How Obama Should Negotiate Economic Policy With China

This article is from the archive of our partner .

With Chinese President Hu Jintao set to arrive in Washington next week, U.S. and Chinese officials are busy laying the foundation for the crucial economic policy discussions of the visit.

In a speech on Wednesday, Treasury Secretary Timothy Geithner called on the Chinese government to reduce barriers to U.S. imports, curb intellectual property theft, and allow the value of its currency--the renminbi--to rise more rapidly. That same day, Chinese Vice Foreign Minister Cui Tiankai raised concerns about the security of China's U.S. investments, while the state-controlled Bank of China announced that it will allow customers to trade the renminbi in the U.S. for the first time as part of an effort to make the renminbi an international currency.

Commentators are equally busy dispensing advice on how the U.S. should approach its economic discussions with China during the summit. Depending on the argument, the Obama administration should:

• Recognize That Trade Is War, The Weekly Standard's Irwin M. Stelzer states that America's policies of free trade, petitioning the World Trade Organization to settle trade disputes, and cautiously criticizing China's undervaluation of its currency are "all very 20th century." China, meanwhile, "sees trade policy as merely one strategic weapon in a war aimed at overtaking the United States as the world's preeminent economic and military power." What's China's grand plan?
  

The Chinese know that at some point they will have to allow the renminbi to appreciate by more than the token amount of recent months ... But by then they will have accomplished two longstanding objectives. First, their vaults will be stuffed with an even larger hoard of American IOUs, enough to give them an important influence over U.S. foreign policy ...

Second, by the time they are forced to allow the renminbi to appreciate significantly, the Chinese will have copied enough American and Western technology to be less in need of an undervalued currency​--they will have made-in-China products, subsidized if necessary, that can dominate world markets even if their currency more closely approximates its market value.

• Focus on Intellectual Property and Protectionism, Not Exchange Rate, claims David Leonhardt at The New York Times. An undervalued Chinese currency matters because it makes Chinese exports to the U.S. cheaper and American exports to China more expensive, he explains, but inflation in China is actually making Chinese goods more expensive than the exchange rate suggests. The U.S. must recognize that its biggest problem with China's economy is actually intellectual property theft, Leonhardt says: "Technology companies, for example, continue to notice Chinese government agencies downloading software updates for programs they have never bought, at least not legally." The Obama administration should argue that cracking down on intellectual property theft and dismantling trade barriers is in China's self-interest, he concludes.
  

• Focus on Chinese Political Reform, argues Daniel Twining at The Washington Post. Reformers in China are beginning to understand that economic modernization requires a political opening that "fuels innovation, promotes broad-based social welfare and strengthens the institutions that underpin the free market," he says, adding that the Obama administration should promote universal values like human freedom and the rule of law in its China policy.
  

• Manage Public Expectations, suggests Andrew Browne at The Wall Street Journal. "Americans are worried about jobs, and China is widely perceived as stealing them, through mercantilist trade policies, an undervalued currency and other underhanded methods," he notes, but "a stronger yuan, and more liberal Chinese investment rules, won’t magically restore U.S. jobs. And China is a bright spot for U.S. exporters: A trade war would hurt both sides."
  

• Take What It Can Get, says David Rothkopf at Foreign Policy: "While the United States is making its points on currency and trade balances and while it will almost certainly raise human rights concerns, President Obama has thus far shown no appetite for a scrap with the Chinese or an ugly meeting. He needs China on North Korea, on Iran, and on global economic issues far too much and not only does he know it but the Chinese know he knows it and he knows they know that he knows it."

This article is from the archive of our partner The Wire.

Uri Friedman is a staff writer at The Atlantic, covering national security and global affairs.

Twitter Email