The Bush administration wrapped up its last meeting of the Strategic Economic Dialogue on December 5, leaving behind a mixed legacy of progress and gridlock in U.S.-China economic relations. The incoming Obama administration has yet to announce whether or in what form they will continue an economic dialogue. But the need could not be greater for the United States to signal its intentions of continuing to engage China, nor the timing better, with the ongoing international economic crisis and China’s growing concerns that the Obama administration will take a much more cautious stance on trade issues.
Stabilizing the financial system in the short term and working toward balanced and sustainable global growth in the long term will require cooperation and mutual trust. A commitment to continued high-level dialogue will be an important step toward fostering both. Luckily, the Strategic Economic Dialogue has provided a prototype—though one that could be tougher and much improved—from which the Obama administration could craft its own plans for high-level exchange.
In 2006, the Bush administration established the U.S.-China Strategic Economic Dialogue in order to take a long-term, strategic view to managing the complex economic relationship between our two countries. The SED was established as a high-level regular exchange aimed at identifying areas of mutual benefit and reducing tensions on a short- and long-term basis. It had the added benefit of creating meaningful conversations on working levels between officials in U.S. and Chinese agencies.
The United States initially used the SED to educate China on the ways of the free market and to press for systematic market reforms in China. Over the course of the next four biannual meetings, the U.S. delegation, led by Treasury Secretary Henry Paulson, also used the venue to push China toward green sustainable growth and to criticize and pressure China to improve its currency regime, intellectual property rights, trade practices, and market access for American business.
Yet as the American financial crisis and economic downturn have taken grip around the world, the Chinese turned the tables and used the SED summits to chastise the United States for its own financial disarray—a low domestic saving rate, inadequate regulatory policies, and profligate deficit spending. It was the Chinese who made demands in the most recent meeting. They pressed the U.S. delegation to protect China’s investments in America, and Chinese Vice Premier Wang Qishan urged the United States to “take all necessary measures to stabilize its financial markets and economy as soon as possible.”
But the SED has made moderate progress on a number of fronts. In this past meeting, China agreed to ease requirements on foreign banks to trade bonds on the Chinese interbank market. The United States and China also held three rounds of bilateral investment treaty negotiations and came to consensus on action plans for each of the five goals under the Ten Year Energy and Environment Cooperation Framework. These agreements build on other advancements in trade, food, and product safety, as well as rule of law and environmental protection. Even on currency exchange rate policies—the lightning rod for disputes—there has been progress, facilitated in part by the SED. Over the last two years, China raised the value of the RMB against the dollar more than 15 percent, though regression has taken place in the last few weeks.
The economic challenges that remain for China and the United States today are unprecedented in nature and scope, and they require continued dialogue. Any response to the current global financial crisis would certainly prove futile without action and cooperation from both the United States and China—the largest developed and developing economies in the world. This is perhaps why, in its last meeting under the Bush administration, the United States alongside China pledged an additional $20 billion in trade financing aimed to alleviate the pressure on international credit markets and preserve global trade. The pledge comes as the U.S. Congress plans a new stimulus package for domestic investments and follows on the tails of China’s recent announcement of a $568 billion stimulus. In the long-term, success on other pressing issues, such as trade and energy and environmental sustainability, will also depend heavily on sustained, regular dialogue between the highest levels of our government.
This does not necessarily mean that the Obama administration needs to carry on the Strategic Economic Dialogue in its current form—only that dialogue should continue. Certainly, the current SED structure can be changed to be more effective in a number of ways. For example, as the Center for American Progress argued in its recent report “A Global Imperative,” the United States would be better served by addressing China’s recent backsliding on currency in the International Monetary Fund, a multilateral forum especially suited for addressing the issue. In the coming years, China should have a more prominent role in multilateral forums—one commensurate with its growing status in the international system—allowing it to provide support and resources to enhance international institutions. Negotiations and dialogues on environment and energy could also be allocated a high-level dialogue, given the urgency of the issues.