U.S. Risks Losing Finance-Industry Dominance, Hank Paulson Warns

(Bloomberg) -- Former Treasury Secretary Hank Paulson warned the U.S. risks losing its dominance in the global financial industry -- and with it the many benefits of the dollar’s primacy -- if politicians don’t adopt a smarter approach to dealing with China.

U.S. financial leadership “is increasingly being challenged by fierce competition from abroad and by shortsighted and counterproductive policies at home,” Paulson, who also led Goldman Sachs Group Inc., wrote in an op-ed posted Wednesday on the Wall Street Journal’s website. “At the same time China is working to attract global capital, the U.S. is moving in the opposite direction.”

The piece calls on the President-elect Joe Biden’s incoming administration to adopt polices that avoid unnecessary conflict and attract more capital.

Paulson faulted, for example, efforts that would broadly delist legitimate Chinese companies from U.S. stock exchanges. That may play well politically, he wrote, but it undermines Chinese demand for dollars at a time when the U.S. is borrowing more as it seeks to weather the coronavirus pandemic. Such bans also deprive U.S. investors of opportunities to invest in China’s rapidly growing economy.

The dollar’s current status, Paulson noted, helps to finance the government’s spending and allows people in the U.S. to pay less for foreign goods.

Two years ago, Paulson warned that the U.S.-China relationship was on a trajectory to establishing an economic iron curtain. Last month at Bloomberg’s New Economy Forum, he said that unfortunately, many of his predictions have panned out and called on Biden’s administration to start a new round of bilateral negotiations with China aimed at fair trade and competition.

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