The Cable

Does the Strategic and Economic Dialogue matter?

On Sunday, more than 200 American officials will converge on Beijing for the second round of the U.S.-China Strategic and Economic Dialogue. Asia experts are asking the question: Is it really worth it?

The dialogue, which kicked off last July in Washington, had two basic goals: to provide a high-level forum for the U.S. and China to talk to one another, and to meld the economic and security aspects of America's China policy into one coordinated, joint effort. But as some Asia hands point out, U.S. and Chinese officials at all levels are already in frequent contact, calling into question the need for a grand meeting. And the economic and security sides of U.S. policy on China are still largely divided between, and stove-piped within, various agencies.

"The goals of both sides are to have meetings every year and talk to each other every year. That was a completely reasonable goal 10 years ago, but it's not a reasonable goal now because the U.S. and China talk to each other all the time," said Derek Scissors, a research fellow in Asia economic policy at the Heritage Foundation.

Indeed, U.S. officials are constantly shuttling back and forth to Beijing. Treasury Secretary Tim Geithner was just there last in April. Commerce Secretary Gary Locke went there this month. Energy Secretary Stephen Chu has a trip planned just after the dialogue. And the list goes on.

"Why do we have to have a big dialogue and pretend this is the time when the U.S. and China talk to each other, when we talk to each other all the time?" asked Scissors. "If you're going to have the dialogue, it should do something."

Even critics like Scissors will admit that there's value in bringing together low-level officials from each side to build working relationships that could develop over decades. In general, more interaction is better. But some observers worry that expectations are being raised that won't be fulfilled during the session, and that the investment of U.S. government time and resources could be more efficiently deployed.

"It's always good to try to figure out the big questions, and show the Chinese we're really serious about really engaging them at the highest working levels," said Michael Auslin, resident scholar at the American Enterprise Institute. "The problem is, once you institutionalize something like that, neither side wants to back off it and I'm not sure we're getting enough out of it to justify considering it a significant tool in our China relations. That doesn't mean we shouldn't do it."

There's also a sense that even though the Obama administration's various teams of China experts are all generally on the same page, different groups are still working independently from one another to a large degree, dividing issues among themselves rather than coordinating policy to the extent once envisioned.

"Part of the idea of the dialogue is to have perhaps tradeoffs between economic issues and strategic issues, so that giving and taking on one side could lead to giving and taking on the other," but that's not happening, said Dean Cheng, a Heritage Foundation research fellow in Chinese political and security affairs.

On the strategic side, the main issues on the American plate are the North Korea ship-sinking incident, the U.S. drive to press China for firm pledges of support for sanctions against Iran, and climate change. But the three days of dialogue aren't likely to produce progress on these issues. China isn't likely to abandon its position as North Korea's benefactor, isn't likely to go further on Iran than it has so far, and neither side really wants to reopen the climate-change debate after the Copenhagen debacle.

"That pretty much leaves us with the opportunity to share some Peking Duck," said Cheng.

Scissors said that Treasury officials told him privately that they realize the long list of things they claim to want to address during the dialogue is too ambitious from the outset. Treasury has focused publicly on two things: demands that China revaluate its currency and that the Chinese government rethink its policy of "indigenous innovation," which favors domestic firms explicitly over foreign firms doing business in China.

These two issues are really being pushed from outside the administration, however. The currency issue is being forced by Congress, led by Sen. Chuck Schumer, D-NY, and the innovation issue is being pushed by the business community.

On currency, administration officials are convinced that China will announce some upward revaluation of its currency, but they don't know how much or when. That move is unlikely to come next week for several reasons. The crisis facing the euro makes it a risky time for China to tinker with its currency. The Chinese also don't want to be seen as bowing to American pressure, so they might want to wait until the G-20 to announce any move and then portray it as a concession to the entire international community, or simply as a step taken in China's own interest.

The administration tipped its hand on the currency issue in April, when it delayed a Treasury report that was set to classify China as a currency manipulator. Some argue that now's the time to find other ways to tackle global economic imbalances -- such as by reducing U.S. deficits and boosting Chinese consumer spending. But the Obama administration is hardly in a position to press the Chinese, having goosed the U.S. economy with massive deficit spending and monetary stimulus measures in the wake of the 2007-2008 financial crisis.

"It really seems as if the economic side of the S&ED is a dialogue of convenience right now," said Scissors. "The main issue that the administration should be focused on, which is what is U.S. policy doing to balance the world economy and what is China's policy doing to balance the world economy, they're not talking about.

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