Why the White House may be forced to get tough on China

July 29, 2009

Might America and China be headed toward a falling out over currency issues as U.S. unemployment worsens? The always superinsightful Andy Busch of BMO Capital Markets makes a helluva point here (bold is mine):

Under the Bush administration, the US Treasury had a clear policy of pressuring the Chinese to change their currency regime that kept the currency stable and generated massive US dollar reserve accumulation. This structure created the massive imbalances between the countries and created worries that situation was inherently unstable and dangerous.

Under the Obama administration, the US Treasury is not pressuring the Chinese and this was apparent during the meetings this week. President Barack Obama opened Monday’s discussions by declaring that the United States sought a new era of “cooperation, not confrontation” with China and that management of the U.S.-China relationship would be a major factor in defining the history of the 21st century according to AP.

This set the tone of the meetings to not upset the delicate fiscal and monetary paradigms that are in place. Treasury Secretary Tim Geithner made no mention of the Chinese currency regime nor of the detrimental effect it continues to have on global imbalances.

The irony is that the Chinese are the ones publicly stating that there are major concerns with the United States and the way the Obama administration and Congress are running their finances. After the Monday talks had ended, Assistant Finance Minister Zhu Guangyao said, “We sincerely hope the U.S. fiscal deficit will be reduced, year after year….The Chinese government is a responsible government and first and foremost our responsibility is the Chinese people, so of course we are concerned about the security of the Chinese assets.”

So while the Chinese are sticking up for their workers, the US appears to be abandoning theirs. I wonder how long US manufacturers and US labor will continue to cooperate and not confront the Obama administration on this issue when unemployment breaches 10%?

4 comments

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This is one of the most ridiculous statements I have ever read..

“The Chinese government is a responsible government and first and foremost our responsibility is the Chinese people”

Whats scary, is that The Party actually believes it. I wonder how the rural peasant farmers; who drink toxic runoff, are jailed for political disobedience; and who barely subsist, would respond to the above statement?

Posted by Greg | Report as abusive

Forced to get tough on China? What a laugh!

Posted by jason | Report as abusive

with China, it is never adequate to look at the surface of a statement. To say the Chinese are “sticking up for their workers” is obvious to the point of absurdity.

As someone who studies Chinese culture, the more interesting statement by Zhu cited is, “[The Chinese] sincerely hope the U.S. fiscal deficit will be reduced”.

Reading between the lines, this expression of ‘sincere hope’ should read more like, ‘we expect the US to cooperate with us and tone down its rhetoric in exchange for continuing to hold your debt’.

The “responsibility [to] the Chinese people” was more likely a veiled reference to China’s continued desire to struictly manage the value of the Yuan. China’s concern is with maintaining the pace of domestic growth without overheating. If that means arguing for a non-dollar reserve currency or unloading billions in US debt in order to manage domestic inflation, then so be it.

So it’s not so much that China is ‘sticking up for its workers’, as that China is interested in cooperation so long as it continues to benefit their domestic agenda, and no further.

Posted by hariolor | Report as abusive

…visualize this scene…

(grocery store, spoiled toddler Geithner wailing, writheing noodle legs, exasperated Chinese guardian)

“But I want you to float the Yuan! I won’t monetize the debt….I promise! You have to float the Yuan, you just have to!”

Posted by Hank Reardon | Report as abusive