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Opposite parties, same goal: change U.S.-China relations

China is on track to eclipse the U.S. as the world's largest economy by 2016, and it hasn’t been shy about flexing military muscle. Henry Paulson and Bob Rubin, former treasury secretaries from different parties, say the U.S. and China need to correct their relationship in order to ensure global stability. Judy Woodruff reports as part of a collaboration between The Atlantic and the PBS NewsHour.

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  • JUDY WOODRUFF:

    Now we take a broader look at China and how the U.S. should engage with the rapidly growing economic and military power.

    Today, President Obama discussed the possibility of China eventually joining a major trade deal already in the works with other Asian nations. He spoke to public radio's Kai Ryssdal, host of "Marketplace."

  • PRESIDENT BARACK OBAMA:

    They have already started putting out feelers about the possibilities of them participating at some point.

  • KAI RYSSDAL, Marketplace:

    To you?

  • PRESIDENT BARACK OBAMA:

    To us, to Jack Lew, the treasury secretary.

    The fact is that is that if we have 11 of the leading economies in the Asia-Pacific region who have agreed to enforceable labor standards, enforceable environmental standards, strong I.P. protections, nondiscrimination against foreign firms that are operating, access to those markets, reduced tariffs, then China is going to have to at least take those international norms into account.

  • JUDY WOODRUFF:

    I recently sat down with two former treasury secretaries, Democrat Robert Rubin and Republican Henry Paulson. The two, good friends and longtime colleagues, reached across the aisle to co-author a piece about U.S.-China relations and how to get them right.

    It appears in this month's "Atlantic" magazine, and is the focus of tonight's installment of our partnership with The Atlantic.

    China's over 300 mile-an-hour bullet trains set the world standard. Chinese shoppers fill Shanghai streets, and the skyscrapers continue to rise. This ancient Asian power is not only on track to eclipse the U.S. as the world's largest economy by 2016. These days, they're not shy about flexing their military might, as they staged their first ever joint naval exercises in the Mediterranean with the Russian navy just last month, even building up islands in the South China Sea to press what it considers its territorial claims against Asian neighbors.

  • ASHTON CARTER, Defense Secretary:

    With its actions in the South China Sea, China is out of step with both international norms that underscore the Asia-Pacific security architecture and the regional consensus in favor of a non-coercive approach to this and other longstanding disputes.

  • HENRY PAULSON, Former Treasury Secretary:

    China has emerged as really a formidable competitor, and as they are asserting themselves on the global stage, the longstanding consensus that China's rise is good for the U.S. is beginning to break down.

  • JUDY WOODRUFF:

    Henry Paulson and Bob Rubin worked for presidents from different parties, George W. Bush and Bill Clinton, but they agree on the need to chart a midcourse correction in U.S.-China relations, and say it needs to happen soon.

    What is it about this U.S.-Chinese relationship that you think it is so important for the American people to know right now?

  • ROBERT RUBIN, Former Treasury Secretary:

    That I think that when you have the two largest economies in the world, the United States and China, you have the opportunity for a mutually beneficial bilateral relationship.

    And, in addition, if we can get that right and if we can get a broad-based understanding and recognition in each country that we benefit from the relation with each other, then I think we improve the potential for our working together on these transnational issues that so enormously affect each of our countries, terrorism, Middle East instability, climate change, and so much else that affects the whole of the global community.

  • HENRY PAULSON:

    They're all going to be easier to solve it or to deal with if we have got a good working relationship with China, and much more difficult if we don't.

  • JUDY WOODRUFF:

    I recently met with the two men at the Council on Foreign Relations in New York, where Bob Rubin is now the co-chairman. In their joint article, they turn U.S.-China critiques of each other on their heads.

    Rubin and Paulson argue that both the United States and China would be better off if they accepted, and acted on, the criticisms leveled by the other side, this in a relationship that is increasingly crucial to global stability.

  • ROBERT RUBIN:

    Instead of having an exchange of grievances — and we refer to it as dialogue of the deaf — what you will see is that, if each of our countries does simply what is its own self-interest, it will address the critiques that the other country is making.

  • JUDY WOODRUFF:

    The two are on board with Chinese claims that the U.S. needs to ease its fiscal crisis. And both men believe other Chinese critiques are on the mark, like the need for the U.S. to invest in infrastructure.

  • HENRY PAULSON:

    I think the biggest challenge is fixing our own problems. We need a tax system that's going to let us raise the revenues we need and be competitive.

  • ROBERT RUBIN:

    We have a paucity of capital for infrastructure, and we have a desperate need for infrastructure. We should be doing a lot more at the federal level, and I think there are ways we could do that and pay for it that wouldn't create a fiscal problem.

  • JUDY WOODRUFF:

    In his new book, Hank Paulson goes even further, arguing that the U.S. should welcome Chinese investment more broadly, holding up Japan as an example.

  • HENRY PAULSON:

    I argue all the time that the greatest compliment any country can pay to the United States of America is make a direct investment here that creates jobs.

    Back in the days when Bob was my boss at Goldman Sachs, I remember very well when the Japanese came in and they bought the Rockefeller Center, and my mother was horrified, just horrified. And I said to her, mom, what are you concerned about? They can't put the Rockefeller Center on an aircraft carrier and take it back to Japan. We have got the Rockefeller Center, and we have got their money. This is a good thing.

  • ROBERT RUBIN:

    Japanese companies subsequently created a lot of transplants in this country, manufacturing in this country, manufacturing companies that hired American workers. And now there is a lot of enthusiasm about the Japanese investment in the United States.

    And I think the same thing could happen with China. I think we would benefit greatly from Chinese investment in this country. And I think we should be proactively seeking it.

  • JUDY WOODRUFF:

    But they believe both countries must make changes.

  • HENRY PAULSON:

    China has an economic model that has ran out of steam. It — they need a new economic model. Now, it's very easy to say that. It is very difficult to reboot a $10 trillion economy, and that's what they need to do.

  • JUDY WOODRUFF:

    For a country with a communist system and a bureaucratic, state-run economy, none of the fixes would be easy.

  • HENRY PAULSON:

    The most important parts are opening up to competition.

  • JUDY WOODRUFF:

    They want the Chinese to stop subsidizing state-owned companies.

  • HENRY PAULSON:

    What they need to do is rein in the state-owned sector, to wean them from their preferential regulatory treatment, from their subsidies or energy subsidies, their interest rate and financing subsidies, and then open up to competition.

    And that will create opportunity for private sectors in China and for U.S. companies to sell U.S. products and provide services in China.

  • JUDY WOODRUFF:

    Lower barriers to entry for foreign firms, help expand consumer spending, rein in cyber-attacks and, once and for all, protect intellectual property rights.

  • ROBERT RUBIN:

    I heard this when I was there a few weekends ago, that they have got to protect intellectual property rights effectively if they're going to provide the incentive for their own people to pursue the kind of technological and life science developments that they think are so central to their future.

  • JUDY WOODRUFF:

    Recently, the owners of Gucci and Yves Saint Laurent filed suit against stock market darling Alibaba, accusing the Internet retailer of knowingly selling fake items. The company spent $160 million in 2014 trying to prevent the sale of fakes. If the lawsuit succeeds, Alibaba could lose far more.

    Will these legal actions prompt the Chinese to stop the production and sale of counterfeits?

  • HENRY PAULSON:

    I laugh at people sometimes when they come to me and say, you know, you see Chinese President Xi Jinping frequently. Just tell him this or that.

    It's sort of what I call the "whisper in the emperor's ear" phenomena, which, of course, is not the way China works. China has a consensus-driven system. And these changes are very, very difficult to make.

    And let's think for a minute what Xi Jinping has inherited. He's got a broken economic model. He's got a broken urbanization model. He's got an environment that is killing people. He's got corruption running rampant.

  • JUDY WOODRUFF:

    But the prescriptions Rubin and Paulson are trying to sell now in the U.S. are no easier, because they involve raising taxes, spending billions on infrastructure, and encouraging foreign investment. They're at least as difficult as anything they did during their terms as treasury secretaries.

    A lot of people would applaud and say, that's a great idea, but getting it done, have you talked to the congressional leadership, to the leadership in the administration about this?

  • ROBERT RUBIN:

    I think it's probably fair to say both of us have had a fair bit of interaction with the — with people in elected office.

    And I think we have got to get to the point where the American people begin to insist that those that they elect, no matter what their views may be, actually engage in the process of governance. If you go back to 1997, Trent Lott and President Clinton certainly had very different views on many issues, but they were able to come together and agree on a '97 balanced budget agreement.

    Each of them accepted measures they didn't like in order to get an agreement that each of them felt was far better for the country and far better from the perspective that they looked at policy than no agreement would have been. And that is where we have to get back to as a political system.

  • JUDY WOODRUFF:

    But, on the Republican side, Hank Paulson, we are already in the middle of a presidential campaign where the incentive in your party is, if anything, to move to the right when it comes to taxes, when it comes to, frankly, just dealing with China.

    The image of China has become much more negative in both parties, but I think it's fair to say in the Republican Party very strongly.

  • HENRY PAULSON:

    All I will say to those Americans who are rooting against China, all I can say to you is, be careful what you wish for, because, let me tell you, air and water knows no boundaries. You know, a ton of carbon emitted from China is every bit as bad as one from the U.S.

    If their economy struggles, our economic challenges are going to be greater.

  • JUDY WOODRUFF:

    Looking at who you are, former chairman at Goldman Sachs, some folks may look at this and say, wait a minute, are these solutions really all about Wall Street and the American elite, or are they really about helping the American working people?

  • ROBERT RUBIN:

    I think what we do have to do is to promote strong growth that will create jobs, tighten labor markets, and increase wages.

    Then I think people will have a better feeling about our economy, and they will be more receptive to those kind of objectives in terms of trade and technology that are best for the American people, best for workers, and best for consumers.

  • HENRY PAULSON:

    I know the reason that I wrote my book on China was because it is important for my grandchildren and everyone's grandchildren to grow up in a world that is prosperous — and I mean inclusively prosperous — is safe, has got a sound, healthy environment.

    And I think the odds of that are much, much greater if we're not in conflict with China, but if we're working — working in complementary ways with China.

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