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Paulson: U.S. And China Compete For Technological, Innovative Superiority

STEVE INSKEEP, HOST:

Of all the problems President-elect Biden will inherit early next year, the most urgent is likely the pandemic. The longer-term problems include China, which is not unrelated. The pandemic spread from China to the United States, damaged relations and also illustrated how closely the world's two largest economies are connected. President Trump's trade war with China yielded few results. And now Henry Paulson - Hank Paulson, as he's known - has some thoughts for the next president. The former treasury secretary under George W. Bush has focused on China for years.

We had a chance to talk with him before a speech he will deliver today at the Bloomberg New Economy Forum. Paulson plans to say there that China is one of the few issues where both parties agree.

HENRY PAULSON: What the last four years have shown is how fraught this relationship is. And it's not going to become less fraught in the foreseeable future because there's a widespread and growing bipartisan concern about China and Washington, D.C. It's going to be a - continue to be a serious problem. When you've got, you know, a big, established economy and a rising power, two big countries with very different political systems, very different economic systems, very different ideologies, there's going to be structural competition.

The world is going to be a pretty dangerous place unless we can work together or at least in complementary ways, where we have strong mutual interest in things like, you know, combating climate change, nuclear proliferation, you know, terrorism, coming up with global standards and rules so we can have an orderly economic recovery.

INSKEEP: You've said then that people in both parties agree that there's a problem here that needs to be addressed, and then President Trump addressed it in a particular way. Did anything that President Trump tried work?

PAULSON: Well, first of all, I give the Trump administration a lot of credit for diagnosing the problem correctly. A number of the things they did, I think, were counterproductive. This is a competition for technological and innovative superiority, OK? And that's really what's at the heart of the conflict between the United States and China. And it's technology competition that has blurred the lines between economic competitiveness and national security. And it's very clear to me that this competition won't be settled through negotiation. The technologies of the future are going to be contested for decades to come and in the marketplace.

INSKEEP: Well, I'm thinking about an example like the administration's effort to get the world not to rely as much on Huawei, the giant Chinese technology company that's selling 5G technology. Is that the kind of thing that was counterproductive in your view?

PAULSON: That I think is - you know, was clearly the right diagnosis, OK? And I think what we've seen is that confrontation with ineffective competition has produced some pretty poor results, you know, in terms of damaging our economy and making the world a more dangerous place and so on.

INSKEEP: I think you're saying that if the United States is going to push back on Huawei, it needs to be competitive with Huawei in terms of the products that are available so that the United States and other countries don't actually need Huawei. Is that the kind of thing you're saying?

PAULSON: Absolutely. So - absolutely. A big part of what we need to do is to focus on our own economic recovery and strength because if we have a strong economy and do the things right that we need to do in the United States, no matter what China does, we're going to be a leading power for a long time. And if we don't, you know, we won't be, regardless of what China does. We can't just, you know, pound on our allies and say do something that doesn't make economic sense or strategic sense to them. We need to give them some inducement to do that.

INSKEEP: Mr. Secretary, as you know, President Trump imposed tariffs on China. Some of those tariffs are still in place. The president got some agreements out of China, but nothing remotely like the big structural change to China's economy that the administration was going for. Should President-elect Biden, when he takes office, drop those tariffs?

PAULSON: My short answer is, he should drop the tariffs as China achieves certain measurable results. But here's how I would explain it. I am not a fan of tariffs. They're attacks on the American consumer. But the tariffs are already in place. They - a lot of the damage has already been done. The Trump administration focused on purchase agreements that was sort of a throwback to the 1990s.

And I would recommend that, you know, a Biden administration focus on structural changes to the Chinese economy and things - and industries that are going to be very important to the future. And then what the Biden administration could do is be prepared to lift tariffs in phases, bit by bit, as certain benchmarks are met.

INSKEEP: Well, these are the same things the Trump administration said they were going for and didn't get. Do you think that a Biden administration working more closely with big economies in Europe or big economies in Asia, like Japan, that if they all work together, they actually could force China to open up its economy more meaningfully than it has?

PAULSON: I think none of this will be easy. But the Trump administration, first and foremost, was always focused on the trade deficit, and the trade deficit has only gotten bigger. I think the mistake they made was trying to get a whole lot and getting nothing. And so I would tend to focus on things that are going to be more possible to get in the short term - opening up the financial services and other services, opening up to trade in environmental goods and services.

Here, China's got a huge - a $3 trillion opportunity for environmental goods and services as they clean up their air, their water, their soil. So there's a whole series of things that they can focus on - intellectual property protections, where China has already shown a willingness to move forward there. So I think there's been real progress there, and there's more progress that can be made.

INSKEEP: Henry Paulson was treasury secretary in the Bush administration and gives a speech today on China at the Bloomberg New Economy Forum. Thank you so much.

PAULSON: Thank you.

(SOUNDBITE OF HIDDEN ORCHESTRA'S "STRANGE") Transcript provided by NPR, Copyright NPR.