Former Treasury Secretary Henry Paulson warned Wednesday that the current relationship between the U.S. and China “may not be sustainable.”
Paulson spoke at a panel discussion in New York at which he told CNBC he was willing to bet that tensions between Washington and Beijing will continue to escalate for years to come. In short, “the likelihood of a bad outcome over the longer term is greater than the chance of a good outcome,” he said.
“We have the largest debtor/trader relationship in the world,” he said.
Paulson, in the first real public remarks from a former top U.S. official, is among the most vocal of those advising the Trump administration to ratchet up the stakes in the trade war with China and to punish Beijing for its expansive plans to steal technology and industrial secrets from U.S. competitors.
Just hours before he spoke, Trump threatened to impose another round of tariffs on Chinese products unless Beijing allows a U.S. investigation into intellectual property theft.
The simmering tensions were on full display during Paulson’s Wednesday appearance, a bit lighter on policy than his remarks about rising U.S. deficits and a looming economic “boom.”
He suggested that “we just need a little luck,” to ensure an amicable resolution to the row between the U.S. and China. He predicted a long, sour “relationship” with Beijing.
Paulson also applauded Trump for the way he is tackling the trade deficits and the issue of state-owned corporations, saying that the president deserves credit for tackling what had long been thought of as “nice little domestic issues.”
But Paulson, in his remarks, chastised the Trump administration for for allowing the trade war to develop and endangering the U.S. economy. “I’m afraid that it probably puts our economic health at some risk,” he said.
He said the hope for business leaders “comes and goes” every week, and suggested that the anger in trade circles has made it harder for American companies to do business in China.
Paulson said he had advised Trump at least twice on how to better manage relations with China, particularly when it comes to intellectual property and a Chinese initiative known as Made in China 2025, which is geared toward developing the country’s capabilities in research and development of high-tech products. He said the U.S. should be “banging the drum” and insisting that China realign its intellectual property practices.
“There’s good news here,” he said. “If you can win a negotiation without having a real trade war, that’s very good for U.S. businesses, U.S. companies and U.S. jobs.”
But he suggested that it was too soon to write off the idea of a complete trade war with China because Beijing is “quite capable of playing games and changing the game.” Paulson predicted that tensions would worsen, and said the U.S. would eventually lose control of its economy to China.
Paulson, who served as U.S. Treasury secretary in the George W. Bush administration, joined the panel discussion after watching NBC’s coverage of the World Series. The major league baseball finals ended with a win for the Philadelphia Phillies over the Los Angeles Dodgers in a Game 6 that was interrupted during the top of the seventh inning by a foul ball that struck a group of cameramen.
The Phillies trailed the series in the seventh and final game with two outs, down 4-3 and all in favor of the Dodgers. But Carlos Santana launched a grand slam homer in the bottom of the inning to give the Phillies a 5-4 win.
They had lost Game 6 in Philadelphia and home-field advantage in the series when Los Angeles won the first two games of the finals.
Paulson said he was taken aback by the “boom-boom,” but said it was only just the beginning of the tense finish.
“That boom-boom was probably the most dramatic conclusion of any final game I’ve ever seen,” he said.