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 auck to Henne Paulson and Timothy Geithner about the downgradingst u. S. Credit ratings and the struggles the chinese economy. And then robert rubin talks about how to make hard decisions. And what a yellow legal pad has to do with that skill. Finally, david byrne came to fame with his new wave band Talking Heads. Some 40 years ago. I talk to him about his latest wave of creativity which includes a musical about former philippina first lady Imelda Marcos. Performed in a broadway theater. That has been transformed into a disco. But first, here is my take. For years now, American Politics has been shaped by the idea of the chinese shock. The term coined by three economists in a 2016 paper captures the widespread believe that trade with china has resulted in the deindustrialization of significant parts of the u. S. And loss of huge numbers of Manufacturing Jobs. It is fueled much of trumps trade policy and bidens new industrial policy. All of which is premised on the notion that china presents an existential challenge to americas economic position in the world. Now, there are debates as to whether the china shock was as strong as initially suggested. I wonder whether it should 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 decade and a half ago. But its political effects remain 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 last quarter came in 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 100 Biggest Developers dropped by 33 last month compared to a year ago. Youth unemployment is now over 20 . Tourism to china has collapsed. If the First Quarter 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 pozzin, the president for the institute for economists argued 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. He notes that in 2015 the Chinese People began reacting to the increasing political in interference in the economy by saving rather than spending. Bank deposits have grown by 50 since then. In the face of uncertain and fear, households and Small Businesses start to prefer cash savings to illiquid investment. As a result, growth persistently declines. Pozzin sees this as a pattern seen elsewhere in places like venezuela, russia, turkey and hungary. At the start they want growth and pursues market friendly policies. 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 an 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, it is clear that you could do so again at any time. Ive often noted that american anxiety about china reminds me of similar fears about japans dominance in the late 1980s and early 1990s. Just as the japanese economy was peaking and would go into a prolonged slowdown. Paul krugman compared the two countries and concludes that chinas future path will not follow japans. Quote, china will do worse, unquote. He points out that like japans at the time, chinas economy is similarly unbalanced with real estate woes and worrying demographics and china is ruled been 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. Growth is higher than expected, inflation is dropping faster than predicted and employment numbers continue to be very strong. And yet despite that the country has lost his aaa rating from one of the major Credit Rating agencies when pointed to high debt, and even higher political dysfunction. The problem for america is not its economic fundamentals which remain very strong. It is that there is a second shock that america has been reeling from. The trump shock. The United States has seen the rise of a Populist Demagogue who threaten tos destroy all institutions that stand in his way and he has a following like none ive ever seen that is devoted to him no matter what he does or said. He has captured the Republican Party and many of those that stood up to trump there 2020 have been replaced with loyalists. So if he gets its 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 it 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 lowers the u. S. From the highest aaa rating to aa plus citing a steady deterioration in standards of governance. But there is also been good news for the u. S. Economy. Inflation is moderating and this week Bank Of America rescinded his projection that the United States will fall into recession next year. Few people are as qualified to weigh in as the health of the u. S. Economy as pank paulson and tim geithner who held the job under barack obama. We met on friday on the sidelines of the aspen Economic Strategy group annual meeting. Hank paulson, tim geithner, pleasure to have you on. Good to be here. Youve seen this Fitch Downgrade, first time in a decade i think. What do do you think it makes sense . We obviously had a lot of long island fiscal challenges and in time were going to have to confront those challenges. And like any american, the world looks at our political system today and they wonder, is america going to be able to find the will to come together and do this in the sensible way. I think part of the problem is that it is still feeling remote and over the horizon, like any political system, it is hard to get people to focus on something that feels far away. They dont feel the cost of it today. This is the debt. Exactly. But so there is nothing new in the fact that were living with longterm fiscal challenges, it is a judgment about the capacity of the countrys political system. Were a very fortunate, rich resilient economy with a huge amount of strength and we have plenty of ways to deal with this. But it is 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 long isterm, it is a major concern. There is no example in history of any major power continuing to be a tower where they lose their fiscal strength and so to me as i look at the Fitch Downgrade and i look at it and say it is too bad it came after we had a bipartisan maybe a shortterm deal, but the deal with the debt limit, but it is in some ways a very important wakeup call. When you look at the situation right now, though, as you were saying, what is striking how much the u. S. Economy is surprising on the upside. Is it possible that we will have that rare thing of soft landing because right now it does seem like inflation is going down. But unemployment is not going up that much . It is certainly possible. And as you said, weve had a meaningful improvement if inflation with a economy that is still strong and that is an enviable rare combination. But the risk and challenges are not yet behind us and the fed cant yet know whether youre going to get enough moderation without inducing a greater slowdown in the economy and that is a very fine balance to strike. But i would say, you should feel more comfortable today than we wrof two years ago months ago but it is hard to say the challenges are behind us. When you look at bidens economic policy, it feels like a very different policy than we followed in the past. There is a lot for government involvement, a lot more government subsidies. Some of this for green technology, some it essentially to compete with china. What do you make of that strategy . Well, to begin with, the thing that i dislike the most and something to like is something you didnt mention which is protectionism. The tariffs. The tariffs. I mean, we are working to close markets at the same time that china is, you know, doing business with more and more of the world. Trade and investment. But as i look at the Biden Economic policy, i take Climate Change so seriously, i was a major proponent of the ira and i think that as the potential to make a huge difference in terms of accelerating the development of the sorts of technologies were going to need and really changing the the cost curve there. So i see that, im positive about that. But otherwise, i am uncomfortable by enlarge with industrial policy, all right. That somethings it makes real sense, where it is targeted and youve got a very, very specific goal, and it is going to be implemented very carefully. Im cautiously optimistic about the chips bill. But, again, there it comes down is It Bureaucracy that could implement it. Right. So im concerned about the regulation. Im concerned about immigration. You know, i have some concerns about the antitrust policy and regulation. I think these things are inflationary. But as we again, there is there is plenty of positive and as tim said, weve gotten an economy that sure looks better than many of us had pred had predicted a number of months yet. Were not out of the when it comes to inflation. There are not many countries that i could think of that we would trade places with. When you look at the size of our economy, the gdp per capita, The Very Best run companies in the world, the best technology, energy independence, and living in a safe neighborhood. The only real problem the country has right now is dysfunction in washington, right. But otherwise, it is its at a very strong position. Well take a short break. When we come back, im going to ask hank paulson and tim geithner about u. S. Policy toward china. Are we getting it right . Fisher Investments in this market, youllll find Fisher Investments is different than other moneney managers. other Money Manager different how . W . Arent w we all just looking fr the hottest stocks . 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Enter the 10,000 powered by protein max challenge. And were 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. You wrote a very important Foreign Affairs essay where you said americas china policy is not working. Do you want to explain what your biggest concerns are . Well, first of all, fareed, let me simply say that we need to begin by saying this is a troubled relationship, right. And and the xi jinpings china is different than diplomatically and economically, in every respect. Here is where the problem comes in. What i was talking about was how were going how were handling our you know, our Expert Controls with china dealing with technology. How much should we sequester. And of course, no one argues that we should not be holding back technologies in the highest technologies that have real military uses and owe 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 the global economy. China is a major, major competitor. And i think the competition, you know hopefully we wont stumble into war and this is a competition not 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 it is very important, i think, that the u. S. Companies are in a Leadership Position there and Setting Standards globally. Tim, do you think that the administration is getting this balance right . The sequestered sp of the High End Technology and it is a small yard of technology 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. Investment into china. How worried are you that that creates an atmosphere where businesses dont know what is permissible, what is next, what is next on the list . That is the challenge. Theyve said, understandably, that theyre going to define a limited number of technologies where there is a key Core National security imperative. And we should limit chinas capacity like weve done for decades with many countries to access that technology. And to keep the limitations narrow and calibrated to that objective. That is the challenge. Because it is hard to define a or a frame of a limited principle, that the world could look at and say i understand it is going to stop there, and not expand beyond that. I think part of the challenge of the world in looking at this, were also trying to build more supply chain resilience. Were making large investments in the climb transition. We want to make sure that it will bene