Former Treasury secretary warns Iran conflict and 'trust deficit' could derail US-China meeting

Former U.S. Treasury Secretary Hank Paulson said the United States’ upcoming meeting with China may not happen if the war in Iran continues, as Beijing grows increasingly dissatisfied with the U.S.’ aggressive military campaign.

President Donald Trump is set to meet with Chinese President Xi Jinping in May for high-stakes talks focusing on escalating tensions in the Middle East and the U.S.-China relationship.

"The meeting won't take place if we're back into war," Paulson, referring to the two-week ceasefire in the U.S.-Iran conflict, told "The Claman Countdown" on Tuesday. "But the Chinese are very interesting. They've been saying, ‘Please don't do this with Iran, but come on over here.’"

His remarks come as China criticizes the United States’ naval blockade on Iranian ports, characterizing the move as irresponsible and dangerous.

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Paulson's comments also follow the Treasury Department sending letters to banks in Oman, the United Arab Emirates and China, placing them on notice for dealing in illicit activities with Iran, according to FOX Business’ Edward Lawrence.

Paulson said the United States’ relationship with China is the most consequential bilateral relationship, but added there is a "huge trust deficit" that needs to be addressed.

"They are intense competitors with the economy… and they’re adversaries when it comes to military issues," he said.

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The former Treasury secretary said that because the two economies are so deeply integrated, he described the U.S.-Chinese economic relationship as "mutually assured economic disruption."

"Each country knows the other can do things to really disrupt their economy," Paulson told FOX Business anchor Liz Claman. "And they know that. And no country can afford a trade war right now."

Paulson predicted how Trump and Jinping’s meeting in May will unfold, suggesting that it will focus on stability as tensions flare over Iran.

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"We're going to see mechanisms for managing trade so it doesn't spin out of control," he explained. "We're going to see mechanisms so there can be more cross-border investment. And the biggest thing we need to get out of this is to put guardrails in place so we each understand the other's red lines, we can compete, and we don't get into a trade war."

The former Treasury secretary also commented on the economic impact of Trump’s war on Iran as the ongoing conflict in the Strait of Hormuz causes oil prices to surge.

"Our economy is better able to withstand this shock than any place else in the world," Paulson said. "So, the thing that I'm looking at is disruption elsewhere spilling over into the U.S. economy."