U.S. Treasury’s Lead Role On China In Doubt

The International Herald Tribune is looking at who will take the job of US Treasury Secretary Henry Paulson Jr. when Obama takes office next month; Mr. Paulson was frequently seen as the “No. 1 China hand” to Washington during the latter part of Bush’s presidency.

Paulson, who has “spearheaded U.S. policy toward Beijing since 2006” will be replaced in the new Obama presidency, but by who? That question, along with how the Treasury Department will continue to steer the relationship with China, are waiting to be defined.

Paulson met with Chinese cabinet officials this week for the final round of “strategic economic dialogues” to discuss issues ranging form energy, the environment and the economic crisis. Both sides seem to express some apprehension about the future relationship, especially one that is being more and more defined by the $35.2 billion trade surplus China currently holds.

To help alleviate the current slowdown, China recently increased the tax rebates for exporters. This allows goods in Europe and the United States to stay relatively inexpensive; however, it also causes a larger surplus for China. While the trades “do not violate World Trade Organization provisions, experts view them as a form of protectionism.” With the current recession in the United States, the new measures might begin to stir up previous ideas in the US Congress “to punish China for its trade practices”.

“We’ve always thought China’s export rebates are a bigger driver of their trade relationship than the exchange rate,” said John Frisbie, the president of the U.S.-China Business Council.

As for who might replace Paulson’s role with China, Obama’s choice of Mandarin speaking Timothy Geithner for Treasury secretary, is one possible candidate. Lawrence Summers, the soon to be chairman of the National Economic Council, Joseph Biden Jr., the vice president-elect, and Senator Hillary Rodham Clinton could also all be potential ideas. Another possibility is “that the strategic economic dialogue continues but moves to another venue in the government,” said Lieberthal, who worked on China policy in the Clinton administration.

See also “Paulson Seeks to Broaden Access to China” from the Wall Street Journal.

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