Since 2009, the bilateral U.S. – China Strategic and Economic Dialogue has served as a critically important mechanism by which both governments, at the most senior levels, have developed the means to discuss core issues in the economic relationship. The Dialogue has channeled very complicated and sensitive concerns within an established framework that allows for regular contact under a whole-of-government approach, thereby creating channels of communication, expertise, and negotiation in a manner designed to increase understanding and decrease the potential for conflict. This is particularly important between the United States and China, two nations where, as C.H. Tung has highlighted, relations impact the rest of the world, and, as a result, effective working relations must be a first priority.
The latest Dialogue concluded on June 7, 2016 with acknowledgement that China’s continued strong economic growth is globally relevant and important for the United States. To be sustainable, however, the growth model needs to shift primarily from investment and exports to household consumption, in addition to addressing excess industrial capacity. Otherwise, negative reactions are likely to intensify, particularly during a U.S. presidential election year, threatening to create ill will at best, or encourage counterproductive reactions at worst. China’s unprecedented growth in the past 15 years to become the world’s second largest economy is without doubt one of the most significant stories in economic history, but it has not been free from disruptions, dislocations, or discomfort in some quarters. The Strategic and Economic Dialogue was designed to address these issues in a meaningful way.
Among the raft of agreements coming out of the recent meetings, several stand out. The first was a commitment to move forward on climate change and clean energy. As a legacy initiative of the Obama Administration, concrete actions to mitigate the impact of climate change are priority agenda items whenever senior officials of leading economies meet together (in addition to the Strategic and Economic Dialogue, for example, the June 29 North American Leaders Summit in Ottawa will also highlight and address these issues). In fact, as the State Department has noted, climate change is a pillar of the U.S.-China bilateral relationship. The move to cleaner energy sources, including the phase out of subsidies for fossil fuels, is clearly a significant part of this overall agenda. Bilateral collaboration was a major contributor to a successful outcome of the December 2015 Paris Agreement, and further steps to share best practices, jointly develop advanced technologies, and engage the private sector, among others, will likely have a catalytic impact on other advanced and developing economies.
At the same time, transparency continues to be an area for focused and continued work, an important factor that has the power to build confidence and provide enhanced opportunities based on improving market conditions. Market-oriented exchange rate reform is a foundational part of the transparency agenda because it is a politically sensitive issue in the United States and can either support or restrict broader U.S. economic and commercial engagement. Other areas for greater transparency including economic and financial data, energy data, regulatory data for the smooth functioning of capital markets, state owned enterprises, corporate information, and technology—including discussions around cyber security—were also discussed and commitments toward openness were reaffirmed. Of course, implementation over time will be the ultimate determinant of whether policy statements and commitments prove to be concrete advances or rather fall away as mere unmet aspirations. With the Obama Administration soon to depart from office, the agenda will need to be continued under the president’s successor in order to have a lasting impact.
One of the ways to ensure that it does is to show convincingly that the past eight years of Strategic and Economic Dialogue meetings have led to concrete results that impact the daily lives of consumers and, at least from Washington’s perspective, the American people broadly. In this regard, recent discussions around excess capacity, particularly steel, are paramount. As China acts to work off its excess capacity in a predictable and manageable manner, it is nonetheless having distortive impacts, not just in the United States but also around the world in other markets, including developing markets. Such realities create competitive disadvantages for U.S. producers while also potentially retarding the development of domestic industry in third nations such as Brazil. These are difficult issues, with implications for resource allocation, jobs, and competitiveness. But they are essential to continue to address, particularly in uncertain political times.
These are not issues that will go away any time soon. In fact, as China’s dash for growth continues to impact the global economy, they may become even more complicated and more acute. It’s essential that venues such as the Strategic and Economic Dialogue continue to function as a way to channel disagreements and seek mutually beneficial solutions. The pressure will be on the next U.S. administration to continue the discussions. And the pressure will be on both the United States and China to ensure these discussions deliver concrete results.
