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Reality conflicts with US hypocrisy, politics, over China currency

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U.S. politicians readily muscle up to talk tough against China on the campaign trail, charging its policies undermine American manufacturing, but two key planks of the argument for criticizing Beijing are crumbling.

The Chinese currency has risen 31 percent against the dollar over the past seven years, eroding a chunk of the price advantage Chinese exports once enjoyed on world markets. At the same time, China’s huge trade surplus with the world has shriveled.

Yet Republican White House hopeful Mitt Romney says at every turn that as president he would declare China a currency manipulator from day one, and he regularly criticizes Beijing for unfair trade practices.

President Barack Obama, a Democrat, used the backdrop of a lock factory in America’s industrial heartland in February to berate China for failing to “play by the same rules” on trade.

Experts say the United States increasingly will have to temper its tone toward China on economic policies – at least behind closed doors – given that the argument of currency manipulation no longer holds much water…

China’s current account surplus, the broadest measure of its trade with the world, fell by almost one half in 2011 to $155 billion, well below the 4 percent of GDP level considered a benchmark for a balanced external account. That is a big move down from its peak above 10 percent in 2007.

The question is whether China’s surplus will remain in check once global growth accelerates. The decline probably reflects a mixture of a rising currency, a shift inside China toward domestic consumption and hence more imports, and sluggish demand from advanced economies for its exports…“Probably” isn’t needed here – anymore than describing the doddering advanced economies as “sluggish”.

The IMF is studying the issue, but Managing Director Christine Lagarde signaled on Thursday that the shift toward more balanced Chinese growth appears longer lasting. She said it looks as if China’s external surplus will be in the 4 percent to 5 percent range, not 7 percent as forecast six months ago, though it could move up again…

Already, Chinese Premier Wen Jiabao has signaled that the days of Beijing engineering major yuan appreciation are largely over. He said in mid-March that the currency “is possibly near an equilibrium level” and that China will focus on speeding up work on exchange rate reform – a necessary precursor to floating the currency…

U.S. Treasury Secretary Timothy Geithner continues to call for more yuan appreciation. But he too sees a change and told Congress last month the playing field is starting to move in favor of the United States. “We are seeing a very promising shift in the relative competitive position of our economies,” he said.

But complex trade issues make for poor campaign fodder.

“The election campaign will cause candidates for many offices from both parties to say simple-minded things about China. Calling for market exchange rates is more complicated than just saying ‘China cheats.’ So ‘China cheats’ will continue to be the main message,” said Derek Scissors, senior fellow at the Heritage Foundation.

The world looks on. No one has manipulated their currency more in the last year than Japan and Switzerland. Visiting officials from other nations take time during their discussions with the White House to pin Obama on US currency manipulation.

What will these hypocrites think of as other nations begin to add the Chinese RMB to their list of reserve currencies?

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Written by Ed Campbell

April 14, 2012 at 10:00 am

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