to things. When he wants to have a discussion, he slaps you in the face and then he says, well, let's talk now. Yeah. And so hopefully he has a strategy because as you know, everyone advising him said, don't do this. It's a mistake to put tariffs on Chinese goods. If they're things China's not doing, let's sit down and talk to them about it. But that wasn't his program. So he began to put tariffs on in January of this year and then more in March. And one of the impacts in the United States, of course, is that China began to put tariffs on imports. From us to them. Exactly. And the agriculture's taken the biggest hit. U.S. Agriculture. Very, very concerned. In order to mollify them, we created a program where we, the United States government, will give up to $12 billion in support to farmers. The soybean farmers can get something like $125,000 maximum. There's a lot of conditions on it. And that's because the Chinese retaliated with their own tariffs. Exactly. So you say to yourself, as an American, has this helped us? Chinese goods, the prices have gone up, so that hurts the consumer. And a lot of it's technology-type products, too, as I understand it. There's a whole range of products that we've put tariffs on and a whole range of products that they've put tariffs on. And the agriculture industry has gotten hit by far the worst. So I said, we could give back $12 billion to our farmers. And you say, well, but we just cut taxes. And the Republicans keep saying, government is not the answer, it's the problem. And so, how does- That doesn't quite make sense. Doesn't make sense. So, what you hope for is that there is a strategy. Huge tariffs are coming on in January of 2019. And I think it's $200 billion worth of goods that we import from China is going to come on with tariffs up to 25%. So that means the cost of every product would be raised 25% to the consumer. But the G20 is meeting in November of this year and a lot of discussion about leaders of other countries saying, can we get China and the United States together to solve this what everyone is now calling a trade war. And that's because this trade war affects the whole world. Of course it affects the whole world. And the United States and China are the two largest economies in the world. And there's so many spin-offs from everything they do. And it's very, very worrisome that prices are going to go up on goods, that we're going to be prohibited from selling some of our goods in China. China has already adapted Chinese importers. They've adapted, first of all, imports before the tariffs were announced in four brackets so far. I think January, March, July, and September. Just before the tariffs went on, there was a huge surge of buying. And then all of a sudden it dropped off a cliff. And so people know what's going on. What's the other thing you do if you're a Chinese seller? Or if you're a Chinese buyer of our agriculture? Well, you look for another supplier. So what's going to happen? Are our exporters, our farmers who are exporting something like $140 billion to China, are they going to have other markets if the Chinese find somebody in Brazil or wherever around the world to buy their soybeans? OK, now look, also Chinese investors were coming to the United States. Have you noticed any change in that? And vice versa, Americans making investments in China, have you noticed any change in that? You know, the biggest impediment to Chinese investment in the United States has been the unwillingness of the Chinese to let people get their money out of China. It's very difficult. And if you have a legitimate business, you can go jump through a lot of hoops and get money out. But that's been going on all year this year and some of last year, and continuously off and on. But they've gotten much tougher this year. So that's been the biggest cause. Whether the investments here, not the imports, we know they're going down because the products aren't as competitive. People aren't going to buy as much. And so they're going to look for other markets for their goods. I haven't seen anything that indicates that the investment in the United States is going down. The Chinese still want to invest in the United States? I think the Chinese still want to invest in the United States. I think it's been difficult for them. We've changed the playing field. You know what SIFIUS is? What's that? It's a government organization that looks at whether or not foreigners can buy companies in the United States. Larry Foster is an expert in this for security purposes. And so there's been a number of potential acquisitions. So some of what the Chinese want to do, my basic experience is what they want two things from the United States. They want technology and they want money, U.S. investment. And there's a tremendous encouragement in China for U.S. investment. Coming into China. Coming into China, U.S. dollars coming in and other countries. But the United States of course is the biggest market in the world and we have huge financial institutions and investors. So they want U.S. dollars and they want U.S. technology. They want to grow. And so this trade war that we have going on has not affected the psyche of the Chinese man on the street, if you will, the businessman wanting to make investments, still wants money coming from the United States, still wants to seek out investments in the United States. But the climate, the sea over which they're traveling is a little bit turbulent. That's what I hear you say. Yeah. And I think in the inbound direction for the United States, what I said earlier with respect to my students in particular, not so much in my particular business, because those are close personal relationships, but in my students who were wondering what is going on here, I think there's some of that with many other people in China. So there may be some hesitancy to invest here. Okay. So there is reluctance and maybe after the break, we'll talk about ways to get over that ocean of turbulence. Okay. All right. So we'll take a break and be right back. Happy. All right. 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Every two weeks we talk about energy, everything about energy. Come around and watch us. We're on at noon, on Mondays, every two weeks on Think Tech. Aloha. Welcome back to Law Across the Sea. I'm Mark Schlaufe, the host with my guest, Roger Epstein. And Roger, we're talking about really your experience in China, your personal experience and what you've encountered from talking with all your students and your personal friends who are in business. And you formed a company called Asia Pacific Group. I'd like to know a little bit more about that. How are we going to weather this economic storm? What is your feeling? How are we going to get through it? How do investors from both sides ultimately get in their ships and travel across that sea and make investments? And then what is Asia Pacific Group about? What's it doing? Okay. Well, I think how we weather the storm could very much depend on the G20 meetings in November. Because if we ratchet up this next 200 billion of tariffs that's supposed to go in in January, it's got to have a huge negative impact on the mindset of everyone. So it's a psychological impact, more also as well as an economic. Well, also, not also. And what I was saying before the break was, look, if you're a Chinese person or you're an American, you've got to start looking for other markets. And other investments. And other investments because, you know, it's like you're not wanted in the United States. And how protective, Trump now says he's a nationalist. How protective does he want to be? You know, other people have put tariffs on steel and various products. Other presidents going back a long ways and Obama put a lot of tariffs on things. But none of those have really worked. You know, in Adam Smith's invisible hand, the marketplace, there's nothing you can do. People want to do business the way it makes sense. Example, China is struggling now as a manufacturer. Everything you see made in China, but now it's starting to move. Why? Because the Chinese have raised the cost of labor. They've raised up their own standard of living. They're beginning to price themselves out of the market. People are going to Vietnam. I had several inquiries about doing legal work for billionaire Vietnamese. Think about that from 1967, 68. So everything moves. You really can't fight it. And prices on products here are starting. Everything that's made with steel is starting to go up. So I don't think it's sustainable. I don't think the trade war is sustainable. I think we got a lot of worries about, you know, we just lowered taxes. We borrowed $150 billion a year for 10 years for a tax break. That's made the, it did have the effect of kicking up the economy, but the economy was already booming. You don't do that when the economy is booming. That's like Econ 101. So I think we got to solve this trade war, or it could get very disastrous. It's not working for anybody. It's not working for anybody, I don't think. And there's no question about China started in 78, and they thought they were the underdogs. I mean, they have moved from poverty. I can tell you, I was there in 1982, and I was there a few months ago, and it's like a whole different world. It's incredible. The standard of living is shot up. The standard of living, the cities, the people you were on, bicycles, and, you know, it was just the third world country, and a lot of poverty. And they're studying, as you say, America. Oh, yeah. You know, I was at Columbia University a month or so ago. You walk around the campus, Chinese is spoken everywhere, everywhere. It's incredible. So they're interested, and they're excited, and they're coming up, but they've got problems. Their manufacturing is now getting too expensive. What they're moving into is a consumer goods. Now their people have enough money to buy goods. So it would be good for the United States to sell their products. My perception last year and this year was everybody wants foreign products. They don't yet trust their own Chinese products. It's a heck of a good time. What is Asia-Pacific Group? What is it about? How did it get formed? What's the idea behind it? Where's it going? What can it do to help us get over this? Well I hope more Asia-Pacific groups can be formed, and we can do some good with it. I practiced law here for 45 years, and when I retired I decided to do a number of things but go into business with a couple of friends of mine who have longstanding, one is a Chinese national born in China, an American citizen, who they found the Zhou Enlai Peace Institute. Zhou Enlai was the number two guy under Mao, maybe you call him the Thomas Jefferson of China, and very well respected, and so because of her connections people kept asking her how do we make investments in the United States, how do we get the United States to make investments here. So we formed this company and we're working with a government essentially of China. The government of China has something called the Ministry of Foreign Commerce, and they allow certain of their executives to form companies and alliances and go into business essentially with other groups. So the Ministry of Foreign Commerce will take us to places where they're looking for US investment or they're looking to change their business ways so they can work in the United States, and they'll introduce us, and then we'll go into partners with a Chinese organization and the Ministry of Foreign Commerce and the Asia-Pacific group, and we'll help them to do whatever they want to do, buy goods, sell goods, acquire companies, make investments in the United States. And there's a number of organizations, a Chinese national business organization has 10, 15,000 members, the largest companies in China. We have an agreement with them that if we find good projects here, good companies to invest over there, we'll talk to them and find some of their members that would be interested. So you set up a network in China is what I hear you saying, a good one because it's in relationship with the government which is important to China. It's more important there. And then you look for leads, our leads come to you and then you try to put them together, you try to match. So the government kind of takes us to these leads for the most part, and then we find that we have a, you know, relationship is so important in China, one she, and trust. And we've seen it all the time. It's hard to trust Chinese people, it's hard to trust Americans. So one of the things we're bringing to the table are people that want to do win-win business, people that want to do business with Aloha, people that not only want to make money, they want to do what's right for the community. How about if I'm an American and I have an investment that I'd like to ask Asia Pacific Group to market? Yeah. How does that work? Well, call us, we're on the, we're on, go to our website, contact us, and we'll talk about it. Are you trying to do that? Is that part of what you folks are doing? Well, we are, we are. We got a lot on our plate at the moment, and we don't want to get too, spread too thin. But we've got this, this, we just signed this agreement when I was in China in May with this Chinese community Chamber of Commerce business organization. And we'd like to start sending them some, some really good potential investment businesses. Again, they're looking for technology, they've got a lot of money that they'll put into it if it's the right technology and we find the right partner. So I don't feel that at this point the tariffs have been so negative that there's any chance that that business will not continue to be available, so things could get worse. It has, it has affected people like your students somewhat, they don't understand why we're fighting. Yeah. But they, they, the business people, I hear you saying, still want to proceed. The seas are rough, but let's, let's try to get in the boat and get over it back and forth. Right. And you know, yes. And you know, most American businesses are still very interested in doing business in China. Businesses will do business if it makes sense. As I said, okay, so here's an example. We've got a company in a town called Laiwu, the whole community, Laiwu is the largest ginger and garlic manufacturer in the world, or in China. I think it's in the world too, but anyway in China. And so we connected them with the people that have Canada dry ginger ale. And it's now Coca-Cola. And so we're trying to, and in Laiwu if you set up a plant there, they give you free land, they give you a tax holiday for 10 years, a lot of incentives from the Chinese government. Now is that going to change if we get into a more serious trade war? I don't know. But I, I think business, unlike government, is always looking for ways to expand. And China still has a lot of growth to go. So business might be more of a globalist society, as opposed to a nationalist. It's interesting, isn't it? It's interesting because business is so influential on our politics today. But on the other hand, do they want to fight or do they want to make money? And I think it's pretty clear that they'd like to expand in sensible ways, make money and continue these relations. China is the engine for Asia. Have you ever heard of the One Belt, One Road? Of course. Yeah. So One Belt, One Road is reaching out to many places all over the world. China is making a lot of relationships. Making a lot of relationships. And we could maybe benefit. And so you say to yourself, if you look back in history, when the small guy comes up and challenges the big guy, what happens? What does the big guy do? You know what the answer is? They go to war. That's what these books say historically, when these, now are we still back in those ages? And maybe war is no longer military war. Maybe it's... Economic. Economic war. Okay. Now, in the minute we have left. We have a minute left. What advice would you give an investor from China, an investor from the United States at this time? What would you tell them? What would you tell them this? People are the same everywhere around the world. The U.S. has a lot of potential. The China has a lot of potential. Find people you can trust. Find people that make sense for you to get into business with. We're going to see more Chinese products coming to the United States, whether there's tariffs or not. We're going to see them. And if you're a U.S. person, look for a good person in China to do business with. Same thing in the United States. There's still lots of opportunities. No matter what happens, the pendulum will swing back. But China is coming up, Asia is coming up, and the United States still is the premier place for technology, business organization, and knowledge. And I think there's a lot of good people on both sides that can work through this as it develops. Roger, thank you very much. I appreciate your knowledge. And it's good to have somebody on the ground who's seen both sides and can tell us from actual experience what's happening and the feedback that you get from people. That's very valuable. I appreciate it. Thank you. Well, it's just my personal experience, but it's... Of course. And that's all we can see it as, and I appreciate that. But it's good to have an insight into that also. Thank you. Thank you, Mark. All right. Aloha. And we will be back in two weeks. Thank you very much.