In an Atlantic Council Issue Brief released today, Former US Treasury Secretary Henry M. Paulson, Jr. argues that a new economic framework—reflecting the reality that China is no longer a “developing” economy but an increasingly established one—is needed to continue positive US-China economic relations and put the two economies on a path toward a more mutually beneficial structure.

“Many Americans look skeptically at China, yet China has cemented its place with the United States and Europe as one of three principal engines of the global economy. As a result, Chinese economic problems will bleed into the United States’ economy,” writes Paulson. “China’s success at sustaining growth and transitioning from an economic model too dependent on exports and fixed asset investment is closely connected to our own future success.”

The Issue Brief, which serves as a memo from Paulson to the winner of the 2012 US presidential elections, outlines five key principles that must be adopted if the United States is to improve economic ties with China and ultimately ensure globally competitiveness and economic strength:

1. Unlock the promise of capital and cross-investment by assuring greater openness to Chinese investment in the United States. This means China needs to pursue a market-determined currency that will better position it to respond to the current crisis, while preventing its own crisis down the road.
2. Assure financial markets that are transparent and have strong oversight by correcting flawed practices on both sides of the Pacific that have led to massive producer and consumer debt.
3. Work to strengthen market confidence in our economies, which, for the United States, means overcoming the markets’ lack of confidence in government’s ability to take the necessary steps to protect the US economy; and for China, it means overcoming a lack of transparency.
4. Free up bilateral trade and grant China market economy status on a sector by sector basis.
5. Help technology flow more efficiently and promote innovation by reforming the United States’ outdated export control system while still assuring national security.

“We do not always need to work jointly with China,” writes Paulson. “But we do need to take steps—mostly individually, sometimes together—that will have the mutually beneficial effect of supporting and sustaining economic growth.”

This brief is the final report in the Atlantic Council’s Task Ahead project—a series of memos from senior policy practitioners to the winner of the November 2012 US presidential elections on the most pressing items on the international agenda. The original Task Ahead report featured memos from a bipartisan list of top-flight experts—including Madeleine K. Albright, Brent Scowcroft, James L. Jones, Jr., Chuck Hagel, Josef Ackermann, and Fran Townsend—offering recommendations for US policy on Iran, China, NATO, counterterrorism, supporting democracy, relaunching economic growth, and other pressing policy issues.

Download the full report.