Sunday, June 10, 2018

Yammerin' Hank Paulson on China in Foreign Affairs

US Treasury Secretary Hank Paulson (or Paulson's speechwriter, at least) calls for, among other things, faster yuan appreciation in his latest missive in Foreign Affairs on China. Recall that during his prior years as CEO of Goldman Sachs, he was always keen on establishing amicable relations with the powers-that-be in the PRC. It appears that little has changed. Do read it if you are at all interested in the most important bilateral economic relationship of our time. What follows is the concluding part entitled "Looking Ahead" where Paulson identifies America's policy options towards the Middle Kingdom for his successor. While I do believe that Paulson makes way too much of the strategic economic dialogue (SED) events that have been held between officials of the two countries, his reasoning reflects current US policy to a reasonable extent. Will his successors be more combative?

Going forward, there are three possible ways for the United States and China to pursue their economic and trade relations: robust engagement, dispute resolution through multilateral and bilateral enforcement measures, or punitive legislation. Since a retributive policy would be counterproductive and would harm U.S. economic interests, the U.S. government has chosen the first two approaches.And rightly so. Since Washington stepped up its economic engagement with Beijing through the SED two years ago, the U.S.-Chinese relationship has deepened and expanded. By encouraging top-level discussions of the two countries' long-term strategic priorities, the SED has found effective ways to manage short-term tensions surrounding trade disputes. It has alleviated a complex set of concerns in the U.S. Congress in a way that has led to a significant appreciation of the renminbi and forestalled dangerous protectionist legislation. At the same time that U.S. consumers were growing deeply concerned about product safety, the SED developed a comprehensive plan for improving the quality and regulatory oversight of foods and drugs imported from China (the effort could even serve as a global model for product safety). And as the world was becoming more eager to reduce its dependence on oil, the SED initiated the Ten Year Energy and Environment Cooperation Framework to help expedite the United States' and China's efforts to increase their energy efficiency. The SED has enabled progress on significant noneconomic issues and more progress on economic issues than otherwise would have occurred.These successes have created a foundation of mutual understanding and trust and a platform for further progress. History has shown that the ties between the United States and China have been most stable and mutually beneficial when a common interest has united leaders in Washington and Beijing. During the Cold War, balancing the Soviet Union's power in Asia was that shared interest. It generated trust for a very young U.S.-Chinese relationship and facilitated substantial bilateral cooperation. Now, the SED has reoriented U.S.-Chinese relations based on the strategic rationale of sustaining global economic growth. This unifying theme will motivate policymakers in both countries and offers the chance to redefine the terms of the two countries' relationship from simple cooperation to joint management and, perhaps eventually, even genuine partnership. Such a recasting will be an invitation to China to participate in global affairs as an equal -- a position that Beijing covets.I have learned firsthand that the United States is much more effective at resolving global issues when it approaches them multilaterally rather than unilaterally. On every major economic, political, and security issue, the path that China chooses will affect the United States' ability to achieve its goals. This will also be true under the next U.S. administration. The SED must be used to help manage the myriad economic issues that will undoubtedly arise and help keep the vital U.S.-Chinese relationship on an even keel, productively advancing shared interests while working through enduring differences. It is possible to manage these challenges in a way that advances both U.S. and Chinese interests. And it is my hope that the next U.S. president will expand on the SED to take U.S.-Chinese relations to the next level.

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