Paulson Calls for New Round of U.S.-China Talks

(Bloomberg) — The incoming Biden administration should start a new round of bilateral negotiations with China aimed at fair trade and competition, former U.S. Treasury Secretary Hank Paulson said Monday at Bloomberg’s New Economy Forum.

“We’ll need to deal with structural and process issues that include services, not just goods,” he said. “The agreement should be done in phases with regular deliverables, beginning with easier issues that build momentum to tackle the tough ones.”

Paulson, a former Goldman Sachs CEO who led the Treasury during the George W. Bush administration, also called for a shift away from what he called “reflexive reciprocity” to “targeted reciprocity” to ensure that the strategic competition between the world’s two largest economies won’t result in the U.S. closing itself off to the world.

Chinese Vice President Wang Qishan and former American Secretary of State Henry Kissinger issued similar calls for improved China–U.S. relations.

The U.S. and China signed the first phase of a trade agreement in January — which President Donald Trump initially celebrated as one of his key economic achievements — but the relationship soured soon after as Trump blamed Beijing for not doing enough to contain Covid-19. His administration then issued a number of trade and investment restrictions and sanctioned Chinese officials for their crackdowns on human rights in Hong Kong and China’s western region of Xinjiang.

The U.S. should consider removing tariffs on goods from the Asian nation once it has extracted a reciprocal and tangible benefit from China, defined by benchmarks in a phased bilateral trade agreement, Paulson said.

Two years ago, Paulson warned that the U.S.-China relationship was on a trajectory to establishing an economic iron curtain. He said Monday that unfortunately many of his predictions panned out.

Kissinger said at the forum that the Biden administration should move quickly to restore lines of communication with China that frayed during the Trump years or risk a crisis that could escalate into military conflict.

“Unless there is some basis for some cooperative action, the world will slide into a catastrophe comparable to World War I,” Kissinger warned.

“America and China are now drifting increasingly toward confrontation, and they’re conducting their diplomacy in a confrontational way,” the 97-year-old Kissinger said in an interview with Bloomberg News Editor-in-Chief John Micklethwait. “The danger is that some crisis will occur that will go beyond rhetoric into actual military conflict.”

The diplomat who paved the way for President Richard Nixon’s historic 1972 trip to China said he hoped that the shared threat of the Covid-19 pandemic would provide an opening for political discussions between the two countries when President-elect Joe Biden takes office Jan. 20.

Wang called for global solidarity and a shift away from protectionism as Beijing grapples with the prospect of a new administration in Washington.

“Countries must rise above exclusive blocs and reject the zero-sum mentality,” Wang said via video link. “We should build an open world economy that works for all. We must firmly safeguard the multilateral trading system under the WTO and unequivocally reject unilateralism and protectionism.”

During the last four years, Chinese leaders have often used rhetoric about free trade to differentiate China from President Donald Trump’s “America first” policies. Wang’s comments suggest China will continue that approach even as the Biden administration pivots away from unilateralism.

Wang didn’t address U.S.–China ties directly, instead calling more generally for countries to “build platforms for dialogue and keep communications open.” He also urged nations to develop “a collaborative mechanism for epidemic control” to battle the Covid-19 pandemic.

China was initially slow to recognize Biden’s election win, and U.S. tensions are likely to continue. Biden has frequently criticized China’s assertive policies in its neighborhood as well as Beijing’s human rights record, branding President Xi Jinping a “thug” in February.

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