Treasury's Geithner hopes China takes action on the devalued yuan currency
Thursday, March 25, 2010
Treasury Secretary Timothy F. Geithner said Wednesday that the United States "can't force" China to change its currency policies, as debate continues over whether the Obama administration will take action against Beijing as part of an assessment next month about how it sets its exchange rates.
Geithner said he thought the Chinese would take action on their own to allow the yuan to gain in value, fixing a misalignment some argue is a deliberate effort by China to keep its goods cheap on world markets.
"I think it is quite likely they move over time," Geithner said in an interview on CNN. "We can't force them to make that change. But it is very important that they let it start to appreciate."
Geithner is being encouraged by some members of Congress, economists and labor and business groups to label China a "currency manipulator" on April 15 when he issues a semiannual review of world currency policies.
The designation would have no immediate impact -- beyond triggering discussions over how the problem might be fixed and possibly paving the way in the future for the imposition of punitive tariffs on Chinese goods. But it could have deep political repercussions, as the government responds to high U.S. unemployment rates and seeks to shape its strategy toward China at a time of strained relations.
China currently pegs the value of its currency to the dollar at a level some economists estimate could be as much as 25 to 40 percent below where the yuan would trade on the open market -- a discount that encourages U.S. imports of Chinese goods, and makes U.S. and other country's products less competitive around the world. The United States' annual trade deficit with China is well in excess of $200 billion, a potential drag on U.S. employment.
The peg on its own does not amount to manipulation under U.S. law. But a growing chorus of politicians, economists and others have argued that the undervaluation is so deep and entrenched that it amounts to a trade subsidy and should be met with strong action -- or at least an honest labeling.
Chinese officials have reacted strongly to the allegation and said they would fight any U.S. effort to force them to accept a stronger currency. The country did let its currency appreciate by about 20 percent beginning in 2005 but reinstituted a strict dollar peg in 2008 to try to bolster its exports during the global downturn.
"The Chinese government will not succumb to foreign pressure," Chinese vice commerce minister Zhong Shan said Wednesday in Washington after meetings with Treasury and other officials. The country's currency policy, he said, would be determined by "our development level and national considerations."
Geithner said China's self-interest would ultimately prompt it to act. An undervalued yuan raises the risk of inflation and an overvaluing of other assets such as real estate in the country. Some Chinese industrialists have argued for a higher-valued currency on the grounds that it would stimulate domestic demand -- something the United States hopes will lead China to buy more American goods as Chinese households begin spending more and its businesses buy more equipment.