Talks between the U.S. and China next month will assess shifting fortunes of the world’s two largest economies, as America emerges from a slump and Asia’s main engine of growth confronts fresh challenges, the U.S. Treasury Department’s top international official said.
“Our economy has once again shown its resilience” and policy makers showed an “ability to come back and to put in place decisive action and to correct a lot of the excesses that went into the crisis,” Lael Brainard, the undersecretary for international affairs, said in an interview airing this weekend on Bloomberg Television’s “Conversations With Judy Woodruff.”
“China, on the other hand, is going to be struggling I think a little bit in the years ahead,” she said yesterday. “Their labor force is set to decline very rapidly, and they’ve got some excesses built up in their credit markets that they’re going to have to work through.”
Brainard’s comments reflect growing optimism among U.S. officials that the economy is on a path to sustainable growth after the longest recession since the Great Depression. The unemployment rate, which reached 10 percent in October 2009, was 7.6 percent last month. The World Bank last week raised its forecast for U.S. growth this year and lowered China’s outlook.
“Four years ago, you’ll remember, there were questions about the American financial system and the American growth model and China looked really unstoppable,” she said. “Today, I think that picture has changed a great deal.”
The U.S. “will focus on a set of challenges that China’s grappling with on their economy” when the U.S. hosts the Strategic and Economic Dialogue with China in Washington during the week of July 8-12, the first one under China’s new leadership.
China’s leaders are trying to shore up growth less than three months into their tenure, after an expansion in the first quarter unexpectedly slowed. Chinese growth will hold at 7.8 percent this year, maintaining the slowest expansion since 1999, according to the median forecast of 53 economists surveyed by Bloomberg.
Exchange rates will still be on the agenda even as the currency has appreciated since President Barack Obama took office in 2009, Brainard said.
Even though China’s trade surplus has narrowed as a share of gross domestic product, “I’m not satisfied. We’re going to keep working with China,” she said. “It’s part of China’s broader strategy to start growing based on their own consumer rather than the U.S. consumer.”
In the case of Japan, the administration will be focused on the country’s “three-arrow” strategy, Brainard said.
The plan laid out by Japanese Prime Minister Shinzo Abe involves a policy of monetary easing; government spending on reconstruction and infrastructure; and structural reforms including tax relief, freer trade and more flexible markets.
“What is most important for the United States is that Japan pursues a growth strategy that operates through domestic demand in Japan,” she said.
Although the U.S. economy is showing sustained momentum and there are reasons to be “very optimistic,” the recovery has taken some time, she said.
“The president has been navigating a very careful path making sure that the fiscal support for the private sector is there until the private sector is strong enough to really take forward a very robust recovery,” Brainard said.
European officials still have several steps to take to boost growth and lift demand back to pre-crisis levels, Brainard said.
“They need to go that final step of cleaning up their bank balance sheets and coming together on a common framework so that their banks can lend to small businesses again,” she said. “There is no room for complacency in Europe.”
The International Monetary Fund, which is co-financing four of five bailouts in the euro region, has also proven valuable for the U.S., the largest member of the Washington-based lender, Brainard said.
To preserve the U.S. veto power at the 188-country IMF, the administration included in its 2014 budget proposal a request to boost the U.S. share, or quota, at the institution to make good on a 2010 international agreement boosting IMF resources. The proposed measure would shift about $63 billion from an existing credit line.
“We want to see this done as part of the regular budget process, which is right now under way on Capitol Hill,” Brainard said. “We think this is something that needs to get done and will get done” in coming months, she said.