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Getty Images; AP Photo Washington’s campaign to get Beijing to revalue its currency risks a trade war—and another recession. Jeffrey E. Garten talks to Chinese officials about America’s dangerous game.
Even in highly partisan Washington, group think can drive policy, especially when the target is another country whose citizens cannot vote in our elections. That is what is going on now when it comes to pressuring China to revalue its currency, the renminbi ( RMB.) In this case, despite the consensus for bashing China, the U.S. economic establishment is badly mistaken in its approach, and is risking a damaging trade war and a double-dip recession.
China believes that the U.S. is mistakenly and scandalously holding it responsible for deep-seated made-in-America problems.
President Obama, Treasury Secretary Geithner, a host of congressmen and senators, large swaths of American industry, labor unions, a number of prominent economists, and The New York Times editorial board are all demanding that Beijing delink the RMB from the U.S. dollar, now set by Beijing at a ratio of 6.8 RMB to $1, and allow the RMB to strengthen substantially vis-à -vis the greenback. On Wednesday, the House Ways & Means Committee will add additional pressure by holding high-profile hearings on China’s currency policy. The big precipitating event, however, is a biannual report that the Treasury must file by April 15 declaring whether or not China is manipulating its currency for unfair advantage—that is, keeping it artificially low to make its exports cheaper and its imports more expensive than either would otherwise be. If the U.S. declares China a “currency manipulator” in that report, the Treasury will be obligated by federal law to enter into immediate negotiations with Beijing to rectify the problem. If China does not bend, then the U.S. would proceed to impose a hefty across-the-board tariff on all Chinese goods entering America.
Washington’s motivations are clear. It is not just the 9.7 percent current unemployment rate, but the decade-long stagnation of middle-class wages that is bedeviling U.S. policymakers. So who to blame? China is a sitting duck, given that its exports constitute the largest portion of our non-oil trade deficits and that it seems to be getting very rich off us, amassing well over $2 trillion in foreign-exchange reserves.
I just returned from two weeks in Shanghai, Beijing, and Hong Kong, where I had a chance to speak to many Chinese officials off the record. The information I gathered wasn’t new to me— I’ve spend two decades working on China-related issues—but did bring a number of things into focus. Here’s why I think Washington is way off the mark in its pressuring China on the exchange rate with such intensity, and why its gunboat international economic policy is so dangerous:
First of all, if China moves its rate a few percentage points—which is the most that will happen, believe me—then such changes will hardly affect U.S. trade balances. The reason is that China’s costs are a fraction of ours—labor rates that are, say, 10 percent, salaries for scientists that earn about $12,000 annually. If Chinese goods became a bit more expensive in the American market because its currency appreciated, it may not affect its competitiveness at all; if it did, then Vietnam or other low-price locations would fill the vacuum. They would be aided by Wal-Mart and other U.S. companies, dedicated to giving American consumers rock-bottom prices. China is understandably worried that lack of concrete results would only lead to more and more pressure.
China also believes that the U.S. is mistakenly and scandalously holding it responsible for deep-seated made-in-America problems. Whose fault is it, they ask, that Americans have over-consumed with the use of easy credit, let their manufacturing industry wither as they geared their economy so disproportionally to financial services, and therefore run large trade deficits? Who but Wall Street and U.S. regulators are responsible for the global financial meltdown that created the current recession here, and the massive debts that are its legacy and that are now forcing us to cut back on the very foundations of U.S. future competitiveness—such as truncating school programs or failing to even repair our infrastructure, let alone building what is needed for the 21st century?
View as Single Page 12 Back to Top March 22, 2010 | 11:13pm Facebook | Twitter | Digg | Share | Emails | print var OutbrainPermaLink=document.location.href.replace(document.location.search, '').replace(/\/\d+\/$/,'/').replace(document.location.host, 'thedailybeast.com'); var OB_Template = "The Daily Beast"; var OB_demoMode = false; var OBITm = "1255455386150"; var OB_langJS ='http://widgets.outbrain.com/lang_en.js'; if ( typeof(OB_Script)!='undefined' ) OutbrainStart(); else { var OB_Script = true; var str = ''; document.write(str); } Washington, China, The Renminbi (rmb), House Ways And Means Committee, Walmart, Treasury Secretary Geithner, Beijing, President Obama, Vietnam, Wall Street (–) Show Replies Collapse Replies Sort Up Sort Down sort by date: crashTextDummy
mein gott it's the proverbial rock and hard place scenario so Jefferey (do you read comments?) if hints to competitive devaluations are in front of us what was the pathway/solutions out from the 30's? do the same means apply today? and is the administration aware of a potential repeat? is this the Treasury Secretary's job to know and advise? does Gene Dodaro, the comptroller general, have anything to do with advice? Have you talked to David Walker? what does he think? i donn know no thing that's why i ask...
Flag It | Permalink | Reply 4:49 am, Mar 23, 2010 nycwerewolfI honest I could care less what Chinese officials have to say about anything. We're with you Pres. Obama and Tim Geithner. You tell'em who's boss. I'm tired of all these conservative writers trying to get us to bend over for China. They need US a hell of a lot more than we need them.
Flag It | Permalink | Reply 10:26 am, Mar 23, 2010 funkyColdMedinagreat we have mr el stupido nyc werewolf's wonderful "i'm an american" attitude gee zuss whatta maroon i'll tell you 2 hay huge fat problems they didn't have in the 30's first there's the freaking religious right wing they've insinuated themselves into the republican party and are now running riot in the halls of congress and then there's corporate america shipped most of our production overseas to realize greater profit between stupid werewolf and the union of church and state along with corporate ways and means it looks like a cluster fk of monumental proportions...
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