When President Obama traveled to China in November, currency policy was among the most-discussed issues. U.S. economists worried, and still do
that China devalues its currency, creating a trade imbalance that
weakens the U.S. economy. As those economists explained, this is a big
deal, and Obama this week is pushing
China to alter its damaging currency policy. China, however, isn't yielding
. Here are theories why, what it means, and what Obama can do about it, if anything.
- Grim Outlook Foreign Policy's Joshua Keating isn't optimistic.
"The United States has had little success in the past in pressuring
China to revalue its currency. The markets seemed bearish on
Obama's latest push as well with one-year dollar/yuan non-deliverable
forwards implying just a 2.8 percent rise in the yuan over the next 12
months. Meanwhile, China has also escalated a trade fight with the
European Union, filing a complaint with the World Trade Organization
about anti-dumping duties imposed on Chinese-made shoes."
- Politically, He Has To Deliver National Journal's James Mann explains,
"the emphasis on jobs means that the administration likely to push
China hard to let its currency appreciate." He writes, "I suppose the
Chinese could help Obama a lot, if they were to open the
way for, say, a 40 per cent revaluation of their currency - but there's
no sign they're going to do that."
- Most Important Economic Issue in 2010 Global investment group Pimco's managing director Paul McCulley lists it at number one. "If China were to let its
currency appreciate, it could regain a degree of monetary policy
autonomy and a better ability to manage the risk of overheating and
asset price inflation. Another outcome, however, is that China refuses
to let the yuan appreciate, essentially maintaining too easy of a
monetary policy for itself and the developing countries that shadow
Chinese policies. This would create bubble risk, particularly for
assets such as emerging market (EM) equities and commodities."
- Uncooperative China Commentary's Jennifer Rubin notes, "we have a new level of bellicosity reflected in [China's] threats over our arms
sale to Taiwan and the delayed upcoming meeting with the Dalai Lama. There is reason to fret that the Obami will retreat to more
conciliation in their ongoing effort to gain China's support for Iran
sanctions." Rubin doubts we will get it.
- 'Dispute Likely to Further Fray U.S.-China Ties' So evaluates the New York Times's Mark Landler:
Reopening the battle with Beijing over its currency may pay
political dividends for Mr. Obama at a time of double-digit
unemployment and growing fears that China is stealing American jobs.
But experts say the president will have even less leverage over Beijing
than President George W. Bush did. Mr. Bush prodded China for years to adjust its exchange rate with little success.
China, they say, is determined to reignite its export machine after a global recession
that sapped demand for Chinese goods. A cheap currency is vital to that
goal. And China's leaders have grown impatient with lectures on
economic policy from their chief debtor, the United States."
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