The premise of the Obama Administration China policy, which the president outlined last summer, is that the “United States and China share mutual interest” and that “our ability to partner with each other is a prerequisite for progress on many of the most pressing global challenges.” China policy in the first year of any Administration is often fraught with uncertainty and the Obama presidency, like its predecessors, made initial missteps. But on the positive side, Washington worked closely with Beijing to keep the global recession from devolving into a depression. A backdoor dialogue on North Korea was re-established and confrontations were avoided over historically difficult issues such as human rights. But 2009 ended on some sour notes with the Chinese stiffing President Obama at a bilateral summit in China and snubbing him at the Copenhagen climate gathering. And 2010 opened with controversy: allegations of Chinese cyber-espionage against Google, a long-promised US arms sale to Taiwan followed by Chinese threats of retaliation against US firms; and a presidential meeting with the Tibetan religious leader, the Dalai Lama, in defiance of Chinese warnings. The rest of 2010 promises to be equally rocky: potential disagreement about sanctions against the Iranian nuclear program and new frictions over China’s currency exchange rate and trade policies. In that vein, this spring the Treasury Department must issue its semiannual report on currency issues and must decide whether to label China a “currency manipulator.” Such designation is something Treasury has never done, despite ample evidence of Beijing’s’ manipulation. Treasury Secretary Tim Geithner recently stated that he thought it was likely that China will move on the currency issue. Ironically Geithner’s statement came a day after President Obama vowed to “get much tougher” on China over this issue to “make sure our goods are not artificially inflated in price and their goods are not artificially deflated in price that puts us at a huge competitive disadvantage.” Obama’s statement marked a shift for the Administration which has for the past year played down its concerns about China’s currency. Most economists agree that the yuan is generally undervalued by 25 to 40 percent against the dollar. The cheap yuan has allowed China to amass by far the largest trade surplus in the world and a war chest of more than $1.7 trillion of foreign exchanges. If they allowed their currency to float or be revalued, the US economy could see its exports jump, create 700,000 to 800,000 jobs and watch its trade deficit drop by as much as $125 billion. Other economists are not convinced that a Chinese revaluation of the yuan would help the US economy. They cite the fact that China has so many other techniques – such as lowering taxes, giving companies free land, adopting export subsidies – to increase its exports that a revaluation would not matter much. They add that when China allowed the yuan to appreciate by 20 percent, the US trade deficit with China still ballooned. To make matters worse, Chinese Premier Wen Jiabao recently lectured the United States, criticizing its call for China to let its currency rise against the dollar to boost US exports, advising America to work harder to improve its financial system and directing it to change its foreign policy to improve relations with China. These remarks seemed to indicate that China would generally pursue a relatively tough line in its relations with the United States this year. The comments further underscored China’s increasing self-confidence on the international scene following its success at coping with the global financial crisis. Wen added that China’s economy also faces many challenges including the possibility of a “double dip” recession if world growth does not pick up and runaway inflation if it does. Wen’s statements on the currency issue appeared to close off the possibility that China would allow its currency to appreciate against the dollar anytime soon. The Premier countered that he did not think the yuan was undervalued and that the US method – seeking to enlarge exports through tweaking currency exchange rates – was protectionist. Wen also directed the United States to “take concrete steps” to improve its financial outlook and protect China’s investments in US Treasury bonds. China holds hundreds of billions of dollars in American debt – so much, in fact, that the nation is often referred to as “America’s banker.” Chen Deming, China’s Harvard-educated Minister of Commerce added that the US government’s “obsession” with China’s exchange rate could not be seriously addressed until it stopped blocking the export of high-tech products, such as supercomputers and satellites, to China. “If some congressmen insist on labeling China as a currency manipulator and slap punitive tariffs on Chinese products, then the [Chinese] government will find it impossible not to react,” Chen said in an interview. “If the United States uses the exchange rate to start a new trade war, China will be hurt. But the American people and US companies will be hurt even more.” President Obama responded by accusing China of abusing its citizens’ rights and maintain currency policies that cost millions of US jobs a double-barrel attacks that comes amid a growing willingness to confront and even antagonize the Asian power. Obama again pushed for China to change its currency policy saying Chinese movement “to a more market-oriented exchange rate is needed to help efforts to rebalance the global economy.” Meanwhile in the Senate, Sens. Charles Schumer (D-NY) and Lindsey Graham (R-SC) have announced bipartisan legislation to penalize countries like China that undervalue their currency to artificially discount their foreign products. The Currency Exchange Rate Oversight Reform Act was also co-sponsored by Sam Brownback (R-KS), Sherrod Brown (D-OH), Olympia Snowe (R-ME), Evan Bayh (D-IN), Ben Cardin (D-MD), Debbie Stabenow (D-MI), Robert Casey (D-PA), Russ Feingold (D-WI), Kirsten Gillibrand (D-NY), Carl Levin (D-MI), Jim Webb (D-VA), Arlen Specter (D-PA), Blanche Lincoln (D-AR), and Susan Collins (R-ME). The Currency Exchange Rate Oversight Reform Act includes the following provisions:
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