Remarks by Henry M. Paulson, Jr. on an Approach of Targeted Reciprocity

Henry M. Paulson, Jr., Chairman of the Paulson Institute and 74th Secretary of the Treasury, delivered opening remarks at the 2021 Boao Forum for Asia. He discussed the significance of the United States and China’s bilateral relationship, the need to avoid an Economic Iron Curtain between the two countries, and recommended an approach of  “targeted reciprocity.” Below are Secretary Paulson’s prepared remarks.


The United States and China continue to have the most important bilateral relationship in the world. But over the course of my career, I’ve never seen this relationship more fraught.

In recent years, we have seen heightened security, political, and human rights tensions.

Punitive tariffs have become normalized, while flows of capital, technology, and people have all been significantly curtailed.

And the fact is that structural dynamics of the bilateral relationship will ensure that US-China relations are fraught for the foreseeable future.

From now on, this relationship is going to be competitive in every domain – technological, economic, financial, military, and ideological.

In the past, flows of goods, capital, people, technology and data all were governed mostly by a commercial dynamic, with security concerns carefully managed.

Now, all of these things are being refracted through the prism of national security or economic competition.

The problem with this “militarization” of approaches to U.S.-China relations is that nearly every area of the relationship will be viewed in the zero-sum, “win-loss” terms of the battlefield.

Take technology, for example—the area that I believe will be the core challenge in the US-China relationship moving forward.

It is clear to me that each of our nations will, of necessity, sequester high technologies to protect our national security.

And some strategic decoupling will be necessary.

But if this goes too far, it will create what I’ve called an Economic Iron Curtain, one that decouples supply chains and erects incompatible rules and standards throughout the global economy, impeding innovation and economic growth.

These risks are worth avoiding.

And it is in each of our interests that competition be as healthy as possible, without unnecessary confrontation.

Let me be clear: business as usual is simply not on the table.

We clearly need major adjustments to our economic relationship.

But we must reject the increasingly popular idea that merely having an economic relationship is somehow bad.

The economic linkages that are the rightful source of so much tension today do, in fact, benefit both of our nations in important ways, and have the potential to increase to our mutual benefit.

So let me make two recommendations.

First, business leaders in both countries need to help shape a US-China economic relationship that works in today’s world.

They need to make the case for why this relationship matters—not just for their individual companies— but for the American people; and in China’s case, for the Chinese people.

Business has historically been, and can continue to be, a ballast in the US-China relationship, and help ensure things don’t spiral out of control.

But only if they speak up and make a compelling case.

Second, the US and Chinese governments are going to have to decide where, how, and under what rules American companies are allowed to compete in China—and Chinese companies in America.

Business needs a seat at the table.

I recommend an approach of “targeted reciprocity.”

This is a focus on reciprocal rules, market access, and actions—not on a mechanical and reflexive basis, but in a way that makes sense for our two countries’ workers, farmers, and ranchers

I’m hopeful that Washington and Beijing can reestablish a Strategic Economic Dialogue to address these issues, including trade and climate change.

Over the longer term, we should work together to update and improve the World Trade Organization so it works in today’s world.

Of course, this doesn’t mean we will be foregoing competition: sometimes we will work against each other in other areas, at the same time.

Just take the 2008 financial crisis: When I worked with Wang Qishan and Zhou Xiaochuan to forestall financial contagion and arrest the crisis, there were plenty of tensions around military and security issues.

But we managed to work together on some things, in our own self-interest, even as our countries competed in a tough-minded way in other areas.

So let’s compete, let’s coordinate, and yes, let’s cooperate when it’s in our self-interest to do so.

This is an essential task and today we have an opportunity to begin to take a fresh look at what can work, given the realities of today’s world.