Clinton Will Pull Rubin Stunt on Visit to China: William Pesek

Commentary by William Pesek,  

Feb. 9 (Bloomberg) -- Chinese officials are bracing for Hillary Clinton’s visit.

Clinton made a good call in making Asia her first trip abroad as U.S. secretary of state. Officials in Tokyo, Jakarta and Seoul will be delighted that Clinton, in the words of State Department spokesmanRobert Wood, is visiting to “send a tremendous signal” of the region’s importance to American policy. 

Folks in Beijing have reason to be less enthusiastic: They will be on the hot seat. 

It’s telling that Clinton chose these four nations on a visit that begins Feb. 15. Three rank among the top 10 national holders of U.S. dollar assets. Add in Indonesia and the four have more than $3 trillion of international currency reserves. It’s a reminder of who holds the power these days. 

China, the U.S.’s biggest debt customer, can’t be happy that Clinton will visit Tokyo first. She will be in China almost a month after the White House labeled it a currency manipulator. That charge was made by Treasury Secretary Timothy Geithner in his confirmation hearing, and China is livid. 

Officially, Clinton will focus on North Korea’s nuclear- arms program, the financial crisis, security and climate change. Yet Chinese leaders would be right to figure their currency and role in global imbalances will dominate her list of discussion points. 

Pulling a Rubin 

That can be seen in what Clinton wants to do with the State Department. Both Clinton and Geithner have stressed that China, the fastest-growing major economy, is crucial in fixing the world financial crisis. Clinton says she wants her team to take a stronger role on international economic issues. 

As Barack Obama has said, history will judge his presidency by whether he avoided a U.S. depression. Whereas the White House’s mantra during the 1990s was “It’s the economy, stupid,” Obama’s is becoming “It’s the economy or we’re all homeless.” 

Clinton wants to pull a “Robert Rubin” on his old department. When Rubin was Bill Clinton’sTreasury secretary, he co-opted many of the State Department’s traditional functions. With Asia, Mexico and Russia in crisis during his tenure, Rubin fused economic policy with diplomacy in unprecedented ways. 

In late 1997, Rubin and Geithner, then a top Treasury official, explained the shift to me and a small group of journalists accompanying them on a whistle-stop tour of Asia. In Bangkok, Beijing, Hong Kong and Kuala Lumpur, they laid out their view that economics had become the soul of U.S. foreign policy. 

State’s Brief 

Neutered even further during the 2000s, the State Department seems ready not only to reassert itself under Clinton, but to broaden its brief. China can expect a multipronged approach to economic issues it would just as soon keep swept under the carpet. 

Thorny topics likely to get more attention include China’s currency, labor standards and intellectual-property rights. One reason Chinese leaders often prefer Republicans in the White House is they tread carefully on human rights. And after the last eight years -- invading Iraq, Abu Ghraib, Guantanamo Bay -- the U.S. has little moral high ground. So, Obama’s team will probably focus on labor standards. 

China is clearly unnerved by the tone coming from Washington. One worry is how many lawmakers think China bears responsibility for U.S. job losses. Another reflects concerns about U.S. protectionism, something fanned by the “Buy American” provisions in stimulus efforts. Geithner’s yuan- manipulation comments haven’t helped. 

Wen’s Criticism 

Officials in Beijing also may sense a lack of contrition for the state of the global economy. In London earlier this month, Chinese Prime Minister Wen Jiabao criticized American- style capitalism and stressed “how dangerous a totally unregulated market can be.” 

China is very regulated, a quality that is an asset as growth swoons. It has no need to get stimulus efforts through skeptical lawmakers and boasts $1.9 trillion of currency reserves. 

China is in for a rough year. Is it a coincidence that the most open economies in Asia -- Hong Kong, Singapore, Taiwan and, arguably, South Korea -- were the quickest to wilt? Asia’s export-led business model is rapidly unraveling. Governments are struggling to stabilize growth. 

Clinton and Geithner need to offer Asia something else. The gospel of free-market capitalism no longer passes muster. Nor does talk of deregulation and the magic of democracy. They need to articulate a new economic and foreign-policy doctrine that recognizes its limits. 

Easier Stops 

Jakarta, Seoul and Tokyo will be easier visits for Clinton. The Japan stop is about maintaining a vital geopolitical relationship. Korea is about that and also tackling the North Korea issue. Indonesia marks the U.S.’s re-engagement with Southeast Asia via a nation with the largest Muslim population. 

Lecturing China is no longer an option. Clinton shouldn’t pull punches, yet it would be more constructive to work with China. The U.S. needs China’s money, and China needs U.S. demand for its exports. The last thing the U.S. needs is a trade war with its main creditor. 

That doesn’t mean Clinton’s visit to China will avoid hard feelings. Not with U.S. diplomacy and economics becoming one. 

(William Pesek is a Bloomberg News columnist. The opinions expressed are his own.) 

To contact the writer of this column: William Pesek in Kuala Lumpur at wpesek@bloomberg.net

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