Summers Warns Very Risky for US to Aim at ‘Tearing China Down’
Former Treasury Secretary Lawrence Summers warned US policy makers to focus on building the country’s own economic strengths in its contest with China, rather than on attacking its adversary.
(Bloomberg) -- Former Treasury Secretary Lawrence Summers warned US policy makers to focus on building the country’s own economic strengths in its contest with China, rather than on attacking its adversary.
“If we change our focus from building ourselves up to tearing China down, I think we will be making a very risky and very unfortunate choice,” Summers told Bloomberg Television’s “Wall Street Week” with David Westin. The US should instead concentrate on its own innovation, infrastructure, education and challenges such as opioid deaths, he said.
Last month, the Biden administration imposed sweeping US curbs on the sale of semiconductors and chipmaking equipment to China -- marking a major change in approach that has unsettled even some American allies.
Summers also cautioned about Washington becoming too aggressive with regard to strengthening ties with Taiwan, which Beijing regards as part of its territory.
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“We need to be very careful about giving China the sense that we are trying to change the traditional one-China policy,” said Summers, a Harvard University professor and paid contributor to Bloomberg Television. “Because I think that could risk disastrous conflict.”
Summers said it remains to be seen whether there will be “constructive movement” coming out of this week’s meeting between Presidents Joe Biden and Xi Jinping, who were in Indonesia for the G-20 summit, and the first sitdown between the two nations’ trade chiefs. “But I’m encouraged by what I saw.”
“We in the United States probably need to be careful about our evangelizing influence -- I don’t think it’s really for us to tell China how they should organize their entire society,” Summers added.
The right approach is instead to “stand up for some of our fundamental interests in security and fair economic competition -- but to leave it at that point,” he said. “I think ultimately we will prevail in this broad contest with China,” he said.
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Turning to the Federal Reserve, Summers endorsed the current approach of its policy makers. Officials have indicated they may step down the size of the next interest-rate increase, at the December meeting. They’ve also telegraphed further moves into next year that would take the policy rate up to a level higher than predicted back in September.
“The Fed has this in the right place, when it says that they’re going to move up somewhat more, and they’re going to take stock of the situation and see what the inflation data is saying and see what the inflation forecasts are saying,” Summers said.
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The former Treasury chief said that, at this point, “it’s pretty clear that we’ve had the big moves on this cycle,” following four straight 75 basis-point rate increases. The key now is not ending the tightening prematurely, he said.
Market expectations indicate a peak Fed rate of around 5%. Summers said “my sense is there’s more room for that to be too low than there is for that to be too high.” The current target range is 3.75% to 4%.
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