Recent statements by Treasury Secretary Tim Geithner and U.S. Trade Representative Ron Kirk continue to indicate that the Obama administration sees China as a key partner in foreign affairs and intends to favour co-operation over confrontation with Beijing in order to advance bi-lateral economic and trade relations and stimulate global economic growth. All indications are that bi-lateral issues will be addressed in a collaborative fashion through mechanisms such as the Strategic and Economic Dialogue and the Joint Commission on Commerce and Trade, much like during the Bush administration years. The Treasury Department announced on 2 June that the first meeting of the S&ED will be held in Washington, D.C., during the last week of July. While the mood of these meetings is expected to remain as sanguine as during the Bush days, the bi-lateral work agenda is likely to broaden significantly as issues like climate change, clean energy and health care are incorporated into the discussions.
At the same time, the Obama administration has clearly expressed a commitment to ensure strong trade enforcement and promote adherence to the international trade system and will likely be more receptive than the Bush administration to trade-related concerns voiced by industry and labour. This policy stance suggests, among other things, that U.S. officials will view safeguard petitions and other trade remedy actions filed by domestic interests against mainland Chinese products in a more favourable light.
Geithner underscored during a visit to China in early June the need to nurture a positive, co-operative and comprehensive bi-lateral relationship in the years ahead that will help lay the foundation for a more balanced and stable global economy and successfully achieve international financial reform. According to Geithner, these efforts are already yielding significant results by helping slow down the pace of the economic downturn, repairing the financial system and improving confidence. In the United States, for example, the pace of economic activity has shown some improvement, the savings rate is increasing, consumer confidence and spending are recovering, orders for goods and services are somewhat stronger, and house prices are falling at a slower pace. Geithner also noted that the two sides have worked to resist counterproductive protectionist temptations and keep their markets open for trade and investment, although committed free traders contend that protectionist measures have nonetheless been creeping up in the United States, China and other countries.
Geithner also addressed the challenges that the U.S. and China will have to confront in the future to ensure continued growth and stability. With regard to China, Geithner believes that "sustainable growth will require a very substantial shift from external to domestic demand, from an investment and export intensive driven growth, to growth led by consumption." This policy perspective is not controversial and is actually shared by Chinese leaders. Within this context, Geithner mentioned the need to raise household incomes in China, strengthen the social safety net with health care reform and more complete public retirement systems, enacting financial reform to expand access to credit and providing products that allow households to ensure themselves against risk. Expectedly, Geithner also briefly touched on the role of market-based mechanisms in facilitating China's economic transformation and highlighted the importance of the Chinese government's commitment to move toward a more flexible exchange rate. In this regard, he noted that greater exchange rate flexibility "will help reinforce the shift in the composition of growth, encourage resource shifts to support domestic demand, and provide greater ability for monetary policy to achieve sustained growth with low inflation in the future."
Finally, Geithner outlined three important areas where the U.S. and China will have to work together to strengthen the framework for international economic and financial co-operation. On the one hand, the two sides will strive within the framework of the Financial Stability Board to redesign global standards for capital requirements, come up with more robust standards for global markets like derivatives, develop better tools for resolving future financial crisis and take measures to reduce the opportunities for regulatory arbitrage. China, the U.S. and other countries will also need to reach an agreement to reform the International Monetary Fund and other multi-lateral financial institutions to make them more representative and strengthen their capacity to prevent future crisis.
Geithner is obviously a firm believer in free and open markets and favours robust Sino-U.S. co-operation in order to fight against protectionism and ensure the continued openness of global trade and investment flows. While the U.S., China and other major developed and developing countries expressed a firm commitment to promote global trade and reject protectionism within the context of the London G-20 summit, such commitments could easily succumb to domestic pressures from businesses and unions, growing unemployment or a rapidly deteriorating financial or trade position.
Interestingly, Geithner also stressed the urgency of addressing climate change during his visit to China, including by reducing land and forest degradation, conserving energy and using clean technology. The fact that a senior economic official like Geithner refers to climate change as "one of the most critical long-term challenges that we both face" underscores the crucial role that environmental issues are likely to play during the next four years as well as the increased visibility of these issues in U.S.-China relations.
In related news, Geithner announced on 1 June that he is appointing David Loevinger as Treasury's executive secretary and senior coordinator for China affairs and the S&ED and intends to name David Dollar as economic and financial emissary to China. These two officials will work with Deputy Assistant Secretary for Asia Robert Dohner in leading Treasury's efforts on China. Loevinger currently serves as Treasury's minister-counsellor for financial affairs in China, where, as Treasury's first permanent representative in the mainland, he is responsible for engaging with China on a broad array of economic issues, including financial regulation, monetary policy and exchange rate policy. Dollar currently serves as the country director for China and Mongolia at the World Bank and has been based in Beijing since 2004.
USTR Kirk also provided an insightful assessment of the way forward for U.S.-China trade relations during a 2 June appearance before the U.S.-China Business Council in Washington, D.C. He said the Obama administration intends to pursue a two-pronged approach with respect to China that will involve both direct diplomacy and strong enforcement of U.S. rights in the global trading system. The administration will favour engagement through dialogue, including on-going efforts to negotiate a bi-lateral investment treaty, to improve market access for U.S. goods, services and investment in the mainland Chinese market. This dialogue will be channelled through the S&ED and the JCCT and Deputy USTR Demetrios Marantis will soon visit China to begin preparations for the first JCCT meeting to be held in the autumn. Kirk noted, however, that this meeting should go further than merely reaffirming previous commitments and addressing immediate trade frictions that impede U.S. businesses in China by making "meaningful progress on bedrock trade concerns that spring from the U.S. and China's differing economic approaches." This would include, for example, resolving outstanding concerns about China's industrial and procurement policies and standards and licensing procedures, which the U.S. believes tend to favour domestic and state-owned enterprises over foreign companies.
At the same time, Kirk stated that the U.S. will not hesitate to use other mechanisms, including the WTO dispute settlement system, in instances where dialogue alone proves to be unsuccessful. Kirk observed that the dispute settlement process should be viewed as a "normal and healthy" component of bi-lateral trade relations because "it provides an important forum for resolving issues that otherwise could create significant strains." Kirk added that the way the USTR approaches disputes with China will be an important element and example of the administration's renewed commitment toward trade enforcement.
