Former Treasury Secretary and China Expert Says Tensions Will Endure Even After a Deal
Hank Paulson, who served as Treasury secretary during the George W. Bush administration, told an audience of trade advocates that even if a deal is reached with China, "the underlying tensions will persist and will be particularly intense in technology-related trade and investment." Paulson, who was introduced at a Washington think tank event by FedEx CEO Fred Smith on Feb. 27, said he never thought he'd see Democrats and Republicans applauding rising tariffs. "The trade debate in this city has changed markedly from just five years ago," he said.
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Although Paulson is a free-trade advocate, he acknowledges attempts at dialogue with China have largely failed to accomplish reforms to its government-directed economy. "The American business community has turned from advocate to skeptic and even to opponent" of more of the same, he said. "American businesses don't want a tariff war, but American business does want a more confrontational approach from our government."
But Paulson said he worries that global supply chains in technology could be "forcibly broken." He said changes to America's "export control procedures were vastly overdue." And he said that businesses would welcome wise implementation of the Export Control Enforcement Act. But, he said, "They worry about the vast scope of restrictions. They worry that we will fail to define emerging and functional technologies with care. They worry that government bureaucrats will administer restrictions ... with a blunt hammer."
"In the extreme case, we could end up sequestering so much important technology in the United States that American companies no longer participate in global supply chains in the most important industries." He said politicians are focused "on ways to hurt China and attenuate its progress," but they should focus on how their proposals would impact American technology.
He had advice for those who advocate a U.S.-China divorce (see 1810170055). "Decoupling is easier when you're actually a couple. There are more than two players here and the rest of the world gets a vote. I do not believe that any country in Asia can afford a divorce for China or even would want to."
Paulson also gave advice to China, saying that it needs to make structural changes on tech transfer, and to crack down on cyber theft and intellectual property violations if it wants to "keep its relationship with the United States from spinning out of control."
"If China doesn't move very quickly, I suspect the calls for divorce will intensify," he said. "I don't believe the current trajectory can be easily reversed."