Treasury Secretary Geithner says China is likely to let currency appreciate
Treasury Secretary Timothy F. Geithner said Thursday that China was likely to let its currency appreciate -- addressing a long-sought U.S. goal that could help boost American exports and create more jobs.
Though Geithner didn’t specify when he expected Beijing to loosen its grip on the yuan, his statement to the Senate Budget Committee struck an optimistic note against a background of deepening tensions with Beijing, partly over economic policy but also over arms sales to Taiwan and President Obama’s plans to meet with the Dalai Lama.
Treasury officials are looking at whether to publicly brand China as a currency manipulator -- a step that could lead to sanctions -- and the administration has been taking a harder line with Beijing recently amid increasing domestic political and economic pressure.
Speaking with Democratic senators Wednesday, Obama said his approach was to get tougher in enforcing trade rules and “putting constant pressure on China and other countries to open up their markets in reciprocal ways.”
In addition, he said in answering a question on China, “One of the challenges that we’ve got to address internationally is currency rates and how they match up to make sure that our goods are not artificially inflated in price and their goods are artificially deflated in price.”
In summer 2005, Beijing revalued its currency and officially declared an end to its strict peg to the dollar. And the yuan rose about 20% against the greenback in the ensuing three years.
But since the middle of 2008, as the global economy began to falter, Chinese officials have tightly managed the yuan at 6.8 to the dollar. Many economists believe the yuan is at least 20% undervalued against the dollar, thus making Chinese goods even cheaper and more competitive in the U.S. and other foreign markets.
Despite Geithner’s comments, the reaction from Beijing to Obama’s comments was not encouraging. “Wrongful accusations and pressure will not help solve this issue,” a Foreign Ministry spokesman said at a media briefing Thursday.
In addition to rising domestic pressures as high unemployment has soured the president’s public ratings, analysts said the Obama administration was frustrated in the wake of Beijing’s snub during the climate talks in Copenhagen, when the Chinese sent a vice minister to sit at the table with Obama, and the uproar over a security breach at Google Inc.
“They want to get tough with China, but not too tough,” said Clyde Prestowitz, president of the Economic Strategy Institute in Washington. He noted that the Obama White House needed China on crucial geopolitical issues, including Iran and North Korea. Moreover, he said, “They need the Chinese to buy our bonds.”
China is America’s largest foreign creditor with hundreds of billions of Treasury bonds, reflecting the Asian country’s accumulation of years of trade deficits with the United States.
The U.S. trade deficit of goods with China hit a high of $268 billion in 2008, but has narrowed to $209 billion through November 2009.
Obama said in his State of the Union address that he hoped to double exports in five years as part of his strategy to create jobs and rebuild an economy run on debt-financed consumption. The U.S. last doubled exports in the 1970s, and its shipments overseas rose nearly 80% from 2003 to 2008.
Even if Obama achieves his goal, analysts said, jobs won’t flow unless the U.S. drives down the deficit.
“If you want to reach the president’s goal of doubling exports, you have to deal with China,” Sen. Arlen Specter (D-Pa.) said.
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