US and China can have better outcomes through engagement, rather than containment: Lawrence Wong

Finance Minister Lawrence Wong at a dialogue with Peterson Institute for International Economics president Adam Posen. PHOTO: MINISTRY OF FINANCE

SINGAPORE - America and China will generate better outcomes for the world by continuing engagement and finding ways to work together on issues that affect everyone, said Finance Minister Lawrence Wong on Monday (April 18).

This will be better than trying to contain China's rise, which will be difficult, ineffective and ultimately destabilising for all, including the United States, he added.

Mr Wong was discussing global economic issues at a dialogue at the Peterson Institute for International Economics in Washington chaired by the think-tank's president Adam Posen.

Dr Posen had asked him how a small, democratic, free market economy like Singapore plans to cope in a world where it seems the US and China are going to diverge in a lasting way.

Mr Wong replied: "It's quite clear that the relationship between the US and China is the most important relationship in the world, and will have consequential impact on the future of the world.

"It is indeed worrying that there is a loss of mutual trust and confidence on both sides. Relations have become more strained after the war (in Ukraine)."

However, the minister added: "We see that there has been contact between the leaders, including at the highest levels. We hope that will help to ensure that rational and sensible calculations are made and keep the relations whole, so that you don't end up in a situation where there is complete divergence or even outright confrontation, which will have a disastrous impact for the whole world."

Part of the issue is how America chooses to respond to China's rise, Mr Wong said.

He observed that some years ago, there was a view that bringing China into the system as a stakeholder would ensure that it has a vested interest in the status quo. But that view has now changed, he added.

"Trying to contain China's rise... will only cause China to redouble its determination to become more self-reliant, to grow its own little giants and to develop its own indigenous technology. Keeping China out of the system will only cause China to develop its own parallel system with its own rules," he said.

A better outcome would be for both countries to work together on issues where there are shared interests, he suggested.

"The reality is China will develop on its own and America will not be able to cause China to become more like America. But despite these differences, both the US and China have many shared interests, not least on global issues like climate change, pandemic response or even nuclear proliferation," he said.

"If we can find a framework for the two sides to continue to compete, but within a framework of shared interests and interdependencies, and work together on the shared issues for mutual benefit, we will be able to achieve a safer and better world."

Is it possible, Dr Posen asked, to see a path forward where the US and its allies contain China from a national security point of view, say by having security alliances, but allow it to grow economically?

Mr Wong said he expected America will continue to think through its options and develop security linkages, but added that security was also about building institutions that will move countries away from a path of "hot conflict" further down the road.

What happened in Ukraine, for example, was not just about what happened recently, but about the accumulation of decisions made over years, even decades, he said.

"What sort of institutions can we form in the Asia Pacific? What sort of engagements can we have that would best deter countries from a path of conflict?

"We shouldn't think about security and economic engagement in binary or mutually exclusive terms. We should think of it more broadly as strategic engagement and building institutions that will enable the framework of shared interests and interdependencies to grow," he added.

Dr Posen also asked Mr Wong about China applying to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership or CPTPP, a free trade agreement between 11 countries including Singapore that built on the Trans-Pacific Partnership after the Donald Trump administration withdrew from the pact.

Mr Wong noted that Beijing's application should go through due process.

He noted that Asia has other forums like Asia-Pacific Economic Cooperation, the East Asia Summit, and more recently the Biden administration's new Indo-Pacific Economic Framework, which Singapore supported as a platform to engage Asia more substantively.

And he hoped the framework would remain open and inclusive too.

"If China were to say we would like to join the Indo-Pacific Economic Framework, well, if they meet the standards, why not? And if we were to have that in mind in designing our regional architecture - open, inclusive, ensuring that all the major powers have stakes in the region - that's a way for us to build shared interests, interdependencies, and... ensure a path away from a conflict down the road," he said.

Dr Posen also asked about Singapore's method of using exchange rate as the basis for monetary policy.

Mr Wong said: "It's a framework that is appropriate to small and open economies. For an economy like Singapore where trade is more than three times the size of our gross domestic product, in fact, the exchange rate has a very predictable relationship with inflation. So this framework has worked well for us."

This method also works because Singapore has always been transparent about its instrument, objectives and outcomes, which ensures a certain predictability in the conduct of monetary policy and discipline in how exchange rates are set, he added.

There is also a clear focus that monetary policy should only be used to secure the objective of low and stable inflation, and not for other objectives like ensuring export competitiveness, he said.

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