As the trade fight between China and the United States continues, David Mulford, former U.S. ambassador to India took a longer-term view of in a recent brief to the Hoover Institution Journal Defining Ideas.
Mulford pins the current situation on a recent decline in U.S global leadership that has given China the opportunity to step in to fill the void.
He said a serious lack of leadership experience and coordination among senior political leaders and financial technocrats in today’s major countries, has raised concerns about “risking risks in global financial markets.”
According to Mulford, the biggest loss of U.S. leadership opportunity was not establishing an agreement with China on “the need for a fresh global leadership dialogue,” which would have given recognition to China’s growing future importance on the world stage. This could have led to potentially more positive and cooperative U.S.-China relations today.
“At that time, [this dialogue] could have produced a consultative dialogue away from the public eye and focused on each country’s future macro-economic challenges,” Mulford said in regard to China reaching out to the United States during the 2013 Sunnylands Summit to create special dialogue. The United States chose not to pursue this initiative. “An agreement that neither party would indulge in provocative public accusations of currency manipulation and unfair trade and investment policies would have been essential to long-term success.”
President Donald Trump has begun the most effective approach to China, Mulford wrote, and added that the president was right to take a step back to review U.S. global alliances and its multilateral relations after a decline of U.S. leadership. Many recent foreign political and economic policies have been domestically positive, but a number of them have also been harmful to traditional U.S. relations.
Mulford considered a list of shocking examples such as the United States’ withdrawal from the Asia Free Trade Initiative and the Paris Climate Accord, the United States’ new demands on NATO, forcing a new NAFTA negotiation as well as imposing tariffs on traditional U.S. partners, including China.
“In recent months, however, there has been a change in tone. Once aggressive proposals have been modified, changed, or even withdrawn,” Mulford wrote. “Tariff waivers have been issued, sanctions on certain countries modified, and rhetoric towards NATO partners and others softened. NAFTA has been renegotiated and agreed. Still, were we to have a new, more virulent financial crisis, perhaps a catastrophe, everyone would be a loser, especially China, and there would be no group of core countries today that trust each other enough to move quickly to put things back together again.”
The report emphasized China is not exempt from the power of private markets; however, despite many U.S allies agreeing with the United States that China has valid charges of theft of American intellectual property and advanced technologies, most lack the confidence to take on the Chinese government.
“If President Trump succeeds in continuing steady pressure on China as its economy weakens, he is likely to eventually achieve greater unity among U.S. allies and other affected nations. Pressure would have to be maintained on China for a lengthy period and US corporations, educational institutions and other public bodies would need to cooperate in the process,” Mulford said in the report.
Mulford continued: “US tolerance over many years of China’s predatory intellectual property policies, its aggressive regional security practices, and the mercantilist terms of entry for key U.S. corporations investing in China has placed the U.S. in a weakened position. Hopefully more intense scrutiny of China’s theft of US and other countries’ intellectual property and technologies has now begun in the US Government. The effort is long overdue.”
While Mulford applauded the Trump administration’s aggressive policy approach to capture China’s attention—progress he claims can be seen in trade negotiations—the United States should not declare victory on the basis of a few trade breakthroughs and must remain on the course for “lengthy and difficult negotiations.”
Although China is working to gain traction on the international stage, Mulford noted that the country also has to deal with internal divisions the government is attempting to suppressed. Many blamed Chinese President Xi Jinping’s aggressive intellectual property policies, his cyber-security ambitions, and his outsized global trade and investment policies for undermining relations with the United States and stirring up aggressive American fears for future peace.
“A weakening currency, rising levels of debt, capital flight, demographic stress and uncertain fiscal and monetary policy challenges all lend themselves to constructive dialogue in a global economy that is vulnerable to general financial stress and disorder that could produce negative fall out for everyone, but especially for China,” Mulford said, mentioning that meanwhile, the U.S. economy continued to grow, creating jobs and impacting the world economy.
According to the report, during the 2008 recession, global leaders did not step in as aggressively as in past financial crises, allowing the economic downfall to spread to global markets. This resulted in the economic recovery and growth restoration over the next two years to be left in the hands of central bankers and unelected officials, even after the crisis was over.
“For almost a decade the performance and stability of national economies and global markets remained in the collegial hands of the world’s central bankers, whose single dimensional policy of low, even negative, interest rates and intervention in government securities markets failed to restore sustained growth on the scale common in post-recession recoveries of the past. Market confidence became a daily function of central bank policies and pronouncements,” Mulford said.
The report looks back at previous examples of global cooperation, such as creation of the International Monetary Fund, the European Bank for Reconstruction and Development, and doing away with the gold standard, and how that cooperation has not been seen in recent years.
“This [switching from the gold standard] could have derailed the entire post war system with catastrophic results, but through sustained leadership and cooperation between governments and the IMF, the commitment to upholding reasonable order in global markets was maintained,” the report stated. “The world made the transition to a new system of floating exchange rates without retaining a link to gold. This was the first test for the postwar financial system to sustain stability through strong leadership and cooperative action.”
The leadership vacuum present over the past few decades is now being filled with new, more aggressive populist and nationalistic leadership adapting to a new geopolitical, economic and nationalistic leadership, explained Mulford.
“The leadership in China is defined by a lifetime autocrat. In the United States, President Trump has initiated a more US focused agenda which he laid out clearly in his 2016 election campaign and during his first two years in office,” Mulford said. “Leadership is back in fashion, not at all the same kind of leadership or personalities we observed in the last half of the American Century. This is the reality as the old, seemingly tired global leadership of the past is swept aside.”
The report recommended the United States and China work together through bilateral dialogues, in a G-2 style of relationship, potentially restructuring the G-5 and G-7 groups.
Sandra Sadek is a staff writer for Homeland411.
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