This is gps the Global Public square. Welcome to all of you in the United States and Around The World. Im Fareed Zakaria coming to you from aspen, colorado. Today, an extra special program with three, yes, three former secretaries of the treasury. First, ill talk to Henry Paulson and Timothy Geithner about the state of American Politics and the downgrade of the uss Credit Ratings and the struggles of the chinese economy and then robert ruben talks to me about how to make hard decisions and what a yellow legal pad has to do with that skill. Finally, david burn came to fame with his new wave band talking heads, some 40 years ago. Ill talk to him about his latest wave of creativity which includes a musical about former fill pina first lady Imelda Marcos. Performed in a Broadway Theater thats been transformed into a disco. But first, heres my take. For years American Politics has been shaped by the idea of the china shock. The term coined by three economists in a paper captured the widespread belief that trade with china has resulted in the deindustrialization of significant parts of the u. S. And the loss of huge numbers of Manufacturing Jobs. It has fueled much of trumps trade policy and bidens new industrial policy all of which is premised on the notion that China Prsents an existential challenge to americas economic position in the world. Now there are debate as to whether the china shock was actually as strong as initially suggested. I wonder whether it should really have been called the globalization shock. Many of the western Manufacturing Jobs lost, had they not gone to china, would have gone to other emerging markets. In any event, most agree that the china shock ended about a decadeful nah ago, but its political effects remained strong even though the story in china today is completely different. Chinas economy is in bad shape. The numbers that are being released all point to a sharp, economic slowdown with few bright signs Economic Growth in the last quarter came in at 0. 8 putting china at risk of missing the governments target for the year. Prices are close to levels that suggest deflation which means no one is buying anything. New home sales by chinas hundred Biggest Developers dropped by 33 last month compared to a year ago. Youth unemployment is now over 20 . Tourism to china has collapsed. In the First Quarter of this year, just 52,000 people from overseas visited china via travel agencies. That compares with 3. 7 million in the First Quarter of 2019. In an important essay in foreign affairs, adam posen, the president of the Peterson Institute for International Economics argues that the slowdown is not the result of oneoffs such as the pandemic or the war in ukraine. Instead he points out that xi jinpings Economic Strategy which places politics and the Communist Party above free markets and growth has cost china dearly. Posen notes that in 2015 the Chinese People began reacting to the increasing political interference in the economy by saving rather than spending. Bank deposits as a share of gdp have grown by 50 since then. He writes, in the face of uncertainty and fear, households and Small Businesses start to prefer cash savings to illiquid investment. As a result, growth persistently declines. Posen sees chinas slowdown as part of a pattern seen elsewhere in places like venezuela, russia, turkey and hungary, at the start, the government desperately wants growth and pursues marketfriendly policies and then as the leader consolidates power, he seeks political control over the economy and starts cracking down on Companies Seen as problematic. Soon, politics triumphs over economics and growth slows. He writes, once know autocratic regime has lost the confidence of the average household and business it is difficult to win back. In other words, once you have interfered massively in the economy, its clear that you could do so again at any time. Ive often noted that american anxiety about china reminds me about similar fears about japans dominance in the late 1980s and early 1990s just as the japanese economy was speaking and would go into a prolonged slowdown. Paul crewman concludes that chinas future path will not follow japans. Quote, china will do worse, unquote. He points out that like japan at the time, chinas economy is similarly unbalanced with weak consumer demand, real estate woes and worrying demographics and china is ruled by an authoritarian regime arising from slower growth. Both share one critical problem, when you have a declining working age population, it is very hard to sustain a high growth economy. Meanwhile, the American Economy continues to surprise on the upside, and growth is higher than expected and inflation is dropping faster than predicted and employment numbers continue to be very strong and despite that the country has lost its aaa rating from one of the major Credit Rating agencies which pointed to high debt and even higher political dysfunction. The problem for america is not its economic fundamentals which remain very strong. Its that there is a second shock that america has been reeling from. The trump shock. The United States has seen the rise of a populous demagogue who threatened to destroy any and all institutions that stand in his way and he has a following like none i have everstein that is devoted to him No Matter What he does or says. He has captured the Republican Party almost completely . Many of the republicans who stood up to trump in 2020 have been replaced with loyalists. So if he gets his nomination and runs for the presidency which seems highly likely, it will lead to much greater turmoil than we saw in the last election. America has dealt with the china shock, but so far has no answer to the trump shock. Go to cnn. Com fareed for a link to my Washington Post column this week. And lets get started. As i said, the u. S. Saw its debt downgraded this week. Fitch lowered the u. S. From the highest aaa rating and aa citing a steady deterioration in standards was governance, but theres also been good news for the u. S. Economy and inflation is moderating and this week, Bank Of America rescinded its projection that the United States would fall into recession next year. Few people are as qualified to weigh in on the health of the u. S. Economy as my guests hank paulson who served as Treasury Secretary under george w. Bush and tim geithner who held that job under barack obama. We met on friday on the sidelines of the aspen Economic Strategy groups annual meeting. Hank paulson, tim geithner. Pleasure to have you on. Great to be here. Jim, youve seen this Fitch Downgrade first time in a decade, i think. Do you think it makes sense . I mean, we obviously have a lot of long term fiscal challenges, and in time, we will have to confront those challenges and like any american the world look at our political system today and they wonder. Is america going to be able to fine the well to come together in the sense of a way. I think that pat of the problem is it still feel remote and over her horizon, like any political system the hard challenge is trying to get people to focus something that seems kind of far away and they dont feel the cost of it today. This is the debt index. Exactly. Theres nothing new in the fact that were living with longterm pi fiscal challenges and ultimately its the judgment of the capacity of a countrys political system. We are very fortunate, rich, resilient economy with a huge amount of strength and we have plenty of ways to deal with this, and its going to take some time, but we cant wait forever. How worried are you about the debt . Well, like tim said i dont have an immediate worry, right . But longer term, its a major concern. Theres no example in history of any major power continued where they lose their fiscal strength. So to me, as i look at the Fitch Downgrade, i look at it and say its too bad it came right after we had a bipartisan, maybe another short term deal to deal with the debt limit and its in some ways a very important wakeup call. When you look at the situation right now, though, whats striking is how much the u. S. Economy is surprising on the upside. Is it possible that we will have that rare thing, a soft landing because it does seem like inflation is going down, but unemployment is not going up that much. Its certainly possible and as you said, we had a meaningful improvement inflation with the economy thats still pretty strong and thats an enviable, rare, combination, but the risks in this and the challenges that are not yet behind us and the fed cant yet know whether you will get enough moderation without inducing a greater slowdown in the economy and thats a very fine balance to strike, and you should feel more comfortable today than you would have two years ago and six months ago or three months ago and its still early to say that the challenge in this are fundamentally behind us. Thanks, when you look att bidens economic policy, it feels like a very different policy than we followed in the past. Theres a lot more government involvement, a lot more government subsidies. Some of it for green technology, some of it essentially to compete with china. What do you make of that strategy . Well, to begin with, the thing that i dislike most and some things to like is something something you didnt mention was protection. The tearives, we are looking to close markets at the same time that china is doing business with more and more of the world to trade and investment, but as i look at the Biden Economic policy, you know, i take Climate Change so seriously i was a major proponent of the ira, and i think that has the potential to make a huge difference in terms of accelerating the development of these sort of technologies were going to need and really in changing the cost curve there. So i i see that im positive about that, but otherwise i am uncomfortable by and large with industrial policy, right . That sometimes it makes real sense where its targeted and youve got a very, very specific goal and its going to be implemented very carefully. Im, you know, cautiously optimistic the blue chips gel bill. It will, implement it, reit . So im burden of proofed about regulation, i some concerns about the trpolicy and inflationary, but theres plenty of president and as tim said weve got an economy that sure looks better than many of us had predicted a number of months ago, but you know, were not Out Of The Woods yet in terms of inflation. One thing i would emphasize when we look at the u. S. Economy theres not many countries i can think of that we would ever trade places with. When you look at the size of our economy, the gdp per capita and the very bestrun companies in the world and the best company, energy independent, living in a safe neighborhood, you know, the only the real problem the country has right now is dysfunction in washington, right . But otherwise its its a very strong position. Well take a short break. When we come back im going to ask hank paulson and time geithner about the u. S. Policy toward china. Are we getting it right . Meet the future. All learning to save and spend their money with chase. 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We are back in aspen with hank paulson and tim geithner talking about u. S. China policy, the perils and the promise. Lets talk about china because huge subject, but also one that you in particular, hank, youve written a lot about it, you wrote a very important affairs essay where you basically middle americas china policy is not working. Do you want to explain what your biggest concerns are . Le America Policy is not working. Do you want to explain what your biggest concerns are . E America Policy is not working. Do you want to explain what your biggest concerns are . Americas policy is not working. Do you want to explain what your biggest concerns are . Americas y is not working. Do you want to explain what your biggest concerns are . We need to begin by saying this is a troubled rip, right . And xi jinpings china is very different from the xiang china militarily, diplomatically and really in every respect. Heres where the problem comes in. What i was talking about was how were handling our, you know, Port Controls with china dealing with technology. How much should we see. No one argues that we should not be holding back technologies in the highest technologies that have real military uses and you are critical to national security. My concern was simply this. If we sequester too much technology, what were doing is essentially isolating u. S. Companies from from the global economy. China is a major, major competitor, and i think the competition, you know, hopefully, we wont stumble into war and this wont be, this is a competition thats not going decided on the battlefield. It will be decided on the economic Playing Field and here, i think, we lose a lot if u. S. Companies arent leading Around The World. A big part of this competition is going to be developing and implementing and rolling out the technologies of the future, right . And so here its very important, i think, that the u. S. Companies are in the Leadership Position there and Setting Standards globally. Do you think the administration is getting this balance right . They sequestered the high end technologies with high fences rather than a big, open field as was the metaphor would be and theyre now going to announce restrictions on u. S. Investments into china . How worried are you that this creates an atmosphere where businesses dont know whats permissible and whats not . Whats next on the list . Yeah. Thats the challenge. Theyve said understandably, theyre going to define a limited n