Dennis V. Hickey

Both sides must ignore domestic concerns

China and the United States are ready for the much anticipated third Strategic and Economic Dialogue (S&ED), which starts in Washington on Monday amid a flurry of diplomatic activities.

In April 2009, President Hu Jintao and US President Barack Obama met on the sidelines of the G20 financial summit in London and agreed to establish the S&ED. According to the US Department of Treasury, the S&ED is a "mechanism for addressing the challenges and opportunities that the United States and China face on a wide range of bilateral, regional and global areas of immediate and long-term strategic and economic interest". The dialogue is held once a year in alternate capitals, and include Cabinet- and sub-Cabinet-level officials. The third S&ED will include US Secretary of State Hillary Clinton, Secretary of the Treasury Timothy Geithner, Chinese Vice-Premier Wang Qishan and State Councilor Dai Bingguo.

What issues are likely to be on the table during dialogue? For sure, the killing of Osama bin Laden has altered the focus of world politics - at least for the moment. So, it is conceivable that topics related to the global war on terrorism may climb up the agenda. More likely, however, is the prospect that this year's S&ED will resemble the previous two meetings.

Economic issues will probably dominate the dialogue in Washington. Although the yuan has strengthened against the US dollar by about 5 percent in the past year, it is believed that Washington is prepared to argue that the Chinese currency remains undervalued. Part of this may be traced to the fact that the Obama administration is under pressure from some politicians - including billionaire Donald Trump - to "get tough" with China. These critics accuse Beijing of keeping its currency undervalued to provide Chinese exporters with an unfair advantage.

China may revaluate its currency faster, because some prominent voices in China argue that it could alleviate pressure on the central bank to buy foreign currency, which in turn would help ease excessive liquidity and curb inflation. This might help the US reduce its trade deficit with China, too.

But it would be delusional to suggest that the US' economic woes can be traced to China and/or the yuan's revaluation is a panacea for all the financial ills of Washington.

Public opinion polls show that a majority of Americans erroneously blame "wasteful government programs" for their country's economic problems. This helps explain why some politicians seek to hold public employees (such as schoolteachers and snow plow operators) responsible for the budget deficits. Others prefer to jump to the lazy conclusion that China should be blamed for financial troubles of the US. But none of these claims hold water.

The US' descent into debt began in 2001. As a recent story in The Washington Post said, "political leaders chose to cut taxes, jack up spending and, for the first time in US history, wage two wars solely with borrowed funds". The result is the largest national debt, as a percentage of the economy, in history except in the period immediately after World War II. And as a Congressional Budget Office analysis concluded, the biggest culprit has been the erosion of tax revenue triggered by multiple rounds of tax cuts. Ironically, these are the same tax cuts the US promised to terminate during the second S&ED (but failed to do so).

As Senator Harry Reid, chief of the high-profile delegation of US Congress' US-China Working Group that visited China in April, observed, "the world needs its two largest economies to work together". For the third S&ED to be a success, both sides must seek to put aside domestic political considerations.

By doing so, they may help realize the S&ED's stated goals of "delivering concrete, meaningful and sustained progress over time on long-term strategic and economic objectives."

The author is the director of the Graduate Program in Global Studies at Missouri State University in the United States.