Like any country’s leadership, China’s doesn’t want to be seen to be retreating under fire or bowing to pressure from outsiders. But the signs are that Beijing might finally allow Washington something it has been seeking for some time—a strengthening of its currency.
The by many measures under-valued renminbi has been a thorn in the side of Sino-US relations for years, with the US claiming that the Chinese government’s efforts to hold down the value of its currency has hurt US exporters and cost by some estimates 1.4 million US jobs (at least according to Paul Krugman writing in the New York Times in January).
Indeed, Krugman went on in a March column to urge the Treasury Department to cite China as a currency manipulator in a report that was due Thursday; he then went on the next day to claim at an Economic Policy Institute event that if China stopped holding its currency down, global economic growth would actually be 1.5 percentage points higher.
He’s not alone. US lawmakers worried about job losses have chimed in increasingly vocally and the Obama administration—facing a rough mid-term election season, with Democrats projected to suffer moderate to heavy losses in Congress—has been under pressure to talk tough.
But the administration instead took the decision to delay the Treasury report to prevent the embarrassment of citing China within days of a visit by Chinese President Hu Jintao to Washington to attend a nuclear summit. And the move appears to be paying off.
Last week, the New York Times reported that the Chinese government was preparing to announce that it will allow its currency to strengthen a little. And, although Hu (unsurprisingly) didn’t make any clear announcement in Washington indicating an imminent shift in policy, he was quoted by the Xinhua news agency as telling Obama:
‘China remains determined in the direction of pushing forward the reform of the yuan’s exchange-rate formation.’
It’s perhaps easy for US lawmakers to forget that although China may not be democratic, its leaders are still also sensitive to public opinion and domestic pressure. The Obama administration’s cooler diplomacy certainly seems to be paying off (China has also reportedly said it plans to work with the US on new sanctions). And, on the question of empathy for fellow policymakers, the Christian Science Monitor has an interesting entry by Adam Smith Institute blogger Liam Ward-Proud asking the difference between US and Chinese currency manipulation:
‘The accusation of currency manipulation, then, is a slightly strange, not to mention hypocritical, one. Recall that the USA has deliberately weakened its relative currency value in two previous recessions in order to expand exports. I don’t think it is clear that the current Chinese actions are significantly different.’
Provocative. And perhaps with a grain of truth.