The Treasury Department backed away from labeling China a currency manipulator again as it posted its “Semi-annual Report to Congress on International Economic and Exchange Rate Policies.” It was another lost opportunity to address an issue that has caused the U.S. trade problems for years. The Treasury probably made a mistake. It said in the report:
[T]he movement of the RMB to date is insufficient. Treasury will closely monitor the pace of RMB appreciation and press for policy changes that yield greater exchange rate flexibility, a level playing field, and a sustained shift to domestic demand-led growth.
The Obama administration once again fell back on its policy of allowing diplomacy and subtle pressure to persuade the People’s Republic to give in on the yuan’s valuation.
The tenor of the administration’s approach has changed considerably in a year and a half. Treasury Secretary Timothy Geithner made an unplanned visit to China in April 2010. He pressed Vice Premier Wang Qishan on a revaluation of the yuan. A meeting of Chinese President Hu Jintao and President Barack Obama shortly after Geithner’s trip also did nothing to remedy the situation. The U.S. was not prepared for a trade war, despite the damage the exchange rate has done and would do to the financial aspect of America’s trade.
It could be that the U.S. government simply has turned its attention to issues that are more pressing. Congress had considered a bill to force the administration to take action on the yuan. Nothing has been heard about the legislation for months. Washington is engulfed in debate over the budget and deficit. And the 2012 election conversations barely have touched on foreign policy at all.
Notwithstanding the new priorities of the administration, the U..S will have to negotiate with China over the valuation of the yuan at some point soon. It is part of the web of forces that will help bring the American economy from contraction to relatively rapid expansion. China’s economy has begun to weaken. The People’s Republic may be vulnerable to a forceful move from Washington. But the Treasury Department, once again, missed that chance.
Douglas A. McIntyre
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