I had the opportunity to attend a speech by Treasury Secretary Henry Paulson today at the Heritage Foundation. Paulson was highlighting the achievements of the Strategic Economic Dialogue with China. The SED was established last year, by Presidents Bush and Hu, “to provide an overarching framework for ongoing productive bilateral economic dialogues and future economic relations.” You can think of that as a nice way of saying ‘to allow the White House to push for concessions from China before Congress starts a trade war.’ The Secretary’s theme was the importance of China speeding up its transition to market economy status. He noted that the immaturity of China’s financial markets, the pegging of exchange rates, and the emphasis on low-value added export all make it more difficult to grow the high-value added economy that China needs to satisfy its growing population. The ‘precautionary saving’ of its people is understandable he argued, given the lack of an adequate social safety net, but it’s also a major reason that China’s economic rise has not coincided with the rise of a vibrant domestic consumer market. Such a development would help reduce China’s trade deficit with the United States, which, for better or worse, seems to be the primary source of tension in the US-China bilateral relationship. He stated several times that China recognizes the importance of these changes, but that the regime favors stability over reform–which often puts Beijing at odds with Washington. A primary focus of the SED has been the purported artificial weakness of the Yuan. While policymakers in both parties have pushed for a dramatic strengthening of the Yuan against the dollar–which might help reduce the bilateral trade deficit by making almost everything you buy at Target, Walmart, and KMart dramatically more expensive–China has opted for slow revaluation. For the business and lobbying community, the months leading up to meetings such as this one are filled with constant communications to U.S. government officials in an attempt to get their priorities onto the agenda. In the case of the United States and China, intellectual property rights are a constant focus, and this meeting was no different. Along with progress on financial markets and commercial aviation, Secretary Paulson noted IP protection as one area of improvement. And the joint declaration that concluded the meetings lists that among the areas of progress. You can watch Paulson speech in its entirety here.
