Friday, October 31st, 2014

The Obameter

Urge China to stop manipulation of its currency value


"Barack Obama and Joe Biden will use all diplomatic means at his disposal to achieve change in China's manipulation of the value of its currency, a practice that contributes to massive global imbalances and provides Chinese companies with an unfair competitive advantage."


Updates

Some diplomatic effort, but not much success

President Barack Obama pointed a sharp finger during the 2008 campaign at the Chinese government's currency manipulation, pledging to help U.S exporters by using diplomacy to end the practice.

As U.S. job growth sputters, Republicans and Democrats have lambasted the Chinese government for intentionally keeping the value of its currency low to give the country an edge in global trade. Members from both parties are calling on Obama to lead on the issue after the Senate passed legislation in October 2011 designed to pressure China to allow its currency to rise.

But has Obama used enough diplomatic force to keep his campaign promise?

One of the Obama administration's first diplomatic moves was establishing the U.S.-China Strategic Economic Dialogue, a Treasury Department initiative, which began in 2009 and last met in Washington D.C. in May 2011.

Last September, two top Obama advisers – then-White House National Economic Council Director Lawrence Summers and then-Deputy National Security Advisor Thomas Donilon – met with China's President Hu Jintao and Premier Wen Jiabao in Beijing to discuss the undervaluing of the yuan and to invite Jintao to Washington for a visit in January 2011.

These kinds of efforts have provided "diplomatic lures” by the Obama administration, said Doug Paal, vice president for studies at the Carnegie Endowment for International Peace, putting the U.S. "on the roadmap to solving the currency problem.”

But Obama could be doing more, said C. Fred Bergsten, director of the Peterson Institute for International Economics, like forming a multilateral coalition with other countries who have been hurt by China's export power and appealing to the World Trade Organization to intervene.

China's currency value is, of course, not entirely dependent on U.S. diplomatic efforts, but the yuan has gradually appreciated 4.3 percent over the last year. China also committed to more currency flexibility at the G-20 meeting in Cannes, France in early November 2011.

The yuan's rise in value, however, still is not happening quickly enough to satisfy most in the U.S., including officials at the Treasury Department. In its February 2011 "Report to Congress on International Economic and Exchange Rate Policies,” the Treasury Department did not label China a currency manipulator but still concluded, "progress thus far is insufficient and that more rapid progress is needed.”

Obama's efforts appear somewhat effective, but he has had to walk a fine diplomatic line with the Chinese, backing away slightly from his bold campaign promise. So we rate this promise Compromise.

Sources:

Bloomberg,China to Commit on Currency Flexibility at G-20, Treasury's Brainard Says, Nov. 3, 2011

Bloomberg,  Summers, Donilon Get Unusual China Access as Yuan Debate Looms, Sept. 8, 2010

Reuters,U.S. job, trade data hint at stronger growth, Nov. 10, 2011

U.S. Treasury Department,U.S. - China Strategic and Economic Dialogue, May, 11, 2011

U.S. Treasury Department,Report to Congress on International Economic and Exchange Rate Policies, February 2011.

Washington Post,China currency bill demands House, White House action, senators say, Oct. 12, 2011

Interviews: Douglas H. Paal, Carnegie Institute for International Peace, Nov. 8; C. Fred Bergsten, Peterson Institute for International Economics, Nov. 2; Doug Guthrie, George Washington University School of Business, Nov. 4

Obama meets with Chinese officials, talks currency

On the campaign trail, President Barack Obama said China is manipulating the value of its currency. So, during a recent diplomatic trip to the country, Obama took the first steps to put an end to the practice.
 
"Currency, along with a host of other issues, will come up, and I"m confident that both the United States and China can arrive at a broad set of policies that encourages trade that benefits both countries, that allows ongoing economic growth,” Obama told Reuters in an interview shortly before his trip.
 
U.S. business leaders and officials have long complained that China is pegging the value of its yuan too low against the dollar, which has led to a massive trade deficits between the two countries. In September, the monthly deficit peaked at $22.1 billion, the highest since November 2008.
 
Obama spoke with Chinese officials about the issue during his trip, according to White House officials.
 
Obama "underscored the importance of both countries pursuing strategies consistent with strong, balanced, sustainable growth that involves certain actions on the U.S. side and certain actions on the Chinese side," deputy national security adviser Mike Forman told reporters. Obama specifically reminded Chinese officials of previous statements they've made regarding the yuan, Forman said.
 
"It was very much on the agenda," Forman said. 
 
But Chinese Prime Minister Wen Jiabao appeared to skirt the issue; he made no promises, saying during this round of meetings that China wants to "encourage a steady balance of bilateral trade," according to a Reuters report. Indeed, strengthening the yuan would make Chinese exports less competitive. Already exports for the country are down about 20 percent from last year.
 
So, Obama brought up the issue of increasing the value of the yuan during his trip to China, which merits a move to In the Works for this promise. However, Chinese officials appear to be resisting his efforts, so we'll be watching this one to see if Obama makes any further progress.

Sources:

The Globe and Mail, U.S. Urges China to Strengthen Currency , by Geoff Dyer and Edward Luce, Nov. 17, 2009

The New York Times, Obama Says He Will Raise Yuan Issue With China , Reuters, Nov. 9, 2009

The White House, press briefing with White House officials , Nov. 17, 2009

Reuters, China's Wen seeks to reassure Obama on trade , by Caren Bohan and Patricia Zengerle Caren Bohan And Patricia Zengerle, Nov. 17, 2009