Make Money Not War

June 24, 2008 Topic: Economics

Make Money Not War

Will free markets and stronger economic ties lead to better U.S.-China relations? The Bush administration hopes so.

There are political observers who believe that as China grows, full-scale security competition between Washington and Beijing only becomes more inevitable. But today at The Nixon Center, the Treasury Department's special envoy for China and the Strategic Economic Dialogue (SED), Ambassador Alan Holmer, showed that the two global titans are working hard to iron out their economic differences-with the hope that it will produce enough understanding to at least minimize any future strategic friction. Drew Thompson, Director of China Studies and Starr Senior Fellow at the The Nixon Center, served as moderator.

Ambassador Stapleton Roy, a vice chairman at Kissinger Associates who spent forty-five years in the Foreign Service, gave the opening remarks. Saying that the American and Asian economies are "fundamentally tied" to one another, he emphasized the need for initiatives like the SED, a twice-yearly round of talks that serves as a forum for both the United States and China to exchange views and resolve disputes. No one was better suited to the "Herculean task" of running the SED, which requires coordinating between dozens of U.S. and Chinese government agencies, he said, than Ambassador Holmer, who then took the floor.

The U.S. government, according to Holmer, views the SED as "a forum and mechanism . . . to prioritize issues" and "manage the short- and long-term challenges" of the Washington-Beijing relationship. The Ambassador then spelled out the SED's ambitious agenda: promoting economic growth, managing economic and financial cycles, developing and protecting human capital, promoting open markets, and creating opportunities for collaboration on environmental and energy issues. By pursuing these goals, Holmer said, the administration hopes to advance the U.S.-China relationship, "accelerate China's next wave of economic reform" and encourage the PRC's "responsible participation in the global economic system."

Holmer reported that during the recent cabinet-level meetings of the SED, attended by top officials like Federal Reserve Chief Ben Bernanke, it was apparent that the Chinese view the dialogue as about more than just economic issues. He argued that they reflect the "full breadth" of the "strategic relationship" between the two countries. And the conversations were "quite extraordinary": "candid, frank, direct, blunt-yet always respectful." Ambassador Holmer took care to stress the extent of efforts to improve communication, break down "bureaucratic stovepipes" and prevent differences of opinion from damaging other sectors of the relationship.

The talks aren't all smooth sailing, however: both the United States and China have grievances and concerns. Washington wants China to work toward a "greater reliance on market forces," "grow differently and sustainably," adopt more flexible pricing and exchange rates, and improve regulation, governance, the rule of law and transparency. Holmer cited agreements in civil aviation and tourism as evidence of progress, while expressing optimism that a bilateral investment treaty, "clearly in the economic interests of both countries," would eventually be agreed upon.


On the other hand, Holmert said during the question-and-answer session, Beijing has a wish list of its own. China wants assurances that it will continue to enjoy access to the U.S. market amidst rising protectionist sentiment, seeks expanded investment and higher-tech exports, and has a "desire to be dealt with as an equal"-which the Ambassador acknowledged "they deserve as a rising economic power." And as the U.S. economy slows, Holmert admitted, there were "concerns expressed on the Chinese side with respect to economic development in the U.S." during the SED-possibly over the weak dollar and the subprime crisis. Yet he underscored that while some in China are using recent American economic woes to justify slowing down economic reform, exactly the opposite is true: it is "so much in China's interests" to continue liberalization.

So while agreement on some issues is proving elusive, Ambassador Holmer said, the net effect of the SED is a positive one: it's producing "a culture of collaboration" among "U.S. and Chinese officials." And seeing as there's "not a region" where "U.S. and Chinese interests do not intersect," America and China "would be well advised" to put aside current domestic political issues during their economic talks-and in the process, perhaps, push military and strategic issues over to the back burner.



Andrew E. Title is an apprentice editor at The National Interest.