Paulson proposes four tests for ‘pragmatic’ China policy

Former U.S. Treasury Secretary Hank Paulson called for “pragmatism” in the U.S.-China relationship in a conversation with Semafor co-founder Justin Smith at Semafor’s World Economy Summit Thursday.

Paulson, the former chairman and CEO of Goldman Sachs and a veteran of U.S.-China policy, responded to calls in Washington for what he described as a “full-scale confrontation” with Beijing.

Paulson spoke amid a hardening, bi-partisan push toward that confrontation. Former Trump aide Matt Pottinger and former Rep. Mike Gallagher argued in Foreign Affairs earlier this month that the U.S. should view “victory” rather than managed competition as the goal of American policy.

Paulson said U.S. policy cannot see “total victory” as its ultimate ambition in its relations with China.

In his remarks, Paulson rejected “the Ronald Reagan Soviet Cold War model” for the China relationship.

The “Soviet Cold War analogy is a very bad analogy” Paulson said, in a context that includes two key differences: the rise of an increasingly prosperous Global South; and China’s status as an “economic powerhouse to the extent that the Soviet Union never dreamed of becoming.”

Paulson said there were four tests American China policy should meet:

– “Is it reasonably obtainable?”

– “Do we have the means to achieve our objective?”

– “If we’re going to need the help and support of our allies and partners, are they going to follow us? We have to ask ourselves are there certain high priorities we have in the United States of America where we’re going to need some cooperation or some way of working with the Chinese.”

– “If we lay out goals that are unrealistic and unobtainable and we we we don’t meet those goals, what’s the cost to the United States in terms of lost prestige or being isolated from the rest of the world?”

He said “victory through confrontation” would fail the first two tests. “Many of our partners and allies, they want a strong security relationship with the United States. But they want an economic relationship with China,” Paulson said. “We’re having a very hard time getting our allies to do more than just sequester the most sensitive, the most advanced technologies that are vitally important to economic security. Even there, it’s a real struggle.”

Paulson stressed that cooperation with China remains crucial in key areas including climate change, nuclear non-proliferation, and cyber. “It’s hard to see us making much improvement to mitigate these things without working with China,” Paulson said. With a “confrontation, total victory kind of strategy, collaboration on existential problems would become challenging, he said.

“I remember Ronald Reagan, he negotiated with the Soviet Union. He negotiated with China, right? So he was a pragmatic person,” Paulson said.

Paulson also said he supports U.S. efforts to boost defense capabilities and limit exports of advanced technology.

“China has moved in a very big way to put the party into all aspects of the of the economy, emphasizing security over growth. It’s sapped the entrepreneurial spirit of the Chinese people,” he said. “So what I’m going to watch most carefully here is not just the structural issues, but how this statist approach to the economy plays out. Because if China stumbles, it’s going to reverberate around the world.”