(Bloomberg) — The world is headed for a “very dangerous place” if Washington and Beijing are unable to stabilize their relationship, former U.S. Treasury Secretary Hank Paulson said in a speech on the second day of the Bloomberg New Economy Forum in Singapore.
The blunt warning comes just days after President Joe Biden and his Chinese counterpart Xi Jinping held their first virtual summit, signaling a tentative effort to put a floor under ties between the two countries.
While those talks were a step in the right direction, one meeting alone won’t resolve the tensions between the world’s largest economies, Paulson warned.
“We need more certainty around how the U.S. and China are going to compete, where we’re going to cooperate, and how we’re going to manage conflict. Otherwise the world is heading for a very dangerous place,” he said.
“We shouldn’t dismiss what a failure to do so might mean for the world,” Paulson said. “Great powers rarely desire to go to war. But history is replete with horrifying examples of how they stumbled into it, nonetheless. We can’t just count on cool heads and better angels.”
In his speech, Paulson — who in 2018 warned of an “Economic Iron Curtain” dividing the world — said mechanisms are needed to avoid partial decoupling between the two economies that would lead to a crisis.
“Wholesale financial decoupling is impossible, and partial decoupling is likely to make the United States, China and the world more susceptible to financial crises,” said Paulson, who was Chief Executive Officer of Goldman Sachs Group Inc. before becoming Treasury Secretary in 2006.
Separating from China would also weaken the U.S. as a global leader and hurt the competitiveness of American firms.
“We need my friend and successor, Secretary Janet Yellen, to continue her communication with Vice Premier Liu He aimed toward transparency, greater harmonization, and coordination of financial regulations and accounting principles,” he said.
The New Economy Forum is being organized by Bloomberg Media Group, a division of Bloomberg LP, the parent company of Bloomberg News.
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