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| China-Japan-Koreas |
| US moving closer to 'currency manipulator' status for China |
| 2006-02-20 |
| Frustrated by the slow pace of China's appreciation of its currency, the Bush administration is sending signals that it is ready to take a harder line with Beijing. The shift comes as U.S. data show its trade deficit with China ballooned last year to $202 billion, more than one-quarter of the total U.S. deficit. That has added to political pressure on the administration from members of Congress, who say American jobs are being lost to the tide of inexpensive Chinese imports and the flight of manufacturing to China. Last week, U.S. Trade Representative Rob Portman announced a task force to take up complaints about unfair Chinese trade practices. U.S. politicians allege that China deliberately keeps its currency weak to make its exports cheaper in dollar terms and U.S. imports more expensive. Now, the U.S. Treasury, which has so far sought to avoid confrontation with Beijing over the currency issue, is preparing the ground for a possible decision to label China a "currency manipulator," in a regular review scheduled for April, although the semiannual report often is issued well after the scheduled release date. The Treasury has been sounding out Wall Street investors about such a move, which would require the U.S. to open formal talks with China on the issue. All this comes ahead of a visit to the U.S. in April by Chinese President Hu Jintao. The visit gives the Bush administration some leverage to extract concessions from Beijing, which will be anxious for Mr. Hu's trip to go as smoothly as possible. In testimony to the U.S. Congress last week, new Federal Reserve Chairman Ben Bernanke sought to play down what many consider a grave risk in any trade confrontation with Beijing – that China may decide to sell its huge holdings of U.S. Treasury bills. That could force up U.S. interest rates and add to the cost of borrowing by consumers and businesses. He said U.S. capital markets are "sufficiently large and liquid that the impact of such changes would be mostly transitory and could be managed." But Mr. Bernanke advised caution when asked about pending legislation that would impose a 27.5% across-the-board tariff on Chinese imports if Beijing fails to do more to strengthen its currency. "It's not a good idea to break down some of the gains we've made in terms of freeing trade in the world economy," he said. Also, Mr. Bernanke made clear he saw no quick fix to the U.S. deficits, saying it could take a decade to shrink them to more sustainable levels. U.S. Treasury officials had hoped to avoid a battle with Beijing, believing that the threat of a protectionist backlash in Congress might be enough to persuade Beijing to pick up the pace of currency appreciation. They showed sympathy with Beijing's arguments that it needed time to put in place more sophisticated trading systems and to expand domestic consumption to wean the economy off exports. However, the Treasury has little to show for its patience. After a 2.1% appreciation of the yuan against the U.S. dollar in July last year, China's currency has since strengthened by less than 1%. It closed Friday at 8.048 against the dollar. But as the Bush administration struggles to fend off protectionist legislation, it has to weigh any aggressive action against Beijing carefully, and it is far from clear that the U.S. Treasury will raise the stakes by labeling China a currency manipulator. The Treasury, as evidenced by recent decisions to avoid citing China for manipulating its currency, has substantial leeway in what to say in its next report, and the decision is largely one of tactics and political judgment. A determination that China is manipulating its currency doesn't have any immediate tangible effect, but is supposed to trigger talks between Washington and Beijing -- and such talks have been underway for sometime, anyway. It is too early to tell whether the talk of citing China in the next round is jawboning to put pressure on Chinese leaders before Mr. Hu's visit in April and to calm China-fearing members of the U.S. Congress or a sign of Bush administration frustration with China. Wall Street represents a spectrum of opinion on the currency issue. Retailers like Wal-Mart Stores Inc. would face severe disruption if a trade war cut off supplies of Chinese products that fill its shelves. Trade friction also could rebound on many U.S. multinationals, which see the huge Chinese market as among their most attractive investment opportunities. Nor is it obvious that forcing China to appreciate its currency would result in the return of U.S. manufacturing jobs from a country where factory hands often work six days a week in return for less than $100 a month and a dormitory bed. Many economists say that if Congress choked off imports from China, low-end manufacturing would simply migrate to countries like Mexico or Vietnam, and the net effect on the U.S. deficit would be insignificant. Still, currency appreciation fits in with China's strategic goal of making its economy less dependent on exports. So while Chinese leaders remain adamant they will move on the currency at their own pace, they have laid the groundwork for a possible change of tempo. Mr. Bernanke offered few alternatives for prodding China to change, other than persuasion and technical assistance. Also last week, U.S. Treasury Secretary John Snow said the U.S. isn't satisfied with the progress China made after the initial revaluation last year. "It's time for more movement," he told Bloomberg television. "We will hold them to their commitments." |
| Posted by:lotp |
| #13 6 is saying that China's pile of greenbacks is their problem and that the usual economik fear mongers are at work. Buying things too cheap is not a problem for the consumer. That said, 6 is right on with the coming era of low gravity. The effects on just damn near everything will be profound. Drugs, guns and whiskey will be your friends and fishhooks.... don't forget fish hooks. |
| Posted by: Yur Lokal Saltie 2006-02-20 18:23 |
| #12 ;-) |
| Posted by: lotp 2006-02-20 17:53 |
| #11 It's almost too late for the value of the dollar to have a big impact on the election. Besides, the effect of a shutoff of the American market would do a lot more damage to the Chinese regime than the American one. China is no economic powerhouse. It is just able to steal a little money from a whole lot of people. As opposed to America where the government steals a lot of money from everybody. |
| Posted by: Nimble Spemble 2006-02-20 17:34 |
| #10 Watch out for the heartburn, Frank. |
| Posted by: Darrell 2006-02-20 17:32 |
| #9 era of low gravity? Why wasn't I told? Is this an O-Club exclusive? Guess I don't need to go on that diet now.... |
| Posted by: Frank G 2006-02-20 17:30 |
| #8 Yeah, 6 was off to a great start before the booze started taking over. |
| Posted by: Darrell 2006-02-20 17:24 |
| #7 Lost me on the last half of that one, 6. Could you unpack that a little? |
| Posted by: lotp 2006-02-20 17:22 |
| #6 "a visit to the U.S. in April by Chinese President Hu Jintao. The visit gives the Bush administration some leverage to extract concessions from Beijing, which will be anxious for Mr. Hu's trip to go as smoothly as possible." I'm predicting an April no-show -- Mr. Hu isn't going to want photos with the guy who smacked Iran hard. |
| Posted by: Darrell 2006-02-20 17:21 |
| #5 Maybe we can sell them Rockefeller Center. We always make money on that deal. Or perhaps they'd like to invest in General Motors. I suppose they could just flush their dollars down a toilet but that sure would upset their bottom lines. Who knows? I'm still running a huge ass defecit with Publix, I can't figure out what to do except work and continue to make 20 times what I owe them. But hey.... who knows. I lived through 3 Great Depressions and Crashes. What was that suckers name? Some Indian gent. The Great Crash of INSERT YEAR HERE. However, I'm on the ground floor of peak oil and the coming era of low gravity. |
| Posted by: 6 2006-02-20 17:17 |
| #4 Sure. But if the value of the dollar drops a lot, consumer purchasing power here in the States drops in an election year. |
| Posted by: lotp 2006-02-20 17:13 |
| #3 Hold on a minute. That wad of dollars China is holding is China's problem, not ours. If they start dumping dollars, that will drop the value of the dollar and the value of the whole stash. So they get to sit on thier pile of dollars. What is really going on here is the power of monopsony. Yeah, the same game Wal*Mart plays. Since we're China's main customer, we're asking for a discount. No discount? No more purchases. While these numbers are huge, lots of it flows right out of China because China is only performing the low value add final assembly. They have to pay someone else for the parts assembled. The higher value add work is being done elsewhere to design and make those parts. Bottom line? China's getting the screws put to it. |
| Posted by: Nimble Spemble 2006-02-20 17:11 |
| #2 Those need doing, but if the currency situation isn't addressed we will still have to deal with the huge dollar reserves China is holding. With the renimbi artificially low against the dollar, we are due to repay them a good deal of real economic value -- more than we got from them when they bought the bonds or accepted payment for goods. That's the difficult balancing act facing the feds on this issue. |
| Posted by: lotp 2006-02-20 16:38 |
| #1 Also, Mr. Bernanke made clear he saw no quick fix to the U.S. deficits, saying it could take a decade to shrink them to more sustainable levels. You'd be amazed at what your could accomplish if you really tried. Like start drilling yesterday in Alaska and off the coast of California and Florida, start building more capacity in refining, and tell Walmart et al that they'd better be generation a new source of cheap supply if they don't want to find themselves out of market chain when the hammer comes down on China. Its a matter of political will. Previous administrations and this one, don't have that. |
| Posted by: Angaith Grerens9024 2006-02-20 16:29 |