Hank Paulson made a robust defence of President George W. Bush’s tax cuts at the Senate committee overseeing his nomination as US Treasury secretary on Tuesday, and hinted at a possible shift in emphasis in Washington’s China policy.

The former chairman and chief executive of Goldman Sachs stressed the importance of US pressure on Beijing to reform and open up its domestic financial system. He told senators this would allow China to move to a market-determined exchange rate.

Setting out an ambitious agenda for the remainder of Mr Bush’s second term in office, Mr Paulson also raised the possibility of a renewed push on reform of entitlement programmes Medicare, Medicaid and Social Security.

The nominee kept up pressure on China to allow greater currency flexibility in the short term, telling senators “we need to encourage them to move quicker there and show more flexibility.” But he added that “until they have a fully functioning financial system, a modern financial system which they don’t have now, they are not going to be able to have a currency that trades in the competitive marketplace.”

The former Goldman Sachs chief, who has visited China more than 70 times since 1990, said Washington should be prepared to push “aggressively” for further finanical sector liberalisation. Mr Paulson’s remarks build on, rather than contradict, the stance taken by his predecessor John Snow, who also talked about the importance of banking reform in China.

They suggest that as Treasury secretary Mr Paulson will put a lot of emphasis on this subject. Speaking more broadly, Mr Paulson also told the Senate finance committee: “If confirmed, I will focus intensely on how the US United States can maintain and strengthen our competitive position.”

The nominee said “deficits do matter” and added that he hoped it would be possible to make progress on entitlement reform during the remainder of the Bush second term. On taxation, Mr Paulson said “I watched the role the tax cuts played in getting this economy to where it now is and I think we should all feel very fortunate the economy is growing.” He said the tax cuts should be made permanent, saying “tax increases would be counter-productive.”

Get alerts on Global Economy when a new story is published

Copyright The Financial Times Limited 2019. All rights reserved.
Reuse this content (opens in new window)

Comments have not been enabled for this article.

Follow the topics in this article