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5 A dialogue of the
mute By Henry C K Liu
US General Omar Bradley, a great soldier
much admired by enlisted men, aptly characterized
the Korean War as the wrong war, in the wrong
place, against the wrong enemy. The Strategic
Economic Dialogue (SED) between the United States
and China launched jointly by Presidents George W
Bush and Hu Jintao last September 20 is showing
signs of turning into a dialogue on the wrong
issues, at the wrong time, and with the wrong US
administration.
Reflecting the growing
problems and opportunities in the
expanding economic
relationship between the US and China, the
unprecedented dialogue at the highest official
levels was intended to provide an overarching
framework for ongoing productive bilateral
exchanges of views on long-term strategic issues.
It was also intended to be a forum for discussing
ways the US and China can work together to address
economic challenges and opportunities as
"responsible stakeholders" in the international
economic system.
The SED - whose second
round, between US Treasury Secretary Henry Paulson
and Chinese Vice Premier Wu Yi, got under way in
Washington on Tuesday - is now in clear danger of
being conducted on the US side by the wrong
(outgoing Republican) administration after the US
mid-term elections last November delivered the
legislative branch of the US government to the
Democratic Party. And as the 2008 presidential
election approaches, the prospect of another
Republican White House appears less than likely.
The stated official intent of the SED is
to discuss long-term strategic challenges, rather
than seeking immediate solutions to the issues of
the day. But the SED appears now to be used
inappropriately by the anemic Bush administration
to defuse imminent vindictive short-term punitive
measures against China by a confrontational
Democratic Congress unhappy with Republican trade
policies.
The SED is also clearly being
conducted with terribly wrong timing, with the US
presidential campaign heating up and with a
Democratic Congress locked in bitter battle with a
lame-duck Republican administration suffering the
lowest popularity rating in history. The
high-purpose SED is forced to focus defensively on
wrong issues of trivial bilateral operational
trade friction, with many in Congress blaming
China for instigating conditions that have
produced an unsustainable US trade deficit when
China has actually only been a powerless
respondent to the dysfunctional terms of trade set
by US economic policies, aggressively exploited by
US transnational corporations and financial
institutions for unfair profit.
President
Bush's September 20, 2006, statement on the
creation of the US-China SED demanded rightfully:
"We must ensure that citizens of both countries
benefit equitably from our growing economic
relationship." Whereas US-China trade has
benefited the US economy more than the Chinese
economy, much of the benefit has gone to the US
corporate and financial sectors, rather than to
workers of both trading countries equitably. Bush
asserted that "the essential goal of this dialogue
is to ensure that the benefits of our growing
economic relationship with China are fairly shared
by citizens of both countries". Yet the
maldistribution of the pains and gains of US-China
trade in both countries has been mostly set
unilaterally by US tax, economic and trade
policies. China's workers and peasants suffer from
income disparity arising from global trade more
severely than the US working class does. More than
60% of China's trade surpluses are traded by
foreign companies, many of which are US firms.
The SED is meant to convene semi-annually,
in Beijing or Washington. Bush has designated
Paulson to lead the US side of the dialogue. The
national economic adviser and other Bush
administrative departments, including Commerce, US
Trade Representative, State, Health and Human
Services, Environmental Protection Agency, and
Energy are participants, as well as the chairman
of Federal Reserve, Ben Bernanke. This team has
only another 19 months - or three more SED
meetings including this week's - to deal with a
host of complex long-term bilateral strategic
issues by reaching agreements with the Chinese
that the next US administration may not honor. As
derivative-risk analysts would say, China enters
the next rounds of dialogue with unmanageable
counterparty risk.
President Hu has
designated Vice Premier Wu to lead the Chinese
side of the dialogue. In that role, she has been
given full decision-making authority across all
aspects of the Chinese economy. To demonstrate the
importance of the SED, the Chinese government has
created its largest and highest ranking
inter-ministerial working group, which Wu chairs,
supported by the foreign minister, the finance
minister and deputy secretary general of the State
Council, as well as the ministries of Commerce,
Agriculture, Health, and Information Industries,
various financial regulators, the National
Development and Reform Commission, the People's
Bank of China (PBoC), and others.
With
US-China trade declining as a share of China's
total global trade and with Chinese policy aimed
toward weaning the country from excessive
dependence on export, the importance Beijing has
assigned to the SED looks more like the tail
wagging the dog with every passing day.
Structural flaw One structural
flaw in the organization of the SED is the
exclusion of the legislative branch of both
governments. This flaw is a fatal one, as the US
government since last November's elections has
seen its legislative branch controlled by the
loyal opposition, which holds very different if
not opposite views on US-China economic relations.
The discussion of long-term structural
issues in the SED is aimed at providing a stronger
foundation for pursuing concrete results through
existing bilateral economic dialogues and ensuring
that citizens of both countries benefit fairly
from the growing bilateral economic relationship.
In reality, the SED, if it successfully
restructures the currently dysfunctional terms of
trade, may actually equalize the benefits in favor
of China.
The SED intends to provide
support and guidance for existing bilateral
economic forums, which will remain essential to
managing specialized aspects of the interdependent
US-China economic relationship. High-level SED
discussions are expected to enhance, not diminish,
these functional forums. Bilateral issues will
continue to receive full attention from the US,
including pressing China for floating exchange
rates, greater protection of intellectual-property
rights, and increasing access to Chinese markets,
all short-term symptoms of structurally flawed
terms of trade set by the US, blamed on a
demonized China by deep-rooted bias,
notwithstanding the stated intent of the SED "to
discuss long-term strategic challenges, rather
than seeking immediate solutions to the issues of
the day".
Themes of the discussions in the
SED raised by the US have included "building
innovative societies, seizing the opportunities of
global economic integration to assure sustained
growth, and the economics of energy and
conservation". The US pledges to support China in
what it views as China's "goal of building a
consumer-driven economy rooted in open markets".
Yet to formulate US economic policy on
China with this illusion regarding China's
national goal is the equivalent of relying on a
compass with a defective magnetic needle for
navigation. China's national goal is to develop
its economy through a socialist market economy,
not the open markets envisaged by Wall Street.
Paulson, the quiet
American Writing in the Washington Post
last December 11, Secretary Paulson laid out his
goal on "A broad dialogue with China":
My highest priority as treasury
secretary is the long-term strength and
competitiveness of the US economy. Managing our
economic relationship with China to ensure both
nations benefit is vital to our nation's future
prosperity. A market-based economy in China,
with sustainable economic growth and full
participation in rules-based international
trade, is in our best interest - and in the
interest of the Chinese people.
While
Paulson's priorities are correct from the US
perspective, his assertion of a market-based
economy being in the best interest of the Chinese
people is controversial. After almost three
decades of economic reform, there is now in
Chinese policy circles a heated debate on the
validity of a runaway market-based economy
and
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