While publicly saying that China is manipulating its currency — a very big deal — Treasury Secretary Geithner announced over the weekend the administration is getting around the problem of an April 15 deadline for declaring that China is a currency manipulator by … pushing back the deadline. They are instead taking the issue to the G-20, beginning with meetings later this month in DC.
Geithner’s official statement makes it clear,
China’s continued maintenance of a currency peg has required increasingly large volumes of currency intervention. Additionally, China’s inflexible exchange rate has made it difficult for other emerging market economies to let their currencies appreciate. A move by China to a more market-oriented exchange rate will make an essential contribution to global rebalancing.
So there we have it: China is manipulating its currency and this is harming us and blocking badly-needed global rebalancing. Acknowledging the problem is the first step toward dealing with the problem.
Senator Grassley pointed out that story teaches us we just have to face up to it and deal with this. Grassley criticizes delay of Treasury report regarding China,
Sen. Chuck Grassley (R-Iowa) criticized Treasury Secretary Timothy Geithner for delaying the release of the Department’s exchange rate report because it might strain relations with China.
. . . “If we want the Chinese to take us seriously, we need to be willing to say so in public,” he said in prepared remarks. “The past few years have proven that denying the problem doesn’t solve anything. The Treasury Department should cite China as a currency manipulator.”
But this time the problem isn’t denial it is action. Geither did cite China as a currency manipulator in his statement, but is not taking the official action of formally declaring them a currency manipulator.
Fox News’ take on it is different: “caving”,White House Denies Charges of Caving to China on Currency. (Note that the story in no way mentions “caving”, only the spin in the headline.)
The Way Forward
This is success. America’s manufacturers, economists, unions and Main Street applied pressure demanding relief from China’s assault on our economic base, and with this public acknowledgement have had some success. But not enough. The administration could not continue the pattern of years of denial.
So the question now is, what are we going to do about it?
News reports suggest that China is going to let its currency appreciate just a bit, maybe 5% over a year as a sop to placate the rest of the world. But this is an unacceptably small offering that does not even begin to address the magnitude of the problem and the damage being done. China currently enjoys a trade advantage of up to 40% because of their currency manipulation and continues to drain factories (and the accompanying knowledge and supply chains), jobs, markets, money and hope from the rest of the world. Productivity alone is rising enough to easily offset a 5% move. If this is the extent of China’s response the imbalances and resulting tensions will only continue to worsen.
This is exactly the time to expand the challenge to the administration. The Graham-Schumer bill, S. 295, intends to “level the playing field” with China,
Specifically, the amendment allows for a 180 day negotiation period between the US and China to revalue its currency, if the negotiations are not successful, a temporary across the board tariff of 27.5% will be applied to all Chinese products entering the United States – a penalty that corresponds to their estimated currency advantage.
Beyond this one issue, there is a larger problem. What is America’s strategy going to be, in a world that is half-mercantilist? Almost every other industrialized country is pursuing a national strategy. How are we responding? Until we have a national industrial/economic policy we remain at the mercy of “free markets” that are not free but are actually rigged against the American Main Street’s economic interests.