China Comes to Town … Again

The Importance of the U.S.-China Strategic and Economic Dialogue

Nina Hachigian and Adam Hersh examine the role of next week’s S&ED in the evolving U.S.-China relationship.

U.S. Secretary of State Hillary Clinton, left, shakes hands with Chinese President Hu Jintao during the opening ceremony of last year's U.S.-China Strategic and Economic Dialogue in Beijing, Monday, May 24, 2010. (AP/Saul Loeb)
U.S. Secretary of State Hillary Clinton, left, shakes hands with Chinese President Hu Jintao during the opening ceremony of last year's U.S.-China Strategic and Economic Dialogue in Beijing, Monday, May 24, 2010. (AP/Saul Loeb)

Another important meeting in the hot, cold, and always evolving U.S.-China relationship opens next week in Washington when the Obama administration hosts the annual U.S.-China Strategic and Economic Dialogue. The sheer number of officials involved from both China and the United States in the S&ED speaks to the complex interdependency that characterizes the U.S. relationship with China today.

Scores of officials convene at a moment when China’s autocracy seems ever more clearly to be on the wrong side of history. To fend off its own version of an Arab Spring, Beijing unleashed a wave of repression in China, imprisoning artists, lawyers, religious leaders, and political activists. The bilateral human rights dialogue with China last week apparently made no headway on this situation. Meanwhile, the issue of China’s undervalued exchange rate still simmers, and the two countries have gone tit-for-tat in a series of recent World Trade Organization disputes over everything from steel and wind turbines to chicken and shrimp.

The United States must continue to push for progress, bit by bit, on these and other issues, but recognize that even when our perspectives and principles differ, we should continue to try to forge a mature relationship. From food security to trade and investment, North Korea to Afghanistan, global climate change to outer space, American and Chinese futures are inextricably intertwined.

Certainly when compared to last year, China has been more cooperative in the months since President Hu’s visit to Washington this past January. China did not veto the U.S.-sponsored U.N. resolution giving the international community license to intervene in Libya—despite Beijing’s longstanding devotion to the principle of “noninterference” in the internal affairs of other countries.

China is also laboring to restart the moribund Six Party talks with North Korea. To the consternation of Washington, China did not condemn the North’s spate of aggressive behavior in 2010, which included sinking a South Korean ship, the Cheonan, and shelling a South Korean island. But Beijing did bring North Korea to heel at a point when confrontation on the peninsula threatened to spiral out of control. In the end, the Six Party talks may not lead to the dismantlement of the North Korean nuclear program, but it’s the least bad alternative. As Douglas Paal at the Carnegie Endowment for International Peace recently put it, “The outlook for diplomatic engagement is the best it has been in two years, but the prospects for a satisfactory outcome have never looked worse.”

Indeed, while Washington and Beijing are managing to cooperate in some areas, they continue to have divergent interests and points of view. That’s why the S&ED forum is useful—it provides a bilateral avenue in which to try to find paths of progress even when our nation and China do not see eye to eye.

Oftentimes, of course, the bilateral avenue is not sufficient. America must also work with other countries to alter China’s calculus. Especially in those cases when China acts counter to U.S. interests, a key tactic is to join with allies and partners in shaping Beijing’s choices. When China overplayed its hand last year with regard to its territorial claims in the South China Sea, for example, the Obama administration successfully joined with a group of China’s neighbors and friends, including Vietnam, to stage a deft diplomatic pushback. China has since retracted some of its more sweeping rhetorical claims and restrained its maritime conduct.

China will play this game, too. Case in point: Last fall, when the Group of 20 leading developed and developing nations met in Seoul, China expertly navigated the multilateral diplomacy to scuttle condemnation of its undervalued-currency policy and related international economic surpluses, instead redirecting scrutiny to the U.S. Federal Reserve Board’s program of “quantitative easing,” Fed-speak for the purchase of U.S. government debt to boost the nation’s (and thus the world’s) money supply and stimulate economic activity.

Thanks in no small part to the determined leadership of French President Nicolas Sarkozy, the current chairman of the G-20, the group did move beyond the impasse to take baby steps forward to define a framework for monitoring current account imbalances among member nations. The current account—the international trade balance plus income payments and transfers—matters to the United States because it reveals the degree to which China exports far more than it imports, and vice versa for America, due to China’s undervalued currency, among other factors.

Though the S&ED will raise many thorny issues in the U.S.-China relationship, very few involve a head-to-head, zero-sum competition. Surprisingly, that goes even for currency. China knows that more rapid appreciation of the renminbi would serve to calm its socially contentious inflation pressures, financially destabilizing real estate and investment bubbles, and the economic pains of China’s highly unequal path to economic growth. And yet, caution about the pace of change, combined with pressure from an influential constituency—exporters—make China frustratingly slow on this issue.

The United States also stands to gain by rethinking its perspective on Chinese direct investment in American companies and the jobs it potentially brings with it. In some cases there will be security and strategic issues that must be weighed in considering investment from Chinese businesses where, even after three decades of reform, the state still plays a leading role in economic development. But the United States should not reject categorically investment dollars that could create jobs where they are desperately needed. At the S&ED meeting, U.S. officials will no doubt explore ways in which to encourage Chinese foreign direct investment where appropriate and be as transparent as possible about the U.S. rules and procedures for evaluating foreign investments.

The United States must continue to press China to play by the internationally accepted rules—on human rights, trade, intellectual property, and the rest. But succeeding in a world with a strong China requires America to step up its own game. For the United States to maximize its potential, to ensure high-quality jobs and bright futures for our own citizens, we have to invest here—in education, in modernizing our transportation and energy infrastructure, and in science and innovation.

No doubt China will be an issue in the 2012 presidential election. As motivation to get our national priorities right—investing for a competitive future rather than offering further tax cuts to the wealthy and phasing out Medicare—that is a welcome impetus to action. But we should be leery of the political allure of scapegoating China for all the economic woes and anxieties facing most Americans.

Blaming China does nothing to remedy the past failings of American economic and international policies, especially in the 2000s, to deliver a better life for middle-class families here at home. Nor does it help us tackle the myriad challenges of a globally interconnected world. Patient, though often contentious dialogue is the way forward with China.

Nina Hachigian is a Senior Fellow at the Center for American Progress. Adam Hersh is an Economist with the Center.

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Nina Hachigian

Senior Fellow

Adam Hersh

Senior Economist