April 28, 2012 – 6:26 p.m.
Political Economy: Beyond the Yuan
By John Cranford, CQ Columnist
One thing that presidential candidate Mitt Romney has in common with one-time presidential candidate
Not unlike Obama four years ago, Romney has been promising that when he takes office, among his first actions will be to formally label China as a currency “manipulator.”
That would raise all sorts of global hackles and potentially lead to punitive tariffs on imported Chinese goods. But however ugly that might be in reality, it’s a guaranteed applause line on the hustings.
The public is skeptical, at best, that China’s rise as an economic power is beneficial to the United States. So Romney’s assertion that Beijing promotes economic cheating rings true to people who know that much of what they buy comes from China.
The truth is, however, that a President Romney would probably behave toward Beijing almost exactly as Obama has. All the currency manipulation talk we heard from the Democrat-as-candidate dissipated when he was faced with real-world governing. The Republican, if he’s elected, will be little different.
What that means is that whether Romney or Obama is in the White House a year from now, the China “problem” will continue to loom large, and the solutions to it will remain complex and difficult. And that’s because the real issues that the United States has with Beijing don’t really involve exchange rates. At least not anymore.
China has actually moved well down the road toward allowing its currency, the yuan, to be priced in the marketplace. Just two weeks ago, Beijing took another step in that direction, widening the “band” in which the exchange rate of the yuan is permitted to move on a daily basis. Over the past seven years, since China took its first tentative steps toward giving its currency some freedom to float, the yuan has appreciated by more than 30 percent relative to the dollar.
Yes, China still exercises some control over the exchange rate, and, yes, the yuan is probably still undervalued. (During the financial crisis, for instance, Beijing froze the yuan’s value relative to the dollar for a time in order to avoid harming its domestic economy.) But the issue is just not what it was a few short years ago.
Last week, Treasury Secretary
The inference from Donohue’s comments was that Romney won’t have to account for changing his tune on China if he is elected. But the Chamber — and, by extension, American business — has never been fond of the saber-rattling over the yuan. U.S. corporations might be happier with a more rational exchange rate mechanism, but they don’t want to use a trade war to get it.
Bigger Issues on the Table
This week, top officials from the United States and China, including Geithner and Secretary of State
Political Economy: Beyond the Yuan
Topics will be wide-ranging and cover all manner of economic issues that are critical to both countries. At last year’s talks, the United States secured commitments to improve opportunities for U.S. companies to export to China. And for all of 2011, U.S. goods exports to China grew by 10 percent to $104 billion. China is now the No. 3 country for U.S. exports, behind Canada and Mexico.
Some skeptics wonder whether China might step back from its most recent currency easing once this latest round of strategic talks is in the rear-view mirror, but the pattern of yuan appreciation seems unlikely to reverse.
China’s economy is now the world’s second-largest, behind the United States, and it continues to grow, if a bit more slowly than before. The country’s middle class is maturing, and China shares many concerns about global affairs with the United States. The $1.2 trillion in U.S. Treasury debt held by China merely reinforces the fact that the two nations are joined at the hip.
China is also about to undergo a leadership transformation, when Hu steps down in October and Xi Jinping takes over. Xi has closer ties to the United States than any previous Chinese leader, including a daughter at Harvard.
The two countries still have political differences that are bound to generate tensions — and those are also likely to be highlighted at this week’s talks. But economics increasingly seems to trump politics in the U.S.-China relationship. And, at this point, currency concerns have almost become an afterthought.