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Jack Lew's First Big Mistake


Gordon G. Chang,

Jack Lew will be making his first foreign trip as Treasury secretary this week as he heads to Beijing for meetings on Tuesday and Wednesday.

Lew’s visit comes on the heels of Friday’s installation of Li Keqiang as China’s premier and Thursday’s confirmation of Xi Jinping as president, the last formal steps in the transition of China’s “Fourth Generation” leaders to its Fifth. As a “senior U.S. official” told Reuters last week, “It’s important to deepen our relationship with China’s new leadership team at this time.”

Is it? For decades, Washington officials believed the key to good ties with China was knowing its leaders well, therefore devoting great effort to getting acquainted with their Chinese counterparts. Yet Beijing’s behavior has generally deteriorated over time even though American and Chinese officials have gotten to know each other, in many cases well.

Acquaintance—even friendship—has virtually no influence on Chinese foreign policymakers, however. China’s policy is especially “realist,” so it should come as no surprise that as the Obama administration tried harder to work with Beijing, ties in fact deteriorated.

Take the unfortunate dynamic evident in 2009, when President Obama took office. In February of that year, then Secretary of State Hillary Clinton said the U.S. would downgrade human rights in its relations with China. She intended her words as a signal of cooperation. The Chinese, incorrectly, saw it as sign of weakness. As Beijing-based analyst Laurence Brahm reported, officials were “ecstatic” because her comments confirmed in their minds that America “had finally succumbed to a full kowtow.”

In the following month, Beijing leaders pressed what they perceived to be their advantage. Chinese military planes and naval and civilian craft interfered with the Impeccable and the Victorious, two unarmed U.S. Navy reconnaissance vessels, in international waters in the South China and Yellow Seas. In one of those incidents, the harassment—an attempt to sever a towed sonar array from the Impeccable—was so serious that it constituted an attack on an American ship.

President Obama and Secretary Clinton issued only mild protests when Yang Jiechi, China’s foreign minister at the time, visited Washington a few days after those provocations. Then, in April, Obama sent to China America’s top naval officer and a destroyer, the USS Fitzgerald, to celebrate the 60th anniversary of the founding of the Chinese navy. That show of friendship proved to be another mistake. In May, China’s forces again harassed the Victorious in the Yellow Sea.

The ever-hopeful administration, however, did not give up its pursuit of Chinese officials. In November, Jeffrey Bader, then at the National Security Council, attempted to flatter them by giving a speech in which he essentially said no global problem could be solved without China’s cooperation. Beijing leaders evidently took those words to mean they had a veto over American policies. They reciprocated by mistreating Mr. Obama during his ill-fated summit in the Chinese capital later that month and at the Copenhagen climate change gathering in early December. In the first months of 2010, Chinese officials and military officers continued their bender, making a series of public threats against the U.S., some of them suggesting war.

Now Mr. Lew looks set to repeat President Obama’s early first-term approach. The new Treasury boss, by making Beijing his first international destination, is feeding his hosts’ already inflated sense of self-importance. That’s Lew’s first big mistake in his new position, a miscue bound to make conversations with the Chinese even more difficult.

The stakes are high. While in China, Lew will raise a broad range of economic issues including Beijing’s currency practices, its restrictions on market access, and its lack of protection of intellectual property rights.

Lew will also discuss cyberattacks on American networks, listed last Tuesday by Director of National Intelligence James Clapper as the most serious threat to U.S. national security. We can only hope the Treasury chief can make progress on this contentious issue, but recent efforts at dialogue have in fact been counterproductive. The president, then Defense Secretary Panetta, and lower-tier officials repeatedly raised China’s cyber campaign against the U.S., yet the attacks from China nonetheless spiked in the middle of last year. Apparently, attempts to strengthen ties through dialogue have made a critical problem worse.

We need good ties with China, which means we need a new approach. As we have seen in the last half decade, Chinese officials are not impressed by “friendship,” “relationship,” or “cooperation.” They are ruthlessly pragmatic, respecting strength and not much else. Lew could accomplish more by doing less, by staying home and letting the Chinese visit him.

The Chinese have good reasons to hop on a flight to Washington, D.C. Last year, China’s merchandise trade surplus against the U.S.—a record $315.1 billion—was 136.3% of its overall merchandise trade surplus. The Chinese, unfortunately for them, cannot replace the American market, but we can buy goods elsewhere.

And our dependence on China’s purchases of U.S. Treasury obligations is declining. China’s official holdings—$1.20 trillion at the end of 2012—is below the peak of $1.31 trillion reached in July 2011, and there is no reason to believe Beijing’s holdings through nominees have followed a different trajectory. As China’s current account surplus continues to shrink, the country will have less ability to add to its stockpile of our debt.

Secretary of State John Kerry is about to follow Secretary Lew’s ill-advised path. America’s top diplomat is going to Beijing in the coming weeks.

The Chinese need us more than we need them. They should be the ones crossing the Pacific.


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