While the world expected the U.S. administration to answer on April 15 the freighted question of whether it believed China a foreign exchange “manipulator,” the U.S. Treasury secretary found a third path that avoided yes or no. It was, of course, delay.
While no doubt disappointing to those who desire a bit of drama and conflict in the economic and diplomatic relations between powerful nations, delay has too many compelling advantages to ignore.
Once China’s preisdent, Hu Jintao, said last week he’d be boarding a plane for Washington to attend a nuclear summit in mid-April, it was clear the “manipulator” label, no matter how warranted by facts on the ground, was off the table. To make such a declaration with the Chinese president in town or just departed would be diplomatic insanity. China and the U.S. need each other far too much for that.
But an outright no would have caused problems too for the Obama administration with an angry Congress, many of whose members equate a Chinse yuan tied to the dollar as artificially low and costing of too many American jobs.
A ‘no’vote on China currency manipulation also would have enhanced an already somewhat widespread image of the Obama administration not standing consistently strong in its foreign relations.
With delay, we got a weekend statement from Treasury Secretary Timothy Geithner that put its faith in upcoming meetings to fulfill the goal of “material progress” on the China currency issue.
“Material progress” is a worthy and infinitely elastic goal. So it is an excellent goal to strive for in a situation where getting outright what the U.S. administration presumably wants - a free-floating Chinese yuan - is simply not going to happen.
Rather than the string of meetings described in Geithner’s statement – G-20 finance ministers and central bankers in April, the Strategic and Economic Dialogue with China in May and the heavyweights othe G20 nations getting togteher in June - there’s probably more reason for slight optimism in the fact China’s leader is actually coming to Washington.
While much press commentary has centered on the issue of Iran sanctions rather than currency values as a key to President Hu’s trip, you would think there’s the possibility of some small currency quid pro quo on the part of the Chinese for avoiding the manipulator label.
Of course, the currency issue itself may not be all it’s said up to be. There are other low-cost exporters besides China, for one thing. And as others have discussed in the global press, if the concern is a better balance in the global economy, some fundamental reforms in China – essentially a much better safety net for its citizens – is a more important topic than currency values.
If that improved safety net resulted in much higher Chinese domestic demand and lower savings, that thinking goes, the export-oriented growth now fuled by a relatively weak currency wouldn’t be anywhere near as important to China’s prsoperity.