International Herald Tribune
U.S.-China trade talks should search for common ground
Monday, May 21, 2007

HONG KONG: If the U.S.-China Strategic Economic Dialogue this week is not to become an occasion to air - and probably exacerbate - grievances, it must focus on issues where there can be some meeting of minds. That means the two sides should steer clear of currency and bilateral trade issues like piracy and subsidies, in which the arguments are so well rehearsed that discussion only entrenches attitudes.

After all, if the United States cannot see for itself that its nonexistent savings rate is leading to disaster, lectures from Beijing will not make any difference. And if China cannot see the futility of relying on an export market that it has to fund at vast cost, rather than do more to stimulate its own consumption, nothing said in Washington will do more than stiffen its resistance to the arguments of an America whose motives it distrusts. If neither side can escape from short-term considerations and see the long-term danger of the massive creditor-debtor situation that has already been created, a high profile dialogue will not change anything.

So what can the participants focus on in order to make progress?

First, an agreed link between environment and trade. Whatever they may think about the Kyoto protocol, both countries are committed - at least in theory - to reducing greenhouse gases and the ratio of energy use to economic output. On the latter issue in particular, both know they can and should do a lot more. China has the world's worst energy efficiency, and America has the worst in the developed world. Both countries want more efficient, cleaner energy, and less dependence on imports.

If the two could agree to targets - cleaner steel production, for example, or reduction in power-station emissions - these could be linked to agreements to refrain from protectionist measures.

While any such deal would seem to benefit the United States more than China, with its rising heavy industries, Beijing is aware that it must do these things anyway, so a nudge from Washington should be acceptable. It would be easier if America were more committed to CO² reduction. But opposition to emission controls is collapsing and it is probably only a matter of time before it becomes a defining domestic issue in the United States.

As huge importers, both countries have a shared interest in maximizing energy availability though investment, whether by Exxon Mobil or Petrochina. The notion that they are in competition for energy and thus must thwart the other's goals, whether in Africa, the Middle East or Central Asia, is dangerous and wrong. Their companies may compete, but their national economic interests are the same. The United States needs to acknowledge that China has a legitimate interest in Africa, and China needs to recognize that Africa is a volatile place and not one where good economics and power politics go together.

Both countries also have a shared interest in seeing that the multilateral global trading system does not run off the tracks. Despite the eagerness of both countries to sign bilateral trade agreements, the United States needs to protect the global system that it helped create, and China needs a global market to further its own ambitions. Yet, in recent months, China has been almost silent when it could have played a role in unblocking the stalled Doha Round of trade talks, and the United States might have done more if China, rather than India, had acted as a leading voice for developing countries.

Finally, China and America could consider how they can cooperate in reforming the Bretton Woods institutions to reflect current realities, most particularly China's global importance. The loser from reform will be Europe more than the United States. Washington, in its current mood and following Paul Wolfowitz's ouster from the World Bank, may be inclined to let these institutions wither away. But they remain an important aspect of America's soft power. While the International Monetary Fund may seem increasingly irrelevant, its resources dwarfed by the size of international capital markets, China's role in those markets makes its participation in efforts to prevent financial market chaos all the more important.