Article Summary: America’s China Policy Is Not Working – The Dangers of a Broad Decoupling

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Former US Treasury Secretary Hank Paulson offers an incisive look at US–China relations in this illuminating article. He notes the increasing tensions on both sides, given trade, investment, national security and geopolitical concerns. The world’s two major powers remaining at loggerheads puts the global economy at greater risk, Paulson writes. He offers practicable suggestions for how each nation can pursue its self-interests while maintaining open channels of communication and cooperation.

Take-Aways

• The Sino-American relationship has worsened considerably in recent years.
• China’s rapid ascent and the obduracy of leadership on both sides stymie meaningful diplomatic progress.
• Both nations must engage in dialogue to progress on economic policy and national security matters.

Summary

The Sino-American relationship has worsened considerably in recent years.

Relations between China and the United States have soured. In the past, despite differing geopolitical and national security aims, the two nations cooperated. But the coronavirus pandemic exacerbated mutual distrust and recrimination. The Chinese economy has trebled since the mid-2000s, when the nation turned inward and shunned competition from abroad. At the same time, the United States’ China policy has grown hostile. National security has become the overriding issue between the two countries, affecting shared technological innovation and job creation.

“The world has clearly changed. China has very different and more assertive leadership.”

A distrustful China and an increasingly wary United States worsen global tensions. Any effort at mutual cooperation seems secondary to unbridled self-interest. While many countries agree with Washington, DC’s growing frustration with China, they disagree with America’s policy responses. No US partner is willing to pursue containment or confrontation with Beijing. Many are broadening economic ties with it while expanding supply chains and operations to other countries in an effort to curb economic exposure in sensitive areas. The European Union has become China’s largest trade partner. A similar pattern plays out in the global South, and China’s trade with Africa has increased considerably.

China’s rapid ascent and the obduracy of leadership on both sides stymie meaningful diplomatic progress.

China is working to jump-start its economy in the wake of COVID-19 by reopening its borders and actively soliciting foreign governments and capital. China leads the world in global trade as America turns to protectionism and obstructs trade of the most important technologies, including semiconductors. This approach will have limited success, because other nations may seek alternative sources of supply.

“Although many countries share Washington’s antipathy to China’s policies, practices and conduct, no country is emulating Washington’s playbook for addressing these concerns.”

Protectionist trade policies hurt China and disadvantage American consumers and businesses. Tariffs may gain political points, but they make no sense, especially for US enterprises dependent on Chinese suppliers.

Both nations must engage in dialogue to progress on economic policy and national security matters.

America must adhere to the practices that made it the world’s economic superpower and reinforced its national security.It should also demonstrate economic leadership overseas. Initiative on the world economic stage means acting as the standard-setter, developing and – more crucially – disseminating its technologies worldwide. The United States should initiate or join trade alliances such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership and the Digital Economy Partnership Agreement.

“Financial crises are inevitable, and they will be much easier to manage in ways that limit the economic hardship in both countries and the world if the two largest economies and drivers of economic growth are able to communicate and coordinate to anticipate and forestall economic disruption, as well as to mitigate its impact.”

Washington should keep diplomatic channels with Beijing open, as it did during the 2008 financial crisis. That openness kept China from selling its enormous holdings of US Treasury and agency securities, thus helping avoid a major economic downturn. Economic leaders from both nations should relate and conform their fiscal and monetary policies to handle economic shocks that can quickly spread in a highly interconnected global economy. Given their economic might, China and the United States should collaborate in furthering their economic and political interests.

About the Author

Founder and chair of the Paulson Institute Henry M. Paulson, Jr. served as US Treasury Secretary from 2006 to 2009.