Chinese Premier Wen Jiabao will be in New York this week to attend the United Nations General Assembly. Reuters reports that Press Secretary Gibbs said in the White House briefing today that the President will meet with him tomorrow and will bring up the problem of China’s manipulation of currency.
The President has acknowledged that China is keeping the value of its currency below market rates, and that this is a problem. Monday the President said at a CNBC Town Hall on the economy,
China ‘s currency is valued lower than market conditions would say it should be. That means they can sell stuff cheaper here, and our stuff, when we try to sell there, is more expensive. So it gives them an advantage in trade. What we’ve said to them is you need to let your currency rise in accordance to the fact that your economy is rising, you;re getting wealthier, there should be an adjustment there based on market conditions. They have said yes in theory, but in fact they have not done everything that needs to be done. We are going to continue to insist that on this issue and on all trade issues between us that it’s a two way street. …
It’s got to be fair, you can’t just sell to us and we can’t sell to you. And so we have been bringing more actions against China before the World Trade Organization. We are going to enforce our trade laws more effectively than we have in the past. … I just want to make sure that trade is good for American businesses and American workers, and over the last several years it hasn’t always been.
Watch it here:
Also this week, Deputy Secretary of State James Steinberg talked about China’s need to rebalance its growth toward domestic demand rather than focusing exclusively on exports. This will benefit China and the world, he said.
Premier Wen is already in New York, and met with Wall Street leaders today, saying, “There’s a trade imbalance between the U.S. and China, which is not something we want to see. China doesn’t pursue a trade surplus intentionally.”
Meanwhile some argue that bringing China’s currency to market rates won’t solve the trade problem. It raises the cost of components from China that are then assembled here. This may be true, but over time it will at least remove one of many unfair advantages China is using. Dean Baker responds,
The point about China assembling items that involve inputs from other countries ignores the flip side of this story: there are many goods imported from countries like Japan and Germany that have substantial inputs from China. If the value of the yuan rises relative to the dollar, then these imports would be more expensive in the United States, making people here more likely to buy domestically produced goods. This will help the U.S. trade balance even though it will not be picked up in the trade balance with China.
And Paul Krugman knocks down the argument that fixing currency imbalances doesn’t help remedy trade imbalances by showing how it did when the Japanese currency went up relative to the dollar.
American businesses that are making a killing off of cheap Chinese goods argue against fixing the problem and Peter Navarro responds in an LA Times op-ed,
Over the last decade, as more and more American jobs and factories have moved to China, so-called American organizations such as the Business Roundtable have been transformed from staunch critics of Chinese mercantilism to meek apologists for China’s anti-free trade policies. These organizations are the very essence of the dictum often attributed to Vladimir Lenin that a capitalist will happily sell the rope that will be used to hang him.
The President meets Wen against the backdrop of Congress looking at taking matters into their own hands, taking away from the administration the ability to hedge on whether China and other countries are manipulating currency, and setting up set-in-stone procedures that just look at the facts and start a remedy process. This actually helps the President tackle this issue with China, giving him the ability to say, “OK, look, we’ve tried to work with you, given you what you say you need, but the Congress is going to force the issue so you have to move on this.” Obama Needs Congress’ Help On China Currency