Thursday, November 8, 2018

Hank Paulson Warns: An “Economic Iron Curtain” May Fall Between the US and China

By Robert Wenzel

Apparently, former U.S. Treasury Secretary Hank Paulson's attempts at crony deals in China aren't working out so well.

The former Goldman Sachs CEO bad-mouthed China big time during a speech in Singapore at the Bloomberg New Economy Forum.

According to The Wall Street Journal's Greg Ip, Paulson warned that China's behavior has alienated American friends and unified the American public against it.

Say what? I doubt most Americans have an opinion on China outside of what has been fed to them by President Trump.

It should be noted that Paulson has become a part of Team Trump as sort of a go-between with China.

Ip reports:
Mr. Paulson has acted as an intermediary between Chinese and Trump administration officials, in particular Treasury Secretary Steven Mnuchin, who worked for him at Goldman. And in his speech, Mr. Paulson signals support for Mr. Trump’s get-tough approach with China, and with the WTO for failing to alter China’s discriminatory behavior. 
 Paulson's complaints are (via IP):
Seventeen years after joining the World Trade Organization, he says, it still “has not opened its economy to foreign competition in so many areas,” using joint-venture requirements, ownership limits, technical standards, subsidies, licensing procedures and regulation to block foreign competition. “This is simply unacceptable.”

China’s reformist zeal peaked shortly after it joined the WTO under then-president Jiang Zemin. Enthusiasm then waned under his successor, Hu Jintao. When Mr. Xi took over in 2013, Mr. Paulson took him at his word that markets and private enterprise would drive Chinese development. They haven’t, which Mr. Paulson attributes to the Communist Party’s tightening grip.

“Jiang Zemin talked about the party being a big tent,” Mr. Paulson said in an interview last week. “His view was, ’We need to bring the elites into the party’: business leaders, academics, and others. Xi Jinping views the party itself as the elite, and the party, not the bureaucracy, would be the organization through which he governed.”
If all this is true,  and it may be fully so, Trump's response to Paulson should be: "So what?"

If China wants to move in the direction of becoming once again a Mao backwater, so be it. Why should this be a concern of the U.S. government? Free trade, the more the better, is what makes countries climb up the economic ladder. If China blocks trade into its own country, it will simply become insignificant on the world map.

But what seems to be the problem for Paulson was revealed in his speech. He is unhappy that some individual corporations are cutting deals with China in a fashion that he does not support:
“How can it be that those who know China best, work there, do business there, make money there, and have advocated for productive relations in the past, are among those now arguing for more confrontation?” True, some have accepted the “Faustian bargain” of profits today over competitiveness tomorrow, “but that does not mean they are happy about it,” he says.
The Encyclopedia Britannica tells us that a  "Faustian bargain [is] a pact whereby a person trades something of supreme moral or spiritual importance, such as personal values or the soul for some worldly or material benefit, such as knowledge, power, or riches."

It does not strike me that any trade deals with China are resulting in American CEOs having to give up anything of supreme moral or spiritual importance. They are cold hard business negotiations that some apparently are choosing to engage in. Paulson seems to want to stop this. But if some U.S. businesses choose to agree to terms with China why should Paulson have any say in this?

In his speech, Paulson made the absurd recommendation that the U.S. go totally crony on the domestic side to strengthen itself against Chinese actions:
[U]nder any scenario, invest in America—big time.

A strong military.

A strong economy.

Strong educational institutions.

Strong investments in science and engineering.

Openness to the world.

Investment in alliances.

Investment in security and economic partnerships on every continent, but especially in Asia and Europe.

These things are essential if the United States is to compete and thrive in the world of the 21st century.
Yes, the crony who got Congress to authorize a $700 billion bailout of his crony bankster buddies, now is calling for more crony government spending to "strengthen" the U.S. against China.

This guy is an elite-serving one-man crisis creator. He should give it up and spend more time at his hobby, birdwatching, before all the birds go extinct.

He is framing his new vision of a crisis this way:
 I now see the prospect of an Economic Iron Curtain—one that throws up new walls on each side and unmakes the global economy, as we have known it.
It would be a tragedy if the U.S. played any role in an "economic iron curtain." The U.S should take down all trade barriers with China and allow individual businesses to determine if they want to deal with China under present conditions. That would make an economic iron curtain with China impossible and it wouldn't require having to dole out hundreds of billions to Paulson's crony buddies to "strengthen"  America.

Robert Wenzel is Editor & Publisher of

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