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."
- Necessary For Obama's Goals Calculate Risk's Bill McBride connects the issue to the White House initiative to double exports. "Getting the Chinese to revalue (or float) their currency is probably critical to the U.S. achieving Obama's ambitious SOTU goal of doubling U.S. exports in the next five years."
- 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."