US President Barack Obama has set the stage for a possible trade war with China by branding the Asian giant a currency manipulator, a term his predecessor former president George W. Bush had skillfully avoided despite pressure from lawmakers.
“President Obama — backed by the conclusions of a broad range of economists — believes that China is manipulating its currency,” his Treasury secretary-designate Timothy Geithner said on Thursday in written testimony to senators quizzing him over his pending confirmation.
Obama, who took office on Tuesday, has pledged to “use aggressively all the diplomatic avenues open to him to seek change in China’s currency practices,” Geithner said.
Under the Bush administration, the Treasury had stopped short of identifying China a currency manipulator in its semi-annual global currency reviews, acknowledging however that the yuan was relatively undervalued against the US dollar.
By directly branding China, Obama has laid the groundwork for trade friction between the key powers, both reeling from the global financial turmoil that has slammed the brakes on growth and triggered a host of domestic problems.
“This is definitely setting the stage for some bad blood between the two countries and I anticipate that over the next year or so, trade fiction is going to become somewhat more heated,” said Eswar Prasad, former China division head at the IMF.
He said Obama’s charges came as China used its competitively priced exports to fuel growth and check rising unemployment, disregarding international advice that it wean away from exports by using domestic consumption as a linchpin for economic expansion.
“It signals a much harder line I think the Obama administration is going to take in public,” Prasad said, contrasting the new administration’s policy with the Bush administration’s strategy of prodding Beijing in private to allow the yuan to appreciate.
As an Illinois senator, Obama had co-sponsored legislation aimed at changing how the US government formally determines currency manipulation and authorizes new trade reprisal measures.
During the presidential campaign, he had accused China of suppressing its currency’s true strength to make its exports more competitive, echoing some US lawmakers who blamed the snowballing US trade deficit with China on the weak yuan and have sought sanctions against Beijing.
“If there is a rise in trade tensions, it is much more a reflection of deeper reality rather than anything else,” said Brad Setser, a former US Treasury official, citing the current economic crisis facing the two powers amid a global trade slump. “Certainly, it is a signal that the Obama administration is going to put a focus heavily on the Chinese exchange rate regime and make that a key issue in discussions between the US Treasury and the Obama administration and China.”
Geithner, who is expected to be confirmed as Treasury chief, hinted that any moves to tighten laws against currency manipulation would ensure that “countries like China cannot continue to get a free pass for undermining fair trade principles.”
“The question is how and when to broach the subject in order to do more good than harm,” he said.
But heavy US dependence on Chinese capital may limit Obama’s options against Beijing.
China has overtaken Japan as the US’ biggest foreign creditor and as of October held US$652.9 billion in US Treasury bonds.
“To engage in any action that would lead the Chinese to misunderstand actions by the US and therefore sell these holdings would be dangerous,” said Andrew Busch, global foreign exchange strategist with BMO Capital Markets.
Busch said that the US has been reluctant to brand China a currency manipulator for two reasons.
“One, China doesn’t meet the Treasury’s narrowly defined criteria. Two, China owns a lot of US Treasury, agency and overall debt securities,” Busch said.
US lawmakers had previously proposed legislation aimed at imposing steep tariffs on Chinese products entering the US if Beijing refused to make its currency flexible.
WHEELING AND DEALING? Hou You-yi, Ko Wen-je, Eric Chu and Ma Ying-jeou are under investigation for allegedly offering bribes for the other side to drop out of the race Taipei prosecutors have started an investigation into allegations that four top politicians involved in attempts to form a “blue-white” presidential ticket have contravened election regulations. Listed as defendants are Chinese Nationalist Party (KMT) presidential candidate and New Taipei City Mayor Hou You-yi (侯友宜), KMT Chairman Eric Chu (朱立倫), former president Ma Ying-jeou (馬英九) of the KMT and Taiwan People’s Party (TPP) Chairman and presidential candidate Ko Wen-je (柯文哲). The case stemmed from judicial complaints filed last month with the Taipei District Prosecutors’ Office alleging that the KMT (blue) and the TPP (white) had engaged in bribery by offering money or other enticements
COUNTER DISINFORMATION: More engagement and media literacy are needed to push back against misinformation and claims that the US is an unreliable partner, the AIT director said The US is “confident” that Taiwan does not face an imminent threat of a Chinese invasion, American Institute in Taiwan (AIT) Director Sandra Oudkirk told a US public radio show, adding that Washington remains committed to defensively arming the nation. She made the comment during an interview on All Things Considered, broadcast on Friday on US-based National Public Radio. “There is an important distinction between making plans and training troops, and getting ready to do something,” Oudkirk said, on whether she thinks Beijing plans to attack Taiwan in the near future. Chinese officials have told Washington that “their preference is for peaceful reunification,
EXPOSED: Some Taipei wardens reported joining the trips out of peer pressure, while others said they were relieved it was made public so they could refuse, a city councilor said Nearly 30 percent of Taipei borough wardens have joined group tours to China that were partially funded by the Chinese government, leading prosecutors probing potential Chinese interference in January’s elections to question local officials, an investigation showed. Democratic Progressive Party Taipei City councilors Chien Shu-pei (簡舒培) and Chen E-jun (陳怡君) have reported cases of Taipei borough wardens inviting residents to join inexpensive privately organized group tours to China that were partially funded by the Chinese government. The six-day trips reportedly cost NT$10,000 to NT$15,000, the councilors said. An investigation by the Liberty Times (the Taipei Times’ sister newspaper) showed that nearly 30 percent
ELIGIBLE FOR JANUARY: All presidential candidates and their running mates meet the requirements to run for office, and none hold dual citizenship, the CEC said Taiwan People’s Party (TPP) Legislator and vice presidential candidate Cynthia Wu (吳欣盈) is working with the Central Election Commission (CEC) to resolve issues with her financial disclosure statement, a spokesman for the candidate said yesterday, after the commission published the statements of all three presidential candidates and their running mates, while confirming their eligibility to run in the Jan. 13 election. Wu’s office spokesman, Chen Yu-cheng (陳宥丞), said the candidate encountered unforeseen difficulties disclosing her husband’s finances due to being suddenly thrust into the campaign. She is also the first vice presidential nominee to have a foreign spouse, complicating the reporting of
RSS