(Xinhua)
Updated: 2008-06-16 21:28

The high-level Strategic Economic Dialogue (SED) between the United States and China has played "a constructive role" in US-China relations which are "important to world peace and prosperity," James A. Dorn, vice president for academic affairs of the Cato Institute said recently.

The fourth round of SED, first launched in December 2006, will be held on June 17-18 in the United States.

"The SED has played a constructive role in US-Sino relations by taking a longer run view of current issues, and countering the China bashing that too often characterizes Congressional hearings, " Dorn, who is also a China expert at the Washington-based think tank, said in an interview with Xinhua.

"By considering long-run costs and benefits of policy alternatives, the SED has grounded US-China relations in reality rather than rhetoric," he said.

Progress has been made on product safety issues through the dialogue between Washington and Beijing, he said, and irresponsible policies such as imposing a heavy duty on all Chinese imports unless the yuan is revalued upward by a considerable amount against the dollar have been avoided.

"This SED is important because, as (China's) Assistant Minister of Finance Zhu Guangyao said, "It is the first time ... to make a discussion of economic relations over the next 10 years a central part of the agenda."

With a new administration and Congress after the November elections, the "vision" of US-China relations could change, Dorn said.

"However, the US-China policy of engagement has worked, and the overall Sino-US relation is too important to world peace and prosperity to veer off the long-run course of mutually beneficial engagement," he added.

The United States must recognize China as a normal rising power and frankly recognize the "peaceful development" that China has pursued since opening to the outside in 1978, said Dorn, who has often visited China since 1988.

Thirty years of economic liberalization has brought about a significant increase in the standard of living, he added.

"The US needs to encourage a continuation of economic liberalization and not see China as an inevitable enemy," he said.

Outlining the goals of the upcoming SED meeting, US Treasury Secretary Henry Paulson said last week that intensive dialogue "is more productive than protectionist policies."

Dorn agreed with his remarks, saying that "A US protectionist stance would be economic suicide."

Free trade is mutually beneficial but protectionism is not, he noted, saying that catering to special interests in the United States or in China impede the free flow of goods and services.

"Threatening China with protectionist measures to gain an advantage for special interests in the US would harm US consumers, fan the flames of nationalism, and destroy global wealth," he said.

Paulson recognizes the danger of both trade and financial protectionism, and the benefits of liberalization, he added.

Dorn said both the United States and China should adhere to the World Trade Organization rules as the preferred approach to greater transparency and mutually beneficial trade, and avoid destructive protectionism.

"In this regard, the US should recognize China as a market economy rather than label China a non-market economy, which discriminates against China in anti-dumping cases," he said.

In his article "The Debt Threat: A Risk to US-China Relations?" recently published in the Brown Journal of World Affairs, Dorn said, "Many in Congress find it easier to bash China than to face the reality that the growth in US government spending and borrowing, not the trade deficit with China, is the key reason for concern."

When asked to give more details about this, Dorn said the large US current account deficit is explained by the twin deficits -- that is, the financial deficit in which US domestic investment exceeds domestic saving, and the fiscal deficit, in which federal spending exceeds revenues (taxes).

"Narrowly focusing on the yuan-dollar exchange rate diverts attention from the fact that when the US is spending more than its income, the only way to finance that imbalance is to borrow or sell off assets," he said.

In particular, the US government must live within its means -- not by increasing taxes but by reducing the size and scope of government.

When the federal government borrows for the sake of consumption rather than productive investment, the burden of excessive spending falls on future taxpayers -- regardless of whether the deficit is financed by foreigners or domestically, Dorn said.

About energy security and environmental sustainability, one of the important issues Paulson said the upcoming SED will cover, Dorn said "energy security is best ensured by keeping global markets open and avoiding price and profit controls."

He said regulations that restrict exploration and development of new energy sources should be subject to careful cost-benefit analysis, and privatization should be promoted.

When market prices increase, substitutes for high-cost energy will naturally be developed -- if entrepreneurs can capture a profit, he said.

Environmental protection is in the interest of all countries, but developing countries cannot afford the same standards as rich countries, said Dorn.

"Thus, rich countries should not try to impose their standards on China or on other developing nations," he said.

The best policy is to encourage growth in emerging markets so that as wealth increases so will the demand for a cleaner and safer environment, he said.