Robert Rubin is co-chairman of the Council on Foreign Relations and was Treasury secretary in the Clinton administration.
President Obama’s plans to travel to Southeast Asia last month were, regrettably, tabled amid the government shutdown. But that missed opportunity does not diminish the importance of his pivot toward Asia.
A constructive relationship between China and the United States is critically in our mutual interest. The relationship, however, is highly controversial in both countries. Although geopolitical issues are of great substantive importance, economic issues are closer to most people’s lives and play a significant role in public attitudes toward the other country. And with each country claiming harm from the other’s economic policies, the discourse between our countries consists largely of a dialogue of the deaf.
The United States criticizes Chinese interest-rate, land and other subsidies that support investment and exports, including a managed exchange rate (though that has less effect, for now, because China’s current-account surplus has declined substantially). U.S. officials also fault significant shortfalls in China’s protection of intellectual property rights, including cyber-appropriation.
China has long expressed strong concern that U.S. fiscal deficits could lead to unduly high interest rates, a U.S. or global financial destabilization or, alternatively, serious inflation. China often complains about U.S. political opposition to Chinese infrastructure investment. China has also criticized U.S. export laws, perhaps in part to counter U.S. criticism of Chinese trade policies.
The list could go on and on.
A far more sensible framework for this dialogue would support better policy in each country and would turn the economic arena into a constructive influence in our relationship. That framework would be built on two guiding principles: Each country will do what is in its long-term economic self-interest, and each country acting in its own, wisely determined economic self-interest will serve the best interests of both countries.
America’s economic problem is not China but getting its own policy house in order; similarly, China’s future depends not on issues with respect to the United States but on meeting its own challenges. The United States has enormous long-term strengths, including a dynamic and entrepreneurial culture, the rule of law, flexible labor and capital markets, vast natural resources and favorable demographics. But to realize our potential, we need a sound fiscal regime; robust public investment in infrastructure, basic research and so much else; and reform in economically vital areas, such as immigration and K-12 education. (A deficit-reduction program should be enacted now, but with deferral for a limited period and a moderate upfront stimulus to help our fragile economic recovery.)
The United States has vast infrastructure needs and a paucity of public capital. A welcoming environment for Chinese investment in infrastructure projects would create jobs and improve our long-term competitiveness.
Meeting these requisites for success raises our nation’s most fundamental challenge: We need an effective legislative process in which leaders are willing to reach principled compromises.
China, like the United States, is well positioned for future success. Yet China, too, must address its policy challenges before it can achieve its potential. Those challenges include transforming from an investment-led and, to a lesser extent, export-led economy to domestic demand-led growth fueled by consumption; adequately improving environmental conditions; establishing sufficient social safety nets; and combating corruption. There, too, the ultimate tests are political, albeit in a very different political system.
Chinese leaders recognize that subsidies impede the transformation to demand-led growth and inefficiently allocate capital and labor. Chinese leaders have also made clear that worker productivity must be improved through technological innovation. But technological innovation cannot be centrally planned and will occur only if innovators are protected in receiving the financial benefit of their advances by effective intellectual property rights safeguards, including a cyber-regime.
It’s long past time to turn the typical exchange of economic critiques on its head. U.S. economic interests would be furthered by addressing China’s key critiques of American policy, and China would benefit economically from addressing America’s key critiques of Chinese policy.
The long-term result of this reframing could be better policy in both countries, a better understanding of the stake that each has in the other’s success, a reduction of irritants in the bilateral relationship and a better environment for working together on the full range of issues that affect us both. More broadly, the greatest U.S. threat to China’s future would be American economic failure, and the greatest economic threat to the United States from China would be Chinese failure. Conversely, each country would benefit economically from the other’s success.
In addition to promoting economic growth through better policy, this approach provides a realistic path — grounded in national self-interest instead of fruitless hectoring — for reducing the many economic stresses in the Chinese-U.S. relationship. There will, of course, always be some friction between the United States and China on economic issues and other matters of great concern, including America’s commitment to human rights. But this framework, and its benefits, should allow disagreements to be approached in a more constructive manner.