The U.S.-China Strategic and Economic Dialogue: Continuity and Change in Obama’s China Policy

Engagement between Beijing and Washington operates on many levels but none is more critical than a regularized mechanism for strategic discussion by the top officials in economics and foreign policy.  While Presidential summitry is extremely valuable, it is too infrequent and too brief to cover the strategic issues in-depth.  When President Barack Obama and President Hu Jintao met for the first time at the elegant U.S. Ambassador’s residence in London on April 1, they reemphasized this principle by announcing the creation of the “U.S.-China Strategic and Economic Dialogue.”  The statement released by the White House said that Secretary of State Hillary Clinton and Chinese State Councilor Dai Bingguo would chair the “Strategic Track” and Secretary of the Treasury Timothy Geithner and Chinese Vice-Premier Wang Qishan would chair the “Economic Track.”  The White House noted that the first round of the dialogue would meet in Washington D.C. sometime this summer [1].  

The announcement is a testament to the work pioneered by former Treasury Secretary Hank Paulson and former Deputy Secretary of State Robert Zoellick in engaging China in the Strategic Economic Dialogue (SED) and the Senior Dialogue (SD), respectively during the presidency of President George W. Bush.  Paulson’s SED was begun in September 2006 at a moment when it looked as if the United States Congress might act to punish China for its ballooning trade surpluses with the United States by enacting high tariffs on Chinese imports unless China adjusted its currency peg to the U.S. dollar.  The joint efforts of Secretary Paulson and Vice- Premier Wang Qishan helped to ease the Congressional concern and, indeed, from the first meeting of the SED in Beijing in December 2006 until the last round in December 2008, the SED accomplished one of its major goals as China’s currency appreciated by an impressive 20 percent against the U.S. dollar.  Congress did not enact punitive legislation and a trade war was avoided.  

Similarly, on the geopolitical side, the SD embodied the goal that Robert Zoellick famously outlined in a speech in September 2005 as the aspiration that China would one day soon become a “responsible stakeholder” in the international system [2].  Robert Zoellick and his successor at the Department of State, John Negroponte, engaged State Councilor Dai Bingguo in key global issues of the day ranging from the leakage of Chinese arms destined for the Iranian arms forces into the hands of terrorists in Iraq and Afghanistan to the dismal state of human rights in Darfur, Burma, and Zimbabwe [3].  In part because of this dialogue, China tightened its controls on weapons sold to Iran and, in 2007, began sending People’s Liberation Army (PLA) engineering troops to help build housing, an airport, fortifications and more than 6,250 kilometers of roads for the United Nations-African Union Mission of peacekeepers in Darfur [4].  China, for its part, had the opportunity through the SD to explicate, in depth, its concerns over such issues as the actions of then Taiwan President Chen Shui-bian.

Given this history, what are the implications of the creation of the new S&ED by the Obama Administration?  The first implication seems to be that there is more continuity than change in the new administrations approach to engaging China.  The announcement by the new Administration that it seeks a “positive, cooperative, and comprehensive” U.S.-China relationship for the 21st Century echoes closely the Bush administrations policy of engaging China in “constructive, candid, and cooperative” ties.  Indeed, as many commentators have remarked, the Obama team appears even more united than the Bush team in the conviction that strategic engagement with China is part of the solution to many of the daunting global and bilateral political and economic challenges.  As James McGregor, one of the top American businessmen working in China and chief executive of JL McGregor and Company recently predicted, “Non-naïve, non-ideological, clear-eyed and serious engagement is where this relationship is headed” [5].

At the same time, officials in the Obama administration are quick to point out that this is not just a continuation of the Bush China policy but that the new dialogue will seek to take the relationship to a new level.  After all, the U.S. participation is being “upgraded” by the direct involvement in the dialogue of the U.S. Secretary of State.  This is no small thing as the Secretary of State’s time and energy is typically only engaged on those matters of foreign policy of highest priority to the President and the nation.  Administration officials also point out that Secretary Clinton has elevated the issue of climate change and clean energy to a top priority in the new talks because she believes this is one of the most important issues where the United States and China need to intensify the global dialogue.  When Secretary Clinton and her special envoy for climate change, Todd Stern, met with Chinese leaders in Beijing in February, they placed a high emphasis on the possibilities for a meaningful clean energy partnership not only between governments but between the business communities and academic institutions of China and the United States [6].   

Aside from the environmental imperatives, engaging China on climate change is of urgent importance to the Obama Administration for at least two additional reasons.  First, any effort to pass climate change and energy legislation in the U.S. Congress this year will be heavily influenced by whether the Obama Administration is making progress at getting China to do its part in reducing the global carbon footprint.  After all, China may have overtaken the United States in 2007 as the world’s top annual emitter of carbon dioxide and the two countries together are responsible for over 40 percent of the greenhouse gases released into the atmosphere each year [7].  Many in the U.S. Congress have expressed concern that, in this time of recession, even more U.S. jobs will flee to China if production costs in America rise under a cap and trade system but China’s remain low.  Secondly, many experts believe that the only way that the U.N. Conference on climate change to be held in Copenhagen at the end of the year can be successful in designing a successor to the Kyoto Protocol is if the United States is able to convince China that it must take the lead in the developing world in reducing its carbon footprint.  While China has increased its own attention to climate change in the past couple of years, it remains to be seen whether China is willing to commit itself to specific and internationally accountable targets for reducing overall emissions well below business-as-usual projections.  

The S&ED also takes on new importance as China’s global influence increases, particularly in this era of global recession.  In the past five months, China has announced an unprecedented $95 billion in currency swap agreements with six countries that hold part of their reserves in yuan.  And, in the run-up to the G-20 meeting, Chinese Bank of China Governor Zhou Xiaochuan caught the world’s attention by suggesting that it was time to look at the creation of a global super-sovereign reserve currency [8].  Both the United States and China have responded to the global recession with large domestic stimulus packages but those packages are band-aids designed to get each country through the current crisis.  They do not, for example, address the systemic issues that have created the large annual bilateral trade imbalances between the United States and China, which have at their root cause the American propensity to high personal consumption and the Chinese propensity to high personal savings.  The S&ED provides American and Chinese policymakers a top level forum in which to consult closely on their longer-range macroeconomic policies and plans so as not to surprise each other and hopefully design mutually reinforcing policies that raise all boats in the world economy.

Perhaps most importantly, the S&ED offers the potential for the United States and China to elevate their dialogue on global political issues to a new level.  While U.S.-China engagement on such issues as North Korea and Taiwan is well developed, there have been less robust exchanges—and cooperation—on emerging concerns such as the unstable situations in Afghanistan and Pakistan.  President Obama’s decision to roll-out a new Afghanistan-Pakistan strategy now makes this a priority issue in U.S.-China relations.  China’s geographic proximity and its own concerns about terrorism should lead it to conclude that President Obama’s success in the fight against al-Qaeda is in its own national interests.     

Moreover, as the Obama Administration strikes a decidedly different tone from the Bush Administration on relations with countries from Cuba to Iran to Burma, it becomes critical for American and Chinese policymakers to engage in in-depth discussions of the implications of these diplomatic shifts.  Chinese companies are now major players around the globe and China is becoming a major international investor.  Thus, China’s influence and national interests are now far broader than they have been at any time in the history of People’s Republic of China (PRC) and the prospect for mutually reinforcing diplomacy—or diverging diplomatic strategies—is also greater than it ever has been.             

One important danger of too much emphasis on the new S&ED is a potential perception among America’s allies that it signals the beginnings of an exclusive “G-2” relationship with China.  From Japan to India, there are concerns that America’s search for a solution to its worst economic crisis since the Great Depression may lead the Obama administration into not only expanded strategic and economic dialogues with China but a full-blown strategic partnership [9].  The Obama Administration will have to work hard to reassure America’s allies and friends in Asia that they are not being relegated to a subordinate status and the Administration should be very clear on what the S&ED is—and is not.    

Another danger that must be avoided is failing to get the right players to the table to make meaningful progress on key issues.  While it is laudable that Secretary Clinton is willing to lead on creating a meaningful clean energy partnership with China, there is obviously a major role for other cabinet members, such as Secretary of Energy Steven Chu, on negotiating the details of such a partnership.  After all, the basis of this was constructed last June when Secretary Paulson and Vice-Premier Wang Qishan adopted a “Ten-Year Energy and Environment Cooperation Framework” with the Department of Energy leading on the U.S. side.  It will be critical to fill out that vague framework with a detailed road map created by the experts for clean energy and climate change cooperation.        

Given all of the political and economic issues that the new S&ED could productively cover, it is a difficult to understand why the two sides have decided on only an annual set of meetings.  Over the past few years, both sides found the twice yearly schedule for both the Strategic Economic Dialogue and the Senior Dialogue productive and committed a great deal of time and energy to the dialogues.  Deputy Secretary Negroponte, for example, even took up State Councilor Dai Binggou’s invitation to visit his home province of Guizhou in southwest China during one round of their talks.  China analysts have some concern that the large, annual summit could turn into less of an intimate dialogue and more of a media event.  To avoid such an outcome, the Chinese and American co-chairs of the dialogue will have to commit themselves to carving out time for more than just formal meetings.  This will not be easy given the tremendous demands on their time and energies.  Moreover, it will be crucial that a vibrant set of working groups be established that meet regularly in order to maintain momentum and tee up productive agendas for the annual summits.  Only then will the new S&ED fulfill its promise as a vehicle for building a comprehensive U.S.-China relationship for the 21st century.               

Notes

1. Whitehouse.gov, “Statement on Bilateral Meeting with President Hu of China,” April 1, 2009.
2. Robert Zoellick, “Whither China:  From Membership to Responsibility?”, Speech to the National Committee on United States-China Relations, September 21, 2005.
3.  “Discourage Chinese Arms Sales to Iran”, AFP, September 11, 2007 and US Department of State, press roundtable, Deputy Secretary of State John Negroponte, Kabul, September 11, 2007, www.state.gov.
4. Chinamil.com.cn, “1st batch of Chinese peacekeepers to Darfur return home,” January 13, 2009.
5. Jlmpacificepoch.com/blog, “Jim:  No-Drama Obama China Policy”, April 18, 2009.
6. U.S. Department of State, “The U.S. and China Working Toward Clean Energy”, February 22, 2009 www.state.gov.
7. For an assessment of the potential for a U.S.-China energy partnership see, “Overcoming Obstacles to U.S. China Cooperation on Climate Change,”  Kenneth Lieberthal and David Sandalow, John L. Thornton China Center at Brookings Monograph Series, Number 1, January 2009.  
8. Zhou Xiaochuan, “Reform the International Monetary System”, March 23, 2009, wwe.pbc.gov.cn.  
9. Dennis C. Wilder, “How a G-2 Would Hurt”, The Washington Post, April 20, 2009.