US Treasury Secretary Snow: US-China and US-Japan Relations in Good Shape
John W. Snow (Secretary of the United States Treasury), J. Sean Curtin (Fellow, GLOCOM and Asia Times) and Samir Nassif (Journalist, Arab Press)
Recently, most of the $1.8 billion in loans the United States needs each day to finance its massive deficit has come from the central banks of Japan and China. According to US Treasury Department data, Japan is the largest foreign holder of US Treasury securities with a huge $722 billion as of August 2004. It is estimated that Asian banks hold a record $2 trillion of US Treasury holdings, accounting for nearly half the US public debt. Consequently, relations with these countries are extremely important. If these banks were to suddenly decide to dump their holdings, the US economy would be in very serious trouble.
Sean Curtin: Both China and Japan are countries of vital importance to US global economic and foreign policy interests. How would you assess current US relations with each of these nations from an economic perspective? How do they compare with Europe?
John Snow: On an economic basis, I think our relationships are very strong, in fact I would say extremely strong. I think we have very clear and open dialogue with China from Premier Wen [Jiabao] all the way down, from finance ministers, regulators, Central Bank Governor Zhou [Xiaochuan] and so on. The same is true of Japan as it is in several other key Asian countries. So, on the economic policy side, I think we have good understandings and good working relationships. I can freely call them and they can freely call me. The same is also true for the European finance ministers. I think that there is much more accord amongst us all than discord.
Sean Curtin: Economic ties between China and Japan are booming with trade and investment registering phenomenal growth rates. Yet on the political front, the situation is almost a mirror image with the top leaders barely on speaking terms. Chinese President Hu Jintao has described this situation as being "Hot economically, but cold politically." Since economic ties are so healthy and continuing to grow, should we be concerned about the poor political relationship?
John Snow: There are always political issues, but fundamentally people look to their economic interests, which normally drive relationships. That is why people want to keep the current economic framework in place, trade, capital flows, currencies will produce growth and growth will lead to more trade. More trade will lead to more growth which in turns creates more prosperity and so on. I think this is the path we need to be on and are on. It is the path we need to stay on.
Secretary Snow also discussed the Chinese economy and its move towards a flexible exchange rate.
John Snow: Genuine progress is being made. China is now grappling with some of the inflationary pressure in their own economy. They have been trying to implement administrative actions that will quell inflationary forces and pressures in their own economy. Obviously, one of the points about having a flexible exchange rate is that it frees the monetary authority to focus on the domestic stability. If monetary policy is focused primarily on currency and exchange, it has got far less flexibility to deal with domestic macro-economic factors. That is a point that I think the Chinese fully and thoroughly understand and that is why I am confident of taking the steps to prepare the way for flexibility. I am very optimistic about China.
Secretary Snow Hopeful about Middle East Peace
Samir Nassif: What is the effect of the war in Iraq on peace in the Middle East? How will this affect global growth and global peace? Can you give an idea about the policies the US is planning to pursue in the Middle East?
John Snow: It seems to me that getting a stable and peaceful Iraq as well as a stable and peaceful Middle East will create much more favourable conditions for global growth. A lack of security is the great antagonist of prosperity. We have seen this in Northern Ireland, we have this in Iraq and also in Israel and the Palestinian territories. There is never prosperity where there isn't security. Security is the foundation for prosperity.
I think the Iraqi people will build a stable, peaceful and an ultimately prosperous Iraq. I think now that there is an opportunity for following on with the ideas from the Road Map [Middle East peace plan], creating two states, respectful of each other, and a peaceful Middle East. The Israel-Palestine issue is a nexus. I know the President wants to do what he can do to help the peace process along. We look forward to the Palestinians choosing their new leadership structure.
About a year and a half ago, the president asked me on the economic side and [Secretary of State] Colin Powell on the foreign side to meet with our Palestinian and Israeli counterparts and to meet with the Palestinian and Israeli leadership to see what we could do to facilitate progress between them. Unfortunately, then everything broke down and we had to withdraw those efforts. Now we are going to get on top of it again. Get re-geared and re-energized. Dealing with that issue is probably the central issue that can bring the world closer together. I know that the President is committed to doing what he can to make that happen.
A transcript of the speech Secretary Snow delivered before the question and answer session can be viewed here.
The above comments were made at Chatham House in London on 17 November 2004
(Some portions of this interview have also appeared in the Asia Times Online Ltd, http://www.atimes.com, and those sections are reproduce with permission and copy-righted to Asia Times Online.)