Wow. I take my hat off to the combined drafting skills of the US Treasury and the Chinese for this inspired bit of calculated dullness, of almost North Korean calibre. That’s an object lesson in damping down speculation about deals over an end to the renminbi peg, for one news cycle at least. In a cricketing culture, that would be called playing with a dead bat. For the US and China, it’s smothering the ember of news with the wettest of wet blankets.
So now it looks like the April 15 deadline for the US Treasury’s currency report is conveniently going to slip, largely because it would look a bit churlish to welcome Hu Jintao to Washington for the April 12-13 nuclear talks and then hang a big scarlet sign saying “MANIPULATOR” round his neck as soon as he steps off the plane. Most likely it will also slip beyond the “strategic and economic dialogue” meeting that the US is having with China in May. And then maybe beyond the G20 at the end of June? Or perhaps, if the US has piped down about the currency for a couple of months, China might announce a float, or a crawling revaluation, some time in June.
But one question is whether Congress is prepared to wait that long. Charles Schumer (Dem, NY, not a fan of China) wants to introduce his bill allowing a limited form of currency retaliation against China by the end of May. The key question for the coming weeks is how much patience Capitol Hill has with waiting both for the currency report and for Beijing to move. Congress might secretly be paragons of patience. But they sure don’t look like it.
This letter the other day from Barack Obama, Gordon Brown, Nicolas Sarkozy, Lee Myung-Bak and Stephen Harper looks at first sight like the usual bland exhortations for everyone to do better. (Why didn’t Angela Merkel sign, btw? Too busy with Greece?) But the semiotics are a bit more complex. The bit about “We all understand that ongoing trade, fiscal and structural imbalances cannot lead to strong and sustainable growth” looks pretty much like a pointed jab at China.
So does this mean the currency wars are going to break out in the G20? Since the grouping is supposed to work on consensus, it has generally shied away from arguments about exchange rates, which have the potential to blow up any meeting or institution in which they take place. Throwing them into the mix will make G20 meetings a lot livelier, at least. I’m not convinced it’s wise, though, for a joint letter apparently aimed at China to be signed exclusively by a gang of rich countries. If the US wants to use the G20 to put pressure on the Chinese, it will have to get on board emerging market countries also suffering from renminbi undervaluation, Brazil being the obvious example. The last thing the US wants is to replicate the unhelpfully rigid rich-country-vs.-poor-country divisions that have blocked progress in the WTO.
The battle over exchange rates between Beijing and Washington is warming up nicely after a few years’ hiatus, only with a bit more urgency this time. Today’s hearing at the House Ways and Means committee canvassed proposals for what to do about it. Interestingly, there was more consensus among the experts testifying than previously that China holding down the renminbi was a serious problem. But the solutions all seemed less than forceful: call China a currency manipulator, go to the IMF, go to the WTO.
The more confrontational solutions, like imposing anti-subsidy duties to combat currency undervaluation, didn’t get much support. Sandy Levin, the Michigan Democrat who currently chairs the committee, has a reputation as a sceptic of free-trade purists, but he sounded pretty cautious about anything that might touch off a direct confrontation. Read more
China is carrying out stress tests on labor-intensive industries to gauge the effect a stronger yuan would have on earnings, reports Bloomberg (itself reporting local paper the 21st Century Business Herald). Consequent speculation on the yuan has pushed forward prices up.
The yuan’s value has been kept at about 6.83 per dollar since July 2008, following a 21 per cent advance over three years, as policymakers intervened to help exporters weather a global recession. Read more