Who Needs a “G-2”? Here Comes the S&ED

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Douglas Rediker is the Director of the Global Strategic Finance Initiative at the New America Foundation. Taiya Smith is a Senior Associate at the Carnegie Endowment for International Peace and was the lead negotiator for the U.S.-China Strategic and Economic Dialogue at the Department of the Treasury under Secretary Paulson.
Tomorrow, senior government officials from the U.S. and China will meet in Washington for the inaugural Strategic and Economic Dialogue, a.k.a. the S&ED, which is the successor to the Bush Administration’s Strategic Economic Dialogue – or SED.
The meeting, at which top level delegations from the world’s two most powerful nations get down to business and discuss some of the world’s most pressing issues side by side – or at least across the same table, represents far more than a shift in punctuation. It is a test of whether the Obama Administration can present a unified front and demonstrate that it is serious about working together to improve and expand the U.S.’s relationship with China.
The original SED was the vision of then-Treasury Secretary Hank Paulson in 2006. Pre-dating today’s calls by some for a “G-2”, the SED reflected Paulson’s belief that that China views strategic issues, outside Tibet and Taiwan, primarily through an economic lens.
The SED provided a single, comprehensive, high level forum at which the U.S. and China could discuss issues as disparate as the Doha round, Iran, energy policy and climate change from a similar (economic) vantage point. By getting multiple cabinet departments in the same room, it provided both governments with access to nearly every aspect of the other’s policy making apparatus – each speaking with one voice.
The Obama Administration has taken this precedent and made several structural modifications, the most significant of which is that while the SED was solely led by the U.S. Treasury Secretary and Chinese Vice Premier Wang Qishan, the S&ED includes both Secretary of State Hillary Clinton and the Chinese State Councilor Dai Bingguo as joint leaders of their delegations.
This shift appears to be the result of an Obama Administration compromise to avoid choosing between Secretaries Clinton and Geithner as to which would take the lead in handling our most important bilateral international relationship.
As a consequence, instead of looking at strategic issues from an economic perspective, “strategic” issues are now formally separated out from “economic” ones, thereby dividing the dialogue into two separate discussions under two distinct sets of leadership.
This division risks undermining the basic thesis of the original format – that, when dealing with China, economic issues are themselves inherently strategic. It also adds a complex and political layer of domestic coordination to the already difficult international one. With four principals speaking on economic issues rather than two, the risks of inconsistent messages and misunderstandings increase significantly.
To maximize the chance of a successful outcome from this initial S&ED, we recommend:
1 – Secretaries Geithner and Clinton should become very close friends. So should their deputies and cabinet colleagues. The U.S. needs to ensure that each speaker delivers a consistent message. In dealing with China, economic, foreign policy and other issues are often indistinguishable from one another. There cannot be any discord between senior members of the delegation. Further, participating U.S. Cabinet departments should consider how their individual agency agendas can contribute to the success of the broader dialogue.
2 – Ensure the right people are at the table. Each side should have Cabinet level participants and other key players in attendance and ready to deal with their individual counterparts. The U.S. team should understand who plays what role from the Chinese government side and foster the right bilateral relationships from the outset. On climate change, for example, an issue which spans multiple agencies, the two sides should ensure that their top climate change officials are present and actively participating in the conversation, regardless of whether they are from similar agencies or ministries.
3 – Listen to what’s being said. Many Americans find it difficult to listen to formal Chinese presentations. Yet, these speeches represent the messages that China wants to send. Our delegation must listen carefully and make sure that they fully understand what is being said. Instead of furtive bathroom breaks and phone calls, they should ask questions and demonstrate engagement.
Lack of coordination, consistency or other missteps at the S&ED will not end the U.S.-China relationship. The SED built a strong foundation and there are numerous other dialogues and forums through which China and the U.S. can meet and discuss important issues. But, the potential undermining of this one harmonized meeting would be a setback to how effectively that relationship can be managed.
At some point down the road someone may seek to redefine the relationship and call it the “G-2”. In the meantime, a tightly coordinated, well-executed S&ED may be just the format to advance the world’s most important bilateral relationship.
— Douglas Rediker and Taiya Smith

Comments

22 comments on “Who Needs a “G-2”? Here Comes the S&ED

  1. Soma says:

    Amerika has allowed the freaks in the fascists evangelical christianright to demonize science, and brute and teach the laughable joke of creationism, while the rest of the world is educating their children for the 21st Century Darwinian competition that is certain to leave our ill educated children far far far behind, no matter how much money the socalled government funnels to the offshore accounts of the likes of marvin and neil bush rake off our education system.

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  2. samuelburke says:

    Jim Sinclair’s Commentary
    Power shifts from the West to the East – that is what the meeting this week is all about.
    http://jsmineset.com/
    The USA cannot grant China what it wants, yet China has the power not to grant the USA what they want.
    The pea brained talking head jerks are simply flag waving ignoramuses. Monetary policy cannot be made in the West ever again without consulting the East.
    Top US officials seek to reassure Chinese
    By MARTIN CRUTSINGER (AP)
    WASHINGTON — President Barack Obama put forward his top economic officials on Monday to try to reassure China that the U.S. will not let huge budget deficits or runaway inflation jeopardize the value of Chinese investments here.
    Among the officials meeting with Chinese representatives Monday, the first day of two-day talks, were Treasury Secretary Timothy Geithner, Federal Reserve Chairman Ben Bernanke, National Economic Council Director Lawrence Summers and Peter Orszag, Obama’s budget director.
    U.S. officials told reporters that the U.S. side stressed to the Chinese that the United States has a plan to bring the deficit down once the economic crisis has been resolved. Officials said Bernanke discussed the Fed’s exit strategy from the current period of extraordinary monetary easing.
    On the Chinese side, Assistant Finance Minister Zhu Guangyao told reporters that Beijing and Washington had “profound exchanges” on the issue of the U.S. economy.
    The Chinese, who have the largest foreign holdings of U.S. Treasury debt at $801.5 billion, have been expressing worries that soaring deficits could spark inflation or a sudden drop in the value of the dollar, thus jeopardizing their investments.

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  3. samuelburke says:

    Niall Ferguson: Is U.S.-China Economic Marriage on the Rocks?
    As the G-2 “strategic dialogue” between the US and China gets underway in Washington, I talked
    with economic historian Niall Ferguson for the Global Viewpoint Network. Ferguson is a professor of history at Harvard University and a professor of business administration at Harvard Business School. His most recent book is “The Ascent of Money: A Financial History of the World.”
    Nathan Gardels: Despite all the other issues on his plate, President Barack Obama’s overarching challenge over the course of his administration is correcting the imbalance with China. More than anything else, as you have noted, it has been China’s strategy of dollar-reserve accumulation that financed America’s debt habit. Chinese savings were a key reason U.S. long-term interest rates stayed low and the borrowing binge kept going. Now that the age of leverage is over, what is the key to maintaining the partnership between the big saver and the big spender?
    Niall Ferguson: My friend Moritz Schularick and I came up with the idea of “Chimerica” back at the end of 2006. We were trying to explain the global financial boom, with its correlated upward movement of virtually every asset class.
    We decided the answer was that China and America had effectively fused to become a single economy: Chimerica. The Chinese did the saving, the Americans the spending. The Chinese did the exporting, the Americans the importing. The Chinese did the lending, the Americans the borrowing.
    As the Chinese strategy was based on export-led growth, they had no desire to see their currency appreciate against the dollar. So they intervened consistently in currency markets, and as a result have now got international reserves totaling $2.1 trillion. Around 70 percent of these are in dollar-denominated securities, and a large proportion of these are in U.S. government bonds.
    The unintended effect of this was to help finance the U.S. current account deficit at very low interest rates. Without that, it’s hard to believe that U.S. financial markets would have bubbled the way they did in the period 2002-7.
    The big question is now whether or not Chimerica is a marriage on the rocks. The financial crisis has brought the age of leverage to an end in the sense that America’s highly indebted consumers really cannot borrow anymore. The U.S. savings rate is soaring upwards, and U.S. imports from China have declined significantly. The Chinese trade figures tell the same story: Exports have collapsed.
    http://www.huffingtonpost.com/nathan-gardels/niall-ferguson-is-us-chin_b_245470.html

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  4. JeffLin says:

    >>two most powerful nations
    This is definitely overstatement. According to Chinese Media, it always says that “dialogue between the biggest developed country and the biggest developing country”
    >>China wants to be #1, not #2
    This is also not true. Unfortunately, very few western people can read Chinese and have little knowledge about China. According to Chinese National Development Goal: “Achieve the goal to be a middle-level developed country by 2050”. This is circulated in Chinese Media very often and is stated in every 5 year CCP National Convention and 5-year plan on how far away to the goal and what should do in order to achieve the goal. And, what a middle level country mean? the document usually says: “Some country like what current Argentina”, i.e, by 2050, Chinese hopefully can enjoy the life what current Argentina people have now.

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  5. ... says:

    jonst – that is how i read that as well… open up your financial sector is code for – deregulate to allow us to lay an aig on you folks….

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  6. jonst says:

    “Clinton and Geithner renewed US calls for China to open up its financial sector…..”
    That must have brought a smile to the face of the Chinese? I can almost hear them saying ‘define “open up”.’
    How about allowing a bit of ‘frontrunning’ trades perhaps? Or, maybe, allowing ‘insurance’ to be sold with no capital backing it up?

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  7. ... says:

    http://ca.news.yahoo.com/s/afp/090727/business/us_china_politics_economy
    Clinton and Geithner renewed US calls for China to open up its financial sector and to ween itself off its dependence on exports by spurring domestic demand in the world’s most populous nation.
    “Raising personal incomes and strengthening the social safety net to address the reasons why Chinese feel compelled to save so much would provide a powerful boost to Chinese domestic demand and global growth,” they said.
    Clinton and Geithner called for progress with China on global warming. The United States and China are the world’s top carbon emitters and have been at loggerheads in the countdown to a December meeting in Copenhagen aimed at drafting a new global climate treaty.
    The top US diplomat and financial chief said they hoped for further cooperation with China on a range of global issues ranging from bringing stability to Afghanitan and Pakistan to assisting Africa to reining in nuclear-armed North Korea.
    Clinton and Geithner made no direct reference to China’s human rights record, a longstanding source of US concern, but said the two nations “must be frank about our differences.”
    He Zhicheng, a senior economist at the Agricultural Bank of China, expected the two sides to talk less about economics than about strategic issues, including recent violence in China’s restive Xinjiang province.
    But He said that the economic crisis has weakened US leverage over China.
    “The US are more dependent on China than during the Bush period,” He said. “In the financial crisis, China was in a better position than the US.”

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  8. Mr.Murder says:

    *increase

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  9. Mr.Murder says:

    OT- Not really so.
    We need to imcrease the minimum wage. Whatever trade agreements we do internationally must not be embraced here without our own wage level improvements.
    Use it as leverage vs. the GOP fighting health care as well. This becomes a bargain point immediately.
    A lot of GOPers are getting cussed if you mention them while waiting at the doctor…
    There’s other ways to reframe the health care crisis and Obama’s ability to deliver solutions. We’ll discuss after you take care of our business first.
    Stop giving money to the monopoly guy on Boardwalk, make trade agreements about Joe Avg. or John Q. Public. Otherwise, do not pass Go!

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  10. Don Bacon says:

    Yes, Dan, it’s a good thing Biden isn’t talking to China.
    He would probably talk to China like they were little children.
    Like Steve, whom I previously thought was tolerant, talks to us:
    “This is my blog – my perch — which I share. Please maintain a posture on this blog that is open to ideas, discussion and general inquiry. There is a great diversity of views out there — and I have enough to do in writing my own posts and doing other parts of my job that I don’t want to play hall monitor. But please take this warning to heart — and improve your game. What I see above is not impressive.”
    Thanks, Steve.
    I love you, too.
    And I heard your warning.
    I heard it very well.

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  11. PissedOffAmerican says:

    “What China has accomplished with cheap labor…”
    Poisoning American dogs, babies, new homes, and RVs. They’re on a roll.

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  12. TonyForesta says:

    China’s young student learn at least two and usually three languages. Amerika’s students can’t even speak or write English well. Amerika has allowed the freaks in the fascists evangelical christianright to demonize science, and brute and teach the laughable joke of creationism, while the rest of the world is educating their children for the 21st Century Darwinian competition that is certain to leave our ill educated children far far far behind, no matter how much money the socalled government funnels to the offshore accounts of the likes of marvin and neil bush rake off our education system. America is doomed as long as the predatorclass owns our government.

    Reply

  13. samuelburke says:

    What China has accomplished with cheap labor, it will now do times 2 with high tech and excellent technicians. Call this phase two of China’s growth plan toward the world’s largest economy. China wants to be #1, not #2.
    China’s government has NOT been captured by a freewheeling financial industry that makes policy based on what is good for Wall Street.
    http://www.google.com/hostednews/ap/article/ALeqM5iBJZ40edyOp6ERIan-_6PmgP3E1wD99LGBSO0
    China economy growing again while US limps
    By TOM RAUM (AP)
    WASHINGTON — It’s a tale of two economies, China and the United States.
    The United States, the world’s largest economy, remains mired in recession as do most of its fellow top industrial powers.
    China, poised to pass Japan as the world’s second-largest economy perhaps by late this year, recently announced its Gross Domestic Product grew by more than 7.1 percent in the first half of this year.
    That puts it alone among the top 10 world powers whose economy has expanded in recent months, making it the first major country to emerge from the worst global slump since the 1930s. Many analysts suggest that China could help to lead the rest of the world out of the doldrums.

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  14. Zathras says:

    Rediker and Smith make unobjectionable reccommendations.
    It might be observed that the Bush admininstration’s view of the orginal SED forum reflected not only the-Treasury Secretary Paulson’s view of how the Chinese think of strategic issues, but also the Bush State Department’s preoccupation with Iraq. Whatever criticisms might be made of Secretary of State Clinton or how the Obama administration has employed her, the fact that she is devoting more of her time to the vastly more important Chinese relationship is a welcome development.

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  15. TonyForesta says:

    Anyone denying the superpowerness of China is delusional. It is the US superpowerness that is called to question. While the US remains the worlds hypersuperior military power, our economic base is rapidly dwindling, massively indebted, and running on deficits that are sending shockwaves through the global financial system, and various pertinant markets. China is ascending (despite the global economic crisis) Amerika is descending.
    Soon, our hypersuperior military will be stretched to the economic limits and the Amerikan government will have to choose between maintain this superpowerness, or discarding the hope and future for America’s poor and middleclass. Like Russia, Amerika could become the victim of our hypersuperior military sucking the blood off of Amerikan society to such an extent, that the entire structure will collapse and break apart. China will be there to pick up the bloody remains.
    All the world is re-aligning in various and sundry ways to curb, constrain, and defend against Amerikan hegemony. Certain oldAmerikans hold to the quaint and impotent fictions of American exceptionalism, – but our own criminal behaviors and conduct and cataclysmic failures of leadership (economic and foriegn policy) have proven these fallacies as hopeless impotent pipedreams. Amerika is fast receding into the dungeon and trash heap. Until and unless American leadership recognizes that the true strength and power of America is rooted in a prosperous and secure middleclass – (AND NOT A BAILED OUT, OUTRAGEOUSLY, OBSCENELY WEALTHY PREDATOR CLASS) – Amerika is doomed to join the ranks of history long legacy of empire born, risen and fallen under the crushing weight of corruption, perversion, and ruthless oppression of thehavenots, by thehaves.
    History! – Amerikan leadership might want to look into it.

    Reply

  16. Dan Kervick says:

    Well, fortunately, Joe Biden is not part of this mix.

    Reply

  17. Don Bacon says:

    As a presidential candidate Obama told voters in New Hampshire: “I would stop the import of all toys from China” and then (characteristically) backed off and said “I’ll work with China to keep harmful toys off our shelves.”
    As president, he has more important subjects than toys to consider.
    * China’s central bank has made proposals to overhaul the international financial system that envision a much greater role for the IMF. It has been pushing for increased world-wide use of Special Drawing Rights — a type of synthetic currency basket — to wean the world off its reliance on the U.S. dollar and its role as the world’s reserve currency. Think dollar devaluation.
    *The IMF forecasts China’s 2009 economic growth at 7.5%, whereas the US economy is projected to shrink 2.6%, with no clear indication of what might drive any recovery.
    *In May 2009, the US owed China $772 billion, which is roughly the Pentagon’s annual expenditure for its harmful toys. It’s that big. In total, the huge US debt in the hands of foreign governments was 25% of the total in 2007, with China (the largest foreign US debt holder) owning 24% of that, and what if they rush for the exits?

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  18. ... says:

    thanks for the post don bacon.. i agree with your view on china as a leading world power with china being in the usa’s radar increasingly..

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  19. Don Bacon says:

    National power is difficult to measure. Hans Morgenthau, the famed political scientist, wrote: “The concept of political power poses one of the most difficult and controversial problems of political science.” In determining national power one needs to move beyond material capabilities and to explore the role of non-state actors, transnational forces, and what some have termed soft power. Trends are important also.
    One way to look at national power, admittedly simplistic, is: What nation does the world’s greatest power (the US) consider to be its most important geo/political/economic rival? China comes immediately to my mind.
    US foreign policy (unlike China’s) is primarily concerned with projecting military power. There are US military forces in some 130 countries, and the huge US 7th Fleet (70 ships, 300 aircraft, 40,000 personnel) is a continuing presence in the Western Pacific and Indian Ocean. The Pentagon says: The Asia-Pacific region is of immense and growing importance to the world and U.S. interests.
    The Pentagon annually publishes only one (to my knowledge) country-specific military report “Military Power of the People’s Republic of China”. The 2009 report starts off: The People’s Liberation Army (PLA) is pursuing comprehensive transformation from a mass army designed for protracted wars of attrition on its territory to one capable of fighting and winning short-duration, high-intensity conflicts along its periphery against high-tech adversaries – an approach that China refers to as preparing for “local wars under conditions of informatization.” The pace and scope of China’s military transformation have increased in recent years, fueled by acquisition of advanced foreign weapons, continued high rates of investment in its domestic defense and science and technology industries, and far-reaching organizational and doctrinal reforms of the armed forces. . . .
    So the US seems to be looking at China as its chief military rival, at least for the future.
    China foreign policy is primarily focused on projecting economic power. The economy of the People’s Republic of China is a rapidly developing market economy, and is the second largest in the world after that of the United States with a GDP of $7.8 trillion (2008) when measured on a purchasing power parity (PPP) basis. It is the third largest in the world after the US and Japan with a nominal GDP of US$4.4 trillion (2008) when measured in exchange-rate terms.[China has been the fastest-growing major nation for the past quarter of a century with an average annual GDP growth rate above 10%. China has weathered the world economic recession and its economic Growth is actually accelerating under stimulus programs.
    China has projected its economic power internationally. In 2009 Chinese companies initiated 22 overseas acquisitions in January and February, with a total value of US$16.3 billion, with the pace accelerating. Almost all acquisitions concerned natural resources, and nine-tenths of the total investment was directed to Australia.In the oil sector, China has signed or extended agreements with companies from Saudi Arabia and Brazil in addition to Russia. China is busy constructing the Arabian sea port of Gwadar in Pakistan’s deep, desolate south and attempting to improve road connectivity in the country’s rugged far north. China is the top investor in Afghanistan, and has major oil ties with Kuwait, Iraq and Iran, and major resources ties to Australia.
    So China is a leading world economic power.
    Regarding this diary, while I would agree with WigWag that “the world’s two most powerful nations” might be a bit inaccurate, it wasn’t that far off. “The world’s two principal rivals” might be a better description, and this wording would also emphasize the need for a dialogue.

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  20. JohnH says:

    “Listen to what’s being said. Many Americans find it difficult to listen to formal Chinese presentations … Our delegation must listen carefully and make sure that they fully understand what is being said.”
    Truly astonishing that Americans in leadership roles need this admonition. This is indicative of a primitive mentality and absence of basic diplomatic and negotiating skills.
    Sounds like this pathetic crew of American “leaders” needs a course on the fundamentals. They could start by reading Sun Tzu. The Chinese surely have.
    http://www.chinapage.com/sunzi-e.html

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  21. WigWag says:

    “The meeting, at which top level delegations from the world’s two most powerful nations get down to business and discuss some of the world’s most pressing issues side by side – or at least across the same table, represents far more than a shift in punctuation. It is a test of whether the Obama Administration can present a unified front and demonstrate that it is serious about working together to improve and expand the U.S.’s relationship with China.”
    Is China one of the world’s “two most powerful nations?”
    They may be on the way to becoming a military and economic superpower but they aren’t there yet. China has the fourth largest GDP in the world (nominal) after the European Union, United States and Japan, but on a per capita basis, China ranks 104th after nations like Fiji, Albania, Turkmenistan and Armenia.
    Nine nations in the world possess nuclear warheads; of these, three nations have more warheads than China. Russia has 13,000; the United States has 9,400; France has 300; China has 240. The United States and Russia each have 2,400 ICBMs (by treaty); China has 105 (93 land based and 12 submarine based).
    The Chinese Navy has fewer aircraft carriers, frigates and destroyers than the Indian Navy and far fewer than the Americans or Russians or French or British.
    My only point is that while this is an interesting post by Rediker and Smith, their assertion that China is the second most powerful nation in the world is probably an exaggeration.
    At least at the current moment it is.

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  22. jonst says:

    In Sec’s Geithner and Clinton, you have the remnants of the Democratic Leadership Counsel leading our delegation.
    I don’t expect much economic good news to flow to the American Middle Class from the efforts of those two.
    Nor would I expect much of a change in US National Security Policy. They have, and will, go on acting as if we, the US, are still in the immediate Post Cold War period.

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