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.
SECURITY: As China is ‘reshaping’ Hong Kong’s population, Taiwan must raise the eligibility threshold for applications from Hong Kongers, Chiu Chui-cheng said When Hong Kong and Macau citizens apply for residency in Taiwan, it would be under a new category that includes a “national security observation period,” Mainland Affairs Council (MAC) Minister Chiu Chui-cheng (邱垂正) said yesterday. President William Lai (賴清德) on March 13 announced 17 strategies to counter China’s aggression toward Taiwan, including incorporating national security considerations into the review process for residency applications from Hong Kong and Macau citizens. The situation in Hong Kong is constantly changing, Chiu said to media yesterday on the sidelines of the Taipei Technology Run hosted by the Taipei Neihu Technology Park Development Association. With
CARROT AND STICK: While unrelenting in its military threats, China attracted nearly 40,000 Taiwanese to over 400 business events last year Nearly 40,000 Taiwanese last year joined industry events in China, such as conferences and trade fairs, supported by the Chinese government, a study showed yesterday, as Beijing ramps up a charm offensive toward Taipei alongside military pressure. China has long taken a carrot-and-stick approach to Taiwan, threatening it with the prospect of military action while reaching out to those it believes are amenable to Beijing’s point of view. Taiwanese security officials are wary of what they see as Beijing’s influence campaigns to sway public opinion after Taipei and Beijing gradually resumed travel links halted by the COVID-19 pandemic, but the scale of
A US Marine Corps regiment equipped with Naval Strike Missiles (NSM) is set to participate in the upcoming Balikatan 25 exercise in the Luzon Strait, marking the system’s first-ever deployment in the Philippines. US and Philippine officials have separately confirmed that the Navy Marine Expeditionary Ship Interdiction System (NMESIS) — the mobile launch platform for the Naval Strike Missile — would take part in the joint exercise. The missiles are being deployed to “a strategic first island chain chokepoint” in the waters between Taiwan proper and the Philippines, US-based Naval News reported. “The Luzon Strait and Bashi Channel represent a critical access
Pope Francis is be laid to rest on Saturday after lying in state for three days in St Peter’s Basilica, where the faithful are expected to flock to pay their respects to history’s first Latin American pontiff. The cardinals met yesterday in the Vatican’s synod hall to chart the next steps before a conclave begins to choose Francis’ successor, as condolences poured in from around the world. According to current norms, the conclave must begin between May 5 and 10. The cardinals set the funeral for Saturday at 10am in St Peter’s Square, to be celebrated by the dean of the College
RSS