Politico: 'G-2' highlights status of U.S., China
By: Eamon Javers
July 29, 2009 04:55 AM EST
Diplomacy is often about avoiding hard truths. Delaying the inevitable. Putting a fine gloss on a rough surface.
That's why it's remarkable the degree to which this week's U.S.-China Strategic and Economic Dialogue taking place in Washington is blatantly - by diplomatic standards - bringing into the open one of the touchiest issues in the world today: the rise of China and the relative decline of the United States.
The "G-2," as the summit is being dubbed, brings together the two largest economies in the world. And while the American economy is much larger than that of China and will likely remain so for a long time to come, the inescapable fact of the week is that one nation is on the ascent and the other is not.
The negotiations are being closely watched by the financial world, which is parsing every comment for levels of meaning. Wall Street didn't have to parse for long, though: The comments of Assistant Finance Minister Zhu Guangyao flashed across Bloomberg terminals in financial houses around the world: "China has a huge amount of investment in the U.S., mainly in the form of Treasury bonds," he said. "We are concerned about the security of our financial assets."
Chinese officials have been badgering their American counterparts about the size of the U.S. debt. They have been angling to get a foot in the door of the global economic institutions that have long been controlled by the United States. And they even seem to be questioning the reasons for the dominance of the U.S. dollar in the global economy.
For their part, American officials have the weaker hand on nearly every front. They're reduced to explaining why the U.S. is spending money at unsustainable levels and promising to do better in the future. They're deliberately watering down their own influence in the world as they seek to offer the Chinese a seat at the global economic table. And they're telling Beijing that the global economic recovery may have to be led by China, not the United States.
At the first day of the session - to which the Chinese sent a flood-the-zone contingent of 150 diplomats - the Chinese asked pointedly about U.S. economic strategy. "There were serious questions about what the economic outlook is," said David Loevinger, the Treasury Department's point man for the talks. The Chinese, he said, wanted to know "what our plan is for withdrawing some of the fiscal stimulus ... when we will bring down our fiscal deficit to manageable levels."
Treasury Secretary Timothy Geithner said he welcomes the Chinese joining some of the most influential international economic institutions - an elite geo-economic playing field that has been dominated by the United States since the end of World War II. The move represents a bowing to political reality by the Americans, and perhaps a bit of strategic thinking: Inviting the Chinese into the international framework gives the Beijing government an incentive not to try to tear it down.
"The global economy has changed fundamentally since the visionary individuals at Bretton Woods designed the architecture for the 20th-century economy," Geithner said. "Today, we are working with China and other partners to ensure their full engagement and representation in the design of the key multilateral agreements and groupings- such as the G-20, the Financial Stability Board and the international financial institutions - that will chart a course of more balanced and sustainable global growth into the future."
But in a briefing with reporters, the American representatives couldn't even bring themselves to comment on the most sensitive issue of all: the fate of the U.S. dollar as the reserve currency of the world. The U.S. receives enormous benefits because its dollar is the default currency of the global economy, mainly in lower borrowing costs, which is one reason that America can run such enormous deficits in the first place. In recent months, the Chinese have publicly questioned why the U.S. currency is allowed to have such dominance.
One reporter wanted to know whether they had repeated their skepticism to American officials face to face this week.
"They talked about their desire to reform the international monetary system, and I'll just leave it at that," Loevinger said.
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