Ex-Treasury Secretary Paulson: ‘We must put tensions aside’

Story Highlights “We must tell China that it cannot have it both ways” “U.S. must also do more to address its own problems,” Paulson says An economist and former Treasury Secretary WASHINGTON, D.C. –…

Ex-Treasury Secretary Paulson: ‘We must put tensions aside’

Story Highlights “We must tell China that it cannot have it both ways”

“U.S. must also do more to address its own problems,” Paulson says

An economist and former Treasury Secretary

WASHINGTON, D.C. — In a June 14 article in USA Today, former Treasury Secretary Hank Paulson calls on the United States and China to “put tensions aside, put trade issues on the back burner and instead focus on problems that affect both countries, including issues like poverty, terrorism and failing public schools.”

On China

In the article, Paulson is critical of the rhetoric coming from Washington regarding trade with China, citing decades of unfair trade practices by Beijing. The former Treasury Secretary maintains that to bring about a sustainable trade relationship, the United States must begin by understanding what is at stake.

“[W]e must tell China that it cannot have it both ways,” he writes. “It cannot continue to manipulate its currency, take advantage of the weak Chinese labor market and the technology gap and violate its non-proliferation commitments at the same time.”

Paulson also calls on U.S. businesses to take a more “balanced” approach to U.S.-China trade. He outlines an array of suggestions for how Washington and Beijing can make trade fairer. This will be particularly difficult to achieve given the deep-seated concerns in both Beijing and Washington over the economic state of the other, with the U.S. long using its leverage to curb China’s influence around the world.

Paulson also points out that finding a meaningful solution on trade between China and the United States would not be a walk in the park. He identifies three major obstacles to successful negotiation.

First, Paulson notes that China’s disregard for the transparency of its financial transactions brings considerable uncertainty to how it manages its economy. As the Trump administration works to curb China’s persistent undervaluation of its currency, risks remain that China could respond with retaliation.

In response to this issue, Paulson states that U.S. companies must become more vocal about the importance of a sound currency for their businesses and how currency manipulation threatens their ability to compete in global markets.

Second, Paulson writes that U.S. companies should be wary of a Chinese move to retaliate against the imposition of new tariffs on Chinese goods. Paulson notes that China has the ability to impose countervailing duties, levies designed to counter unfair action in the marketplace. U.S. companies that rely on the financial health of China should use their business intelligence to identify such countervailing duties in the context of a trade war, Paulson concludes.

Paulson agrees with his former Treasury Secretary, Larry Summers, in cautioning U.S. companies not to be too antagonistic toward China’s government. Paulson points out that the Chinese government has threatened to deploy cyberattacks to try to achieve an advantage over the United States. Given China’s experience in cyberattacks, Paulson says companies and intelligence agencies should avoid tipping their hand to China on strategic matters.

Finally, Paulson addresses U.S. companies’ concerns that a trade war would jeopardize their potential role in generating new economic growth in China. Paulson says he is well aware of these concerns, but the point of leverage the United States has is the ability to dictate how China imports and exports. According to Paulson, the U.S. should focus on selling these goods to their domestic customers rather than sparking a trade war with China.

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