During the “Great Moderation” in the economic policy of the 1980s and 1990s, the U.S. commitment to free international trade and investment was supported by both political parties. China shared this commitment, ultimately joining the World Trade Organization.
Over the past two decades, however, the United States and China have abandoned this commitment, rationalizing higher tariffs and other restrictions on trade and pursuing policies contributing to geo-economic fragmentation.
Formal trade negotiations between the United States and China ended during the first Trump administration and are not likely to resume in the new administration.
The adverse effects of mercantilist policies and geo-economic fragmentation were evident early in the 21st century. International trade as a share of gross domestic product has fallen significantly in the United States and China, accompanied by retardation in economic growth. In recent years, large segments of the population in both countries have not experienced improvements in their incomes and standards of living. While all countries have been affected by geo-economic fragmentation, developing countries have been especially hard hit. Some of these countries have experienced declining incomes and standards of living.
There is an alternative to formal trade negotiations between the United States and China. The precedent for informal military discussions was set in the U.S.-China Sanya Initiative Dialogue. Coordinated by the EastWest Institute and the U.S.-China Military to Military Institute, informal meetings were held from 2008 to 2020. The meetings assembled retired generals and admirals to build greater military-to-military understanding between the two counties. Delegates discussed a wide range of strategic security issues. This dialogue continued, supported by the Stimson Center, a foreign affairs think tank.
The precedent for informal trade negotiations between the United States and China was set in the first “Summer Palace” dialogue. These meetings were organized by retired military leaders and Tung Chee Hwa, a former governor of Hong Kong. They worked closely with a prestigious group of U.S. economists. Economists from the Chinese Economists 50 Organization, a select group of advisers to the Chinese government, participated. The Economists 50 Organization was managed by Fan Gang and chaired by Liu He, who later became senior in the Politburo. Liu He was the lead interface and negotiator with Donald Trump and Wilbur Ross in trade negotiations in 2020 and 2021.
The first “Summer Palace” dialogue was organized by the EastWest Institute. Meetings were held at the Summer Palace in Beijing and in Washington from 2009 to 2011. The group made several recommendations that were used by both governments in designing economic policies. They included recommendations for more open trade, understanding of the international economic environment and international organizations such as the WTO, and the policy of illegal trafficking across borders.
The economic outcomes were used by the economic dialogues and were directly reported to the president of China, just as the Sanya Dialogue results had been. The “Summer Palace” dialogue ended in 2011 due to the lack of financial support.
In the current economic environment, a new “Summer Palace” dialogue could greatly value the United States and China. A new dialogue could be created with new people but with many of the same issues. There is concern about the meaningful continuance of the World Trade Organization, opening free trade worldwide with the two major countries leading the way, and attempting to understand the weaponization of currencies. Both countries need to step back and reconsider random political policies that are poorly formed and built around particular political issues but not in the best long-term interests of the countries.
The absence of formal discussions means that private informal dialogue may be the only way to address these issues. The alternative is continued geo-economic fragmentation, retardation in world trade, and stagnation in global economic growth. We are in a negative sum game that has diminished the welfare of citizens in all countries. By focusing on issues with room for de-escalation and compromise, a new “Summer Palace” dialogue could lead to another “Great Moderation” in economic policy led by the United States and China.
Authors:
William Owens is a former vice chairman of the Joint Chiefs of Staff and is on the Board of the Prosperity for US Foundation. He wrote this for InsideSources.com. Barry W. Poulson is professor emeritus at the University of Colorado, Boulder, Colorado, and on the Board of the Prosperity for US Foundation. He wrote this for InsideSources.com. *This article was originally published on https://dcjournal.com/a-new-summer-palace-dialogue/