The Obama administration has signaled what might become a significant shift in the United States' policy toward China. But it has left more questions than it answered -- after a clumsy false start, followed by two days of backing and filling -- about what it really intends to do.
The sputtering began in an unexpected pronouncement last weekend by Timothy Geithner, Obama's new Treasury Secretary. In a preconfirmation statement to lawmakers, Geithner openly accused China of manipulating its currency. And he pledged a new diplomatic offensive to persuade Beijing to stop.
Not surprisingly, the remarks made big headlines. The Bush administration had carefully avoided branding China a currency manipulator, arguing that might dampen Beijing's cooperation on U.S. efforts involving North Korea and Iran. Moreover, China already has let its currency appreciate -- albeit not as much as some critics demand.
A day later, however, the White House backed away from Geithner's statement. White House Press Secretary Robert Gibbs pointedly avoided repeating any of Geithner's words, and cautioned that the administration wouldn't be making any such decisions until April, when the Treasury is required to report to Congress on the currency issue.
Finally, on Tuesday, Secretary of State Clinton suggested the State Department would be taking the reins on U.S.-China policy, and that the currency question would be only a part of it -- a step that would significantly narrow Geithner's role in U.S.-China relations compared to that of his predecessor, Henry Paulson.
The United States needs "a comprehensive dialogue with China" that goes well beyond the Strategic Economic Dialogue talks that Paulson oversaw, Clinton said in a briefing. The economic issue is very important, she added, "but it's not the only aspect of our relationship."
By week's end, there were myriad explanations for the conflicting utterances. Geithner's remarks were (a) merely a reiteration of what Obama himself had said during the campaign; (b) a shot across China's bow signaling a tougher stance later on; (c) a way for Obama to seize the initiative and keep Congress at bay, or (d) a slip-up.
"It looks like another one of these instances where someone in a new administration has said something prematurely," says Harald B. Malmgren, a former top trade official who has followed U.S.-China policy for years. "We still don't know where the Obama administration is going on its China policy, and I don't think they do, either."
To be sure, there's reason for China to be uncertain about Obama's approach. Candidate Obama took more aggressive stands than former President George W. Bush on issues such as human rights and trade, with which the United States has differences with China. And the world is mired in a recession, with unemployment rising, intensifying pressures for action.
By contrast, Bush spent eight years in office trying to gain China's trust and nudge Beijing gently into changing its policies. He even refused to boycott the Beijing Olympics when other countries were pressuring him to do so over China's treatment of Tibet. China valued its relationship with Bush, and has been wary about Obama.
The "currency manipulation" issue is an old one. The United States has long been pressing China to allow the value of the yuan to rise. For years, China tied its currency directly to the dollar, amassing huge trade surpluses. Critics argued that if Beijing let the yuan appreciate, it would slow the flood of imports and make U.S. goods more competitive.
In July 2005, Beijing ended its long-standing practice of tying the value of the yuan directly to the dollar, and linked it instead to a basket of currencies of countries with which it trades. By last autumn, the yuan had gained 20 percent against the dollar -- not as much as some critics wanted to see but substantial by any measure.
The problem is that the global economic crisis has altered the whole U.S.-China economic relationship. With China and the United States in recessions, the big question for both countries isn't currency appreciation but how to stimulate demand at home enough to overcome the slump and reverse the worsening unemployment picture.
"The situation in both countries has changed dramatically," Malmgren says. "China is in terrible trouble now, and we're going to find that all the issues we wanted to talk about -- including whether China is a 'currency manipulator' -- have been overtaken. Compared to last year, it's an entirely new world."
On that note, Obama already is facing new difficulties over a "Buy American" trade provision that lawmakers are writing into the economic stimulus package, which would prohibit the use of the money for buying materials or products made abroad. Although the measure would affect all countries, sponsors are using China as a target in promoting it.
If China and other countries retaliated -- as they almost certainly would -- it would seriously hurt U.S. exports. U.S. corporations are solidly opposing the proposal.
Just how far the Obama administration will go in taking a harder line on China still isn't clear, but the public's understanding plainly wasn't helped by the flurry of conflicting statements last week. "We're still confused about it," Malmgren says.
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