Tales from the Trail

As President Barack Obama begins his visit to India, his erstwhile rival John McCain is voicing hope that Washington and New Delhi will tighten up their military cooperation in the face of China’s “troubling” assertiveness.

McCain, the 2008 Republican presidential candidate and the ranking Republican on the Senate Armed Services Committee, told a think-tank audience in Washington on Friday that the two huge democracies were natural allies in the quest to temper China’s ambitions.

“While India and the United States each continue to encourage a peaceful rise for China, we must recognize that one of the greatest factors for shaping this outcome and making it more likely is a robust U.S.-India strategic partnership,” McCain said.

McCain suggested that India and the United States could increase the level of representation at each other’s central military commands and work to make their armed forces more “interoperable” through joint military exercises and sharing of intelligence.

“There’s no reason why we can’t work to facilitate India’s deployment of advanced defense capabilities such as nuclear submarines, aircraft carriers, missile defense architecture as well as India’s inclusion in the development of the joint strike fighter,” the next generation fighter aircraft being developed by the United States, the United Kingdom and others, McCain said.

We were all primed for the release of the Treasury’s global currency report this afternoon, which would have included a ruling on whether China was a currency manipulator. But a decision was taken to delay the report until after the Group of 20 summit in Seoul in mid-November.

Pressure from lawmakers and business had been mounting on President Barack Obama to act, but the delay shouldn’t come as a big surprise. After all, Treasury Secretary Tim Geithner told Congress last month he wanted to rally the G20 around the issue and take a multilateral approach. Perhaps more importantly, the administration is conveniently ducking the issue until after the Nov. 2 congressional elections.

Some Democrats, who have made China’s currency practices an issue in their campaigns, are disappointed today. Our Breakingviews columnist James Pethokoukis says Obama should be given credit for resisting populist pressures for the second time this week, after also declining to heed appeals to impose a national moratorium on home foreclosures.

After irking the Chinese with the award of the Nobel peace prize last week, the Nobel committee set a few feathers flying in Washington today by awarding the economics prize to Peter Diamond, an MIT professor who has also been nominated by President Barack Obama for a spot on the Board of Governors of the Federal Reserve.

Diamond’s nomination to the Fed job has been held up by Senate Republicans who have questioned his qualifications. At the time Richard Shelby, the most senior Republican on the Senate Banking Committee said the current uncertain environment would not benefit from board members deciding monetary policy “who are learning on the job” and told Reuters Diamond was a “behavioral man” who had no background in monetary policy and the economy.

It is a probably little conspiratorial to suggest the Nobel committee was deliberately tweaking Republican noses by recognizing Diamond along with two other leading economists for their work in helping to explain unemployment and jobs markets. Nevertheless, critics are bound to seize on this, along with Obama’s peace prize last year and Paul Krugman’s economics prize in 2008, to draw their own conclusions.

In Pennsylvania, the Democratic candidate for the U.S. Senate, Joe Sestak, accuses his Republican foe Pat Toomey of favoring China over hard-working Americans.

In a new website, the AFL-CIO pointedly tracks the loss of U.S. jobs to China and other cheap-labor countries.

With about a month to go more the Nov. 2 election, Democrats and their friends are pushing as a potentially pivotal issue the export of U.S. jobs.

Not too hot, not too cold, just right.

U.S. Treasury Secretary Timothy Geithner performed a delicate balancing act on the Hill today. On the one hand, Geithner had to tell an increasingly angry Congress that he was serious about trying to persuade China to revalue its currency, the yuan. On the other, he wanted to head off the kind of unilateral action from Congress that could provoke a trade war, and endanger the administration’s efforts to engage Beijing on a whole slew of issues.

Democratic Senator Charles Schumer raged that “China’s currency manipulation is like a boot to the throat of our recovery,” and accused Geithner of being the only person in the room who did not believe China was manipulating its currency.

“I share your frustration,” was the first part of Geithner’s message to Congress, acknowledging that the pace of the yuan’s appreciation had been too slow. But leave the response to us was the other, unspoken part of the message today. The administration would use the upcoming G20 summit in Seoul in November to try to mobilize other world powers to pressure China for trade and currency reforms, Geithner vowed, adding officials were looking at all the tools at their disposal to “encourage” the Chinese to move more quickly.

U.S. lawmakers are mad and want Treasury Secretary Timothy Geithner to step in and call China a name – ”currency manipulator” — which may not sound like much on city streets but can be quite an insult in world financial circles.

“At a time when the U.S. economy is trying to pick itself up off the ground, China’s currency manipulation is like a boot to the throat of our recovery. This administration refuses to try and take that boot off our neck.” That’s not a Republican raging against President Barack Obama’s Treasury Secretary, it’s Senator Charles Schumer, a Democrat from New York (where Wall Street happens to be located).

“Mr. Secretary, although there may be some modest disagreement about what to do, I’m increasingly coming to the view that the only person in this room who believes that China is not manipulating its currency is you,” Schumer said.

On Friday, President Barack Obama threw down the gauntlet to Republicans on taxes, effectively daring them to vote against a tax cut for the middle classes, just so that they can give an average of $100,000 in tax cuts to millionaires.

Over the weekend, Republican leader of the House John Boehner seemed to shirk the challenge, but on Monday, Senate minority leader Mitch McConnell picked up the gauntlet and threw it right back. McConnell has promised to introduce legislation “today” to ensure that “no one in this country pays higher income taxes next year than they are right now.” There are no Republicans who support a tax hike, he said, effectively daring Democrats to vote for higher taxes when the economy is in the mire.

Washington Extra is not sure who will blink first. But whichever side you take in this debate, one thing is for sure: this “wrestling match,” as Obama called it, or game of high-stakes political poker if you prefer, does the economy no good at all.

We travel the Karakoram Highway from China to Pakistan on today’s edition of Washington Extra.  Driving the agenda for Reuters today is news that the United States could be heading for another trade row with China, after it announced plans to toughen rules against what it sees as unfair trade practices. A number of the proposals are likely to irk Beijing and could provoke retaliation.

It is all part of the Democrats’ “Make it in America” agenda to save manufacturing jobs at home. Critics will no doubt see it as more evidence that President Barack Obama is a closet protectionist. Others argue that this is a shrewd move from the administration to head off still more damaging moves from Congress.

Over at the IMF, Pakistan’s finance minister is in town seeking more help to salvage his country’s economy in the face of the devastating floods. The mood so far seems hopeful. Abdul Hafeez Shaikh said Pakistan wanted to keep pursuing an $11 billion IMF loan program and demonstrate its resolve to take tough economic decisions, dismissing reports that it might abandon the program. The IMF, for its part, is already urging donors to give grants, not loans, for rebuilding projects, to avoid adding to Pakistan’s heavy debt burden.

Fear returned to global financial markets today, with stocks sinking and the dollar rising sharply on renewed worries about an economic slowdown in China and the United States. President Barack Obama met with senior economic adviser Larry Summers and “talked through some scenarios” on what was playing out around the globe, and how to keep the U.S. recovery on track.

Obama, signing a bill meant to boost U.S. manufacturing, said he was determined to do everything possible to hasten the economic recovery. The problem is – how much more can he do?

Legislation to support small businesses and manufacturing and bolster state finances might be saving jobs, but are unlikely to make much of a difference if American consumers remain reluctant to buy, or if the global economy takes another turn for the worse.

The Obama administration admitted today that the economy was facing “strong headwinds” and that government finances were on an unsustainable path. Not a great backdrop as we head into November’s elections, as the White House is only too well aware.

But at least the president is trying to set a good example himself. Yesterday we heard how the Obama family was putting its vacations to work for the good of the economy, visiting the Florida Gulf Coast where tourism has been savaged by the oil spill. Now we learn that the First Daughters are getting lessons in managing their money wisely. Not only do Malia and Sasha have their own savings accounts, but they are nearly ready to start earning money babysitting. While those are valuable lessons for a 12 and nine-year-old girl, I am not sure how the $10 an hour they might earn would cover the costs of their driver and armed guard.

Otherwise, today’s highlights include an analysis of the resurgent fortunes of Sarah Palin and her increasingly influential role in the run up to the November mid-terms. And take a look too at our examination of what might be in store when Senate Majority Leader Harry Reid unveils a stripped down energy bill next week.