Timothy Geithner was sitting in his spacious Treasury Department office overlooking the White House
earlier this month, mulling the U.S.'s sometimes testy relationship with China. The view wasn't great:
China was flexing its military muscles, sticking to a hard line on the valuation of its currency and generally
making everyone in Washington jumpy as the state visit by President Hu Jintao approached. Is a trade
war possible? Geithner was asked. "A very low probability," he replied, "and I think it's completely
avoidable."
But not impossible, he could have added — and with good reason. War is to be avoided, but the threat of
war can be useful. The job of the Treasury Secretary is chiefly that of a horse whisperer, to tame skittish
financial markets by talking sweetly, if sometimes obliquely, into their ears. But as the U.S. has become a
debtor nation (and is likely to remain one for a while), the Treasury Secretary must also tame creditors, of
which the most significant right now is a communist government in Beijing. Sometimes that means talking
softly; other times it means raising your voice.
Over the past two years, Geithner has been President Barack Obama's top go-between with China on
economic matters, the man responsible for mollifying both restive voters nervous about China's rise and
the country that now holds $900 billion in American debt. On Jan. 19 in Washington, Obama and Hu held
a full day of talks with each other and with top U.S. and Chinese business leaders and went out of their
way to celebrate relatively modest progress on disputes over trade and access to each other's markets.
But the summit served as much to underscore both governments' uncertainty about whether the U.S., for
70 years the world's dominant military and economic power, can accommodate the reawakened and
rapidly growing Chinese behemoth. "Short of a terrorist nuclear attack against the United States," says
Kenneth Lieberthal of the Brookings Institution, "managing the rise of China well is the single most
consequential development for the U.S. over the coming 10 years."
Geithner, 49, might seem an unlikely choice for such a delicate assignment. During his tenure as
Treasury Secretary, he has had more luck making policy than managing politics. But he is better suited to
this task than he is widely understood to be. As a Dartmouth student in the early 1980s, he was among
the first Americans invited to study in Beijing after the Cultural Revolution. "We were living in isolated
foreign-student guesthouses, and the only other kids there were North Koreans, East Europeans and
West African socialists," Geithner recalls; there were no refrigerators, and few meals contained meat. Six
years after Geithner studied there, his father Peter Geithner opened the Ford Foundation's first office in
Beijing. Among those he funded was Wang Qishan, now the Vice Premier and his son's counterpart in
the U.S.-China dialogue. Wang's connection to the Geithners "created a common ground," says Peter
Geithner, and helped develop "a rapport which is beneficial to both countries." Other senior Chinese
officials funded by Peter Geithner include Zhou Xiaochuan, the current head of the central bank.
Timothy Geithner picked up a basic understanding of Mandarin along the way, and though he relies on
interpreters in key meetings, he sometimes lets his Chinese counterparts know he doesn't always need
them. More critically, his strategy for managing the Chinese is to employ a "receding horizon" approach,
pushing them to meet U.S. demands on currency valuation, intellectual-property protection and opening
Chinese markets to U.S. goods, then setting new goals once those are met. It's a technique he learned
from the Chinese.
At home, meanwhile, Geithner sometimes must resort to a more American style of negotiation: bluster.
He took a tougher line on China's currency in the middle of the midterm-election campaign, calling its
currency policy "unfair," partly because organized labor and Tea Party backers alike complained that
Beijing was walking all over the U.S. No one complained louder than New York Senator Charles
Schumer. The two men sometimes descend into shouting matches over China policy, according to some
familiar with the conversations. Schumer accuses Geithner of not being serious enough about pressuring
China. Geithner tells Schumer he's playing politics with a dangerous issue. But even Schumer's threats
can be helpful. "We tell the Chinese that the election makes things worse," says a senior U.S. official.
That may have the virtue of being true. Traditionally, some Democrats have supported protectionist tariffs
against countries that manipulate their currencies, like those in a House bill that nearly passed the
Senate in the final days of the lame-duck session. But increasingly, some Republicans, such as South
Carolina's Lindsey Graham and Maine's Olympia Snowe, do too. And businesses are growing impatient
to get a level playing field with Chinese competitors. Says one corporate lobbyist: "Like Congress, the
business community is changing."
Geithner believes the Chinese will eventually allow their currency to fluctuate freely against the dollar,
which some economists think would help make U.S. exports more competitive and hence drive growth.
He thinks central-bank chief Zhou and Vice Premier Wang know such an adjustment is inevitable but are
afraid of getting isolated inside China's shifting power structure. While in India last year, Geithner got a
call from the Chinese requesting an urgent in-person meeting. Why not just use the telephone? Wang
was concerned about being overheard, says one person familiar with the conversations. Geithner flew to
Beijing to meet Wang at the airport.
The incident is a reminder that it will take a skilled whisperer to prevent U.S.-Chinese relations from
souring. New tariffs aimed at punishing Chinese currency manipulation are possible in the new Congress
— Schumer has already introduced a measure — and politicians tied to powerful state-owned industries
in China are looking for a reason to start a trade war. As Geithner puts it, "I don't believe you can tell
other people what their interests are." Influencing the internal debates in the U.S. and China will be hard
enough; reconciling them will be even harder. |
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