Central to any rebalancing of our economic relationship with China must be change in its currency practices. Because it pegs its currency at an artificially low rate, China is running massive current account surpluses. This is not good for American firms and workers, not good for the world, and ultimately likely to produce inflation problems in China itself.That sounds pretty tough, eh? The interesting thing is that the Obama administration hasn't really introduced a hardline approach, contrary to the fears of one Jagdish Bhagwati. In his remarks prior to the first Strategic and Economic Dialogue, Obama had basically nothing to say whatsoever about the renminbi. Instead, he said this:
As President, I will use all the diplomatic avenues available to seek a change in China’s currency practices. I will also undertake more sustained and serious efforts to combat intellectual property piracy in China, and to address regulations that discriminate against foreign investments in major sectors and other unfair trading practices. And I will work with the Chinese government to establish a better system for both countries to monitor products produced for export and act when dangerous products are identified.
As President, I will take a vigorous, pragmatic approach to addressing these issues, utilizing our domestic trade remedy laws as well as the WTO’s dispute settlement mechanism wherever appropriate. High-level dialogue among economic leaders in both countries is also important to achieving real progress. My approach to our economic relationship is positive and forward-looking: to remove obstructions to gaining the benefits of trade and thus to enable faster, and healthier, growth in both economies.
All of these issues are rooted in the fact that no one nation can meet the challenges of the 21st century on its own, nor effectively advance its interests in isolation. It is this fundamental truth that compels us to cooperate. I have no illusion that the United States and China will agree on every issue, nor choose to see the world in the same way...This dialogue will help determine the ultimate destination of that journey. It represents a commitment to shape our young century through sustained cooperation, and not confrontation.The Financial Times interviewing Eswar Prasad had this sea change in Obamanite rhetoric sussed out:
For years, Washington alleged that Beijing unfairly manipulated its currency, the renminbi, to support exports and demanded China allow it to appreciate to force structural changes in its economy. Humbled by the financial crisis and heavily reliant on Beijing to climb out of it, Washington has shifted gear, relegating the currency to a subset of its push for broader economic reforms in China.Let me paraphrase Obama if he were more candid:
"The US has for now given up on pushing China on currency issues, partly because Washington has less leverage over Beijing than at any other point in recent history," says Eswar Prasad of the Brookings Institution in Washington. "The US now has enormous financing needs for its budget deficit and current account deficit, making it more dependent on China than ever before."
Look, we're basically broke. $100 trillion and counting in the hole, in fact. We have a currency we're printing like crazy that you've suggested moving away from. Don't do that as we need you to fund trillions in megaprojects that demonstrate we're "doing something." So, we'll quit this schtick about yuan undervaluation. I don't mind screwing over those unionized half-wits who voted for me expecting some prime-time China bashing. Don't take this "China Currency Coalition" stuff seriously. Even Clinton kept calling you on human rights but didn't do anything; I'm just following his example.The US keeps talking about "human rights" violations. Isn't pleading for collaboration with the PRC leadership that has channeled some $1.4 trillion in the savings of poor Chinese to the benefit of wasteful and decadent Americans the mother of all violations? The sinking dollar and $115 billion in IOUs to be issued this week certainly don't inspire confidence. As I've often said, the world economy is becoming an even more messed up place after the spectacular implosion of the subprime-securitization-senseless overconsumption axis of financial evil. I'm sorry, but the US and China are edging closer to hell instead of moving away from it. Don't expect me to feel sorry for either.
As long as you keep buying Treasuries--not US companies, mind you--we'll turn a blind eye to you supporting the Sudanese, jailing Australians on specious grounds, suppressing Uighurs, loading our computers for sale in China with spyware, and other human rights jibba-jabba. Same thing for the environment. F--k global warming. My car gets less than 10 miles to the gallon.
A word of warning, though. If you don't keep buying Treasuries, we reserve the right to bring trade sanctions against you on currency or environmental grounds. I need to give red meat to my constituencies if things don't come out the way we like it. I am sure you'll understand; it's nothing personal.
Before I end, the speech I found less-than-encouraging on two more points. Obama's ignorance is evident in claiming that this is the first Strategic-Economic Dialogue. This is wrong because (a) Bush held these talks before and (b) it's now supposed to be the Strategic and Economic Dialogue. Next, claiming that China is alike a basketball player whose playing career is likely finished due to a career-threatening injury in Yao Ming is not encouraging. If anyone is truly hobbled here, it's the debt-addled beggar Sammy.
"China Currency Coalition" Obama is a joke. His hypocrisy on Sino-American relations is only outdone by the gullibility of organized labor that supported him. Clinton...Obama...organized labor still awaits the Great China Basher who will make all things right by building Fortress America.
UPDATE: PBoC Governor Zhou Xiaochuan reiterated Beijing's line that it will reconsider revaluing the yuan "If we are confirmed that the recovery of the U.S. economy is established and stable, if we see that the United States starts to exit its expansionary fiscal and monetary policy, then China will see what it will do at that time." He also confirmed that PRC officials cut off any talks on RMB strengthening.