Former US Treasury secretary Hank Paulson warns of an economic iron curtain if the US and China cant find a way to get along

https://www.businessinsider.com/former-treasury-secretary-hank-paulson-warns-us-china-trade-war-2018-11


US China lifting
Adeline
Maria Gray of the United States (blue) lifts Qian Zhou of China
(red) on the fourth night of the World Wrestling Championships at
The Orleans Arena

Stephen R.
Sylvanie-USA TODAY Sports


  • Former US Treasury secretary Hank Paulson has
    warned of an “economic iron curtain” dividing the world if the
    US and China fail to resolve their burgeoning strategic
    differences
    .
  • Speaking from the Bloomberg New Economy Forum in
    Singapore, the 74th secretary of the US Treasury said the world
    is “arriving at a moment of change, challenge, and potentially
    even crisis.”
  • Referring to the “unprecedented political pressure on
    cross-national supply chains” and “great power competition
    surges” across the Indo-Pacific, Paulson warned of a
    once-healthy strategic competition tipping into “a full-blown
    cold war.”

Former US Treasury secretary Hank Paulson has told a forum in
Singapore that if the US — consciously or otherwise — goes ahead
and decouples from China, then it will likely isolate itself from
the region and trigger a “full-blown” cold war.

Paulson spoke of an “economic iron curtain” cleaving the world
into estranged spheres should the US and China fail to get their
houses in order and resolve their burgeoning strategic
differences.

Speaking from the Bloomberg New Economy Forum in Singapore, the
74th secretary of the US Treasury said the world is “arriving at
a moment of change, challenge, and potentially even crisis.”

Referring to the “unprecedented political pressure on
cross-national supply chains” and “great power competition
surges” across the Indo-Pacific, Paulson warned of a once-healthy
strategic competition tipping into a “full-blown cold war” that
could bring down the entire international system.

“As Treasury Secretary, I presided over the US response to the
2008 financial crisis, so I know a little something about
systemic risk. And I simply cannot see how the international
system can endure when the two countries that comprise some 40%
of global GDP and over 50% of global growth are working at
cross-purposes, attempting to de-integrate their two economies,
and contesting the foundations of a rules-based order at every
turn,” Paulson said.

Sino-US ties have been getting icy over for some time now, with
the headline-topping body-blows of a months-old trade war, just
the tip of an iceberg weighed down by a shopping list of
unresolved economic issues, from trade deficits to trademarks.

China’s President Xi Jinping (习近平) took the latest potshots in an
increasingly acrimonious relationship when on Monday he lambasted
President Donald Trump’s calling card “America First” policies.

Speaking from Hangzhou (杭州) where the Communist Party boss
relished the chance to champion global free trade, Xi mocked the
US administration’s aggressive “beggar-thy-neighbor” (yi lin wei
he 以邻为壑) approach to cross-border trade.


Chinese China Soldiers People's Liberation Army Navy
Chinese
navy soldiers guard on Navy Battleship of Wenzhou at Qingdao Port
on April 22, 2009 in Qingdao of Shandong Province,
China.

Guang Niu/Pool/Getty
Images


We need to talk …

Wilting ties aside, Paulson said the US is in danger of falling
victim to its own rhetoric on China’s misdeeds.

A growing majority at home now see China not just as a strategic
challenge to US interests but as a country whose rise has come
pretty much at America’s expense.

With this snowballing fear in the US that China has been using
underhanded policies and sneaky strategies to build — most
especially — an arsenal of indigenous high technologies, Paulson
warned that the cold shoulder would not work in containing China.

“Some in the United States now advocate a Cold War-style
technology denial regime,” Paulson said. “No country, in my view,
will ‘divorce’ a major nation that remains, even amid a slowdown,
among the world’s fastest growing major economies.”

He said China’s habitual stealing of technology, its obligatory
forced technology transfers for joint ventures and its
totalitarian approach to internet governance and cross-border
data flows were naturally raising serious alarm, but cautioned
that both nations are now simply too tightly connected to just
start cutting cords.

“Innovation and technology cannot be separated from business
competitiveness.”

“So, such a Balkanization of technology could further harm global
innovation, not to mention the competitiveness of firms around
the world.”

Seemingly addressing the administration itself, Paulson warned
that in its effort to isolate China, the US now “risks isolating
itself.”

Calling the US-China strategic interaction easily the most
consequential of all, Paulson said its failure could put at risk
“the very functioning” of the global system. “I am very sobered
by the trajectory we are on now.”


Chinese navy
Soldiers
of the Chinese navy stand in line on a ship before they go to the
Somalia Waters on February 21, 2011 in Zhoushan, Zhejiang
Province of China.

ChinaFotoPress/Getty Images)

On China’s great iron curtain

The path to avoiding an “economic iron curtain” descending across
the Indo-Pacific would begin with China’s embrace of basic
economic reforms that would continue to open up its markets in
the same way as its global competitors and partners.

At the same time the former secretary said the US kind of needed
to grow up, tone it down and trust a bit more in its own values.

“Dial down the rhetoric,” he said

“Strategic competition is a fact. We have compelling differences
of national interest between our two countries. And we clearly
have clashing security concepts, not least in the South China
Sea.”

Paulson also lamented the president’s slash-and-burn attitude to
multilateral institutions and especially his decision to nix the
Trans Pacific Partnership (TPP).

“To be blunt about this, I wish President Trump would reconsider
his decision to withdraw from the Trans-Pacific Partnership. A
TPP 2.0 would offer a ready-made vehicle to shape the trade
environment in which Beijing operates,” Paulson said.

But for all its fireworks and fury, Paulson insisted China does
not pose an “existential threat” to American civilization.

“We should prepare for the obvious strategic challenges from
China. But in doing so, let’s not sacrifice those values — or the
commitment to openness — that has made us the strongest, most
competitive, and most admired country in the world.”

“In the 242nd year of our great democratic experiment, we should
have more confidence in America and the resilience of our
system.”


donald trump xi jinping
U.S.
President Donald Trump (L) and China’s President Xi Jinping walk
along the front patio of the Mar-a-Lago estate after a bilateral
meeting in Palm Beach, Florida, U.S., April 7,
2017.

Reuters/Carlos
Barria


The ‘D’ word

All couples face change, and the message out of Singapore was for
China and the US to get over their differences and find a way
forward, because there are no winners in a divorce.

“Frankly, deintegration is inevitable, and even necessary, in
some areas — not least to protect our national security. But it
is decidedly not in America’s interest to attempt this across the
board.”

And divorce doesn’t really work well for global business.

“At this point, after 40 years, when we have had one kind of
relationship but now, quite clearly, face the daunting task of
transitioning to a new one – anchored in a realistic and more
sustainable – strategic framework – divorce is a real risk.

“If China doesn’t move quickly, I suspect the calls for divorce
will intensify. And it pains me to say that.”