trade imbalances

Alan Beattie

No doubt in a valiant attempt to feed our insatiable curiosity ahead of time, some excerpts from Tim Geithner’s written testimony and prepared oral statement have come out tonight, before Thursday’s appearance in front of two Congressional committees. The key passage:

“We are concerned, as are many of China’s trading partners, that the pace of appreciation has been too slow and the extent of appreciation too limited. We will take China’s actions into account as we prepare the next Foreign Exchange Report, and we are examining the important question of what mix of tools, those available to the United States and multilateral approaches, might help encourage the Chinese authorities to move more quickly.”

It’s not explosive stuff but it does show that: 1) the administration is considering (or at least wants to give the impression that it is considering) a range of options, which could include classifying exchange rate undervaluation as an illegal export subsidy or taking a case to the WTO; 2) It is not a given that the Treasury will repeat its previous decision to resist naming China as a manipulator in the twice-yearly currency report. Read more

Alan Beattie

Big day on the Hill on Thursday as Mr Secretary does the rounds talking about China: the Senate banking committee in the morning and the House of Reps ways and means committee (which spent yesterday on another auto da fe hearing about the Chinese currency) in the afternoon. He faces a Blondinesque balancing act of being mad enough at Chinese foreign exchange intervention to placate angry lawmakers while not committing to precipitous and possibly WTO-illegal action like agreeing to currency tariffs.

Last time he was in this position, on June 10, Geithner rather neatly managed to amplify the complaints of senators in the hope that they would be heard in Beijing without necessarily endorsing them. Nine days later, China unpegged the renminbi. He will most probably try some version of this again on Thursday and hope that puts enough pressure on Beijing to take its foot off the renminbi brake for a while. Would that placate the senators and the congressmen? No. (Appearing in front of congressional committees, Geithner somewhat resembles a put-upon nephew who has been deputed to break some bad news to a gang of irascible uncles.) But would it do enough to stop them forcing currency legislation on to a crowded fall legislative schedule? Probably, yes.

Ralph Atkins

When Wolfgang Schäuble, Germany’s finance minister, next meets his European counterparts, will he be heaped with praise – or brickbats? Germany’s economy is on a roll. It grew by 2.2 per cent in the three months to June, its best quarterly performance since reunification in 1990. But that has not necessarily gone down well with colleagues in other European capitals.

Unnoticed beyond his tiny country’s borders, Jean-Claude Juncker, Luxembourg’s prime minister, earlier this month launched an extraordinary attack on German economic policy, according to the Luxemburger Wort. Germany’s success was based on “wage and social dumping,” Mr Juncker is reported as having said. “The way Germany went about improving its competitiveness, I would not like to see in our country.” Since the launch of the euro in 1999, German workers had seen a meagre 12 per cent rise in wages, whereas his countrymen saw a 41 per cent rise, he went on. Read more

James Politi

Finally, here is the Treasury report on international exchange rate policies.

Originally, the document had been scheduled to be released in mid-April, but it was delayed by the US government as it attempted to negotiate an appreciation in the renminbi while holding off mounting pressure to punish the Chinese from infuriated members of Congress.

As expected, the US is once again not naming China a currency “manipulator”, but only stating that its currency is “undervalued”. That outcome was a foregone conclusion since June 19, when China depegged from renminbi from the dollar, the first step towards appreciation.

In a statement yesterday, Tim Geithner, US treasury secretary, was cautious about the implications of the move. “What matters is how far and how fast the renminbi appreciates,” he said. Read more

Simone Baribeau

For those following the saga:

Last week, Martin Wolf wrote a column on the fable of the grasshopper and the ants as an allegory to import-surplus and export-surplus countries. The new moral: don’t be an ant. Read more

Robin Harding

Martin Wolf’s column today is brilliant even by his normal high standards. This won’t make sense unless you read it but his conclusion is:

What is the moral of this fable? If you want to accumulate enduring wealth, do not lend to grasshoppers. Read more

A 15 per cent appreciation of the renminbi would reduce the American trade deficit by just 5 per cent by the end of next year, and the effects would not significantly increase GDP. Read more

Ralph Atkins

In unusually blunt language, the ECB has made clear its fear that governments are not doing enough to put the global economy back on a sustainable growth path – despite international policy initiatives in the past year.

“At the current juncture, global imbalances continue to pose a key risk to global macroeconomic and financial stability . . . The stakes are high to prevent a disorderly adjustment in the future that would be costly to all economies,” it concludes in a special article in its monthly bulletin published on Thursday. Read more on ft.com.

A new record as Chinese foreign exchange reserves hit $2,450bn – but the rate of increase is slowing, relative to last year.

China already has by far the world’s largest foreign exchange reserves (see comparison). A slowdown has happened before, and did not prevent subsequent growth: during late 2008 and early 2009 reserves were stagnant, actually decreasing in some months. Read more

Alan Beattie

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.