Currency wars: Tagging China a currency manipulator might have been an easy political win for President Barack Obama. But by stalling the issue, the White House has removed the electoral heat from the equation. Siding with a path towards more private, bilateral talks, rather than public scolding, is a surer path to a stronger yuan.
True, markets broadly expected the United States to give China a pass, either by not applying the label or delaying the entire report. But upcoming congressional elections inserted a political wild card into the unfolding drama. Indeed, normally restrained Treasury Secretary Timothy Geithner has done everything of late but actually utter the word “manipulate” in describing China’s massive currency interventions.
And Congress is baying for blood. The House just overwhelmingly passed a bill that would make it easier for the United States to apply retaliatory duties on imports subsidized by artificially cheap currencies. Meantime, Democrats are under fire because of high unemployment, increasing the chances the president might have saved a few incumbents by taking a hard line on China and its undervalued currency.
But the president chose not to go there. It’s a powerful sign Obama views calm negotiation as still more effective than confrontation.
Not only would the manipulator designation have fouled chances for useful talks at the G20 summit next month in Korea, it would have energized anti-China forces on Capitol Hill and made it more likely that the Senate would follow the lower chamber in approving the currency bill. Obama then would’ve been on the spot to sign the bill, further souring relations.
And for what purpose? Many American businesses think the currency issue distracts from more important discussions on market access and intellectual property rights issues. They know that from July of 2005 through July 2008, the yuan appreciated 21 percent while the U.S. bilateral trade deficit with China increased by $66 billion to $268 billion.
For the second time this week, the White House appears to have resisted populist instincts. Earlier, it ignored calls for a moratorium on foreclosures. While many U.S. CEOs would still love lower taxes and light regulation, they should give credit where it is due.