Posted on 05/18/2005 10:39:07 PM PDT by TigerLikesRooster
http://news.yahoo.com/news?tmpl=story&u=/nm/20050518/pl_nm/economy_snow_china_dc_3
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| A Chinese accountant counts Chinese yuan notes in an office in Shanghai May 18, 2005. China on Wednesday dismissed criticism of its fixed currency peg and attacked European and U.S. steps to curb Chinese textile exports as unfair. (Mark Ralston/Reuters) |
China must beware of Congress, Snow says
Wed May 18, 5:50 PM ET
WASHINGTON (Reuters) - The Bush administration is pressuring China to let the yuan rise against the dollar partly to mollify Capitol Hill and wants action within the next few months, U.S. Treasury Secretary John Snow said on Wednesday.
"We are escalating the rhetoric and time is running out," Snow told questioners after a luncheon address to the American Iron and Steel Institute, where he indicated he was confident that China will loosen the peg it maintains on its currency.
"I fully expect in the next few months we are going to see that," Snow said, adding he hoped to help ward off mounting congressional calls for protectionist measures, which he said reflected a "decidedly anti-China" feeling that was potentially dangerous.
China pegs its yuan, also known as the renminbi, at about 8.28 to the dollar, a practice U.S. manufacturers and lawmakers complain gives Chinese imports an unfair price advantage that has closed factories and cost millions of American jobs.
The United States and others, including Western Europe, want to the yuan's value to rise to slow the flood of cheap Chinese imports, which has pushed the U.S. trade deficit to new levels and crimped normal mechanisms for reducing it.
In a semiannual report to Congress on Tuesday, the Treasury warned that China "likely" will be named as a country that deliberately manipulates its currency manipulation later this year unless it alters its policies. Such a designation would first trigger intense talks and possibly trade retaliation.
Snow was asked on Wednesday why Treasury did not name China a manipulator as many industries wanted. He said the United States has only recently concluded that China could handle more flexibility and indicated he feared it could have triggered retaliation.
"If we had designated them ... that could have led to congressional action," Snow said. "That's something I think we should avoid."
"I shudder to think how markets would respond if they saw the United States turning its back on open markets," he added. "The United States should never return to the path of isolationism."
There was widespread anger among lawmakers on Tuesday that Treasury did not simply state that China was manipulating its currency. But the event that galvanized the Bush administration to become more aggressive occurred last month, when the Senate, in a preliminary vote, put China on notice it could face a 27.5 percent tariff on exports to U.S. markets unless it moved to a flexible currency within six months.
The measure is expected to come up for a vote in the Senate again in July.
Snow said the dark mood on Capitol Hill represented "a dangerous situation" and he hoped China recognized and understood that was the case.
Tougher talk from Washington risks getting China's back up over currency reform, and Beijing has indicated it won't be pressured into acting before it feels its banking and financial system can handle increased flexibility.
Still, on Wednesday China introduced a new foreign exchange dealing system to permit domestic trading in currencies besides the yuan -- a move that Snow noted as a sign of progress toward a more liberal and less tightly controlled currency regime.
Over the next few months, there may be high-level opportunities for the United States and other key industrial country representatives to engage Chinese leaders on the currency issue.
Finance ministers from the Group of Seven -- the United States, Britain, Canada, France, Germany, Italy and Japan -- meet in London June 10-12, and Chinese representatives may be invited to attend. In July, President Bush and other G7 leaders hold a summit in Scotland that might also be a venue for invited representation from China.
In his prepared remarks to the steel industry representatives, Snow made the case that swift currency reform is in China's own interest given its status as a rising market-based power.
"The fixed exchange rate coupled with large capital inflows deprives China of the ability to run its own monetary policy or alter domestic interest rates -- greatly diminishing the ability of economic policy-makers to avoid the cycle of boom and bust that has occurred in the past," Snow said.
He admonished China -- known as major source of "knock-off" items from fake Rolex watches to computer software -- to also make a stronger effort to honor international trade commitments to open its markets and protect copyrights and patents.
Suddenly U.S. focuses more on trade/currency issues with China than N. Korean nuclear issues.
Considering the resolution of the N. Korean problem is almost entirely up to China, this may be the logical path to explore. Economic pressure to China could solve more than trade/currency problems.
So our country's trade policy must be dictated by the response of other countries? Oh, and China's market can't be considered "open" and it is China who sells to us, not the other way around.
Ping!
How stupid is the Bush administration?
You mean, it won't work?
This isn't a pre-planned "good cop, bad cop" routine.
The Bush Administration has the job of actually making the hard decisions that will affect all of us. Responding to China's unfair trade practices has needed some study. I would say that the President has finally heard all of the advice he needs, and is ready to put his foot down.
Congress can make any demands it wants, but they know they're exonerated from being responsible for any decisions because this is an executive decision, not a Congressional one.
It is more like a classic Congressional tantrum, with the grownups in the White House being stuck making the hard decision.
In the end, Bush is going to put his foot down hard. It wouldn't surprise me if the foot and an aircraft carrier group visiting Taiwan arrive simultaneously.
China needs to know that we're serious about Free Trade, and what China is doing is not an example of Free Trade. It is cheating.
(China's economy can't handle a huge slow down in exports. I wonder if there's some special timing involved that we don't know about.)
The president has had numerous opportunities to act regarding China's unfair trade policies. Just as he has had numerous opportunities to do something about our borders. He a globalist. Period.
Taiwan isn't worth defending. If it were, we'd move our troops from South Korea there to ensure China got the message. Plus that would free our hand at retaliating should the DPRK do something stupid.
Regarding Asian politics, there isn't a day that goes by lately where I'm not thankful to the Japanese. I never thought that possible.
I hope your faith in this president is correct, and I'm wrong. I'm just using his own past performance to predict his future - and it doesn't bode well.
It is not pre-planned, I agree. However, the opportunity came his way. Actually, these problem have been around for a while. Now he decides to work on it.
Congress folks are not a group of sages, for sure. They do this to grab headlines and boost their rating. However, they could act as bad cops, which Bush can use to threaten China while keeping his smile.
Now this is the leverage Bush can use to settle more than one problem, including N. Korean nukes.
Spreading freedom and democracy are already one axis of Bush foreign policy. Now he can actively use trade issue as another axis. On both accounts, China is vulnerable.
" Now this is the leverage Bush can use to settle more than one problem, including N. Korean nukes."
This problem is going to be 'settled' by DPRK doing their nuclear test and declaring themselves a nuclear power (again), period, IMHO. They've got them (IMHO), the timing of a test is a political issue at this point.
I don't think it is so simple as china telling them to do anything, anymore than we could have stopped israel from going nuclear. (sensitive people note - i am not making any comparison between israel and dprk beyond the fact that their primary supportive great power cannot always get its way on issues of national security).
Not gonna happen.
I don't think N. Korea is taking orders from China. It is just that China refuse to cut N. Korea loose, because they still think that keeping Kim Jong-il even with the current baggage is better than the alternative. We just have to make it far worse than the alternative.
Once China turns against N. Korea, even with the nuclear test, the day of Kim Jong-il regime is basically over, and the alternative power center could emerge.
We will see.
What other countries become cheaper than china for US buyers if the yuan rises, say, 15%, and how much capacity do they have to actually take business FROM china?
I do not know the numbers on china's production, nor its nearest competitors in terms of cost of goods, but I cannot imagine any country having enough spare capacity to take much of china's business vs. its growth rate.
I do not know the exact figures either. However, I suspect that there are countries in S.E. Asia or S. Asia which can benefit from yuan's revaluation.
I suspect many of them could benefit, though I am not sure how much spare capacity they have as a whole with respect to how much business they could really take from china.
Its not up to China to cut N.Korea loose or not either. They alreay cut China loose long time ago and stopped treating China as one of her comrades. China has been continuously criticized as too capitalized and to them China is not a communist country anymore.
I don't think China likes N. Korea. That is not the point. The point is that China still provides oil and other materials to N. Korea, despite N. Korea's problems.
China can certainly reduce their aids to essential food stuffs, cutting everything else. Despite Kim Jong-il's antics, China apparently finds N. Korea useful. Despite China's capitalist ways, N. Korea still finds China essential for its survival. This situation has to change.
N.Korea is useful to China---in what way? Could u pls elaberate on that one?
Chinese regime regard it as a buffer against U.S. influence. As bad as N. Korea is, it is in Chinese sphere of influence now. If Kim Jong-il regime goes down, S. Korea or U.S. influence could grow in N. Korea. China does not like it.
What China is interested in is the chess game with U.S., not N. Korea's intrinsic value. Judging from China's behaviors so far, it is willing to put up with quite a lot to preserve status quo.
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