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U.S. Treasury Secretary Tim Geithner before the Senate Banking Committee on Sept. 16 in Washington
Summary
Hearings in U.S. House and Senate committees regarding ongoing economic tensions with China ended Sept. 16 without an indication of U.S. moves against China. The United States appears unwilling to take sterner action now, but the long-term economic issues between the countries will persist.
Analysis
A series of hearings in the U.S. House Ways and Means Committee and Senate Banking Committee regarding ongoing U.S.-Chinese tensions over China’s currency policy and other trade disputes ended Sept. 16. Though rhetoric at the meetings was at times intense, no evidence emerged that the United States intends to substantially escalate its pressure on China over the issues in the immediate future.
With U.S. unemployment at 9.6 percent and voters angry ahead of Nov. 2 midterm elections, American lawmakers have sought to pressure China over its currency to demonstrate their efforts to solve trade disputes perceived as contributing to U.S. economic troubles. With this combination of political and economic conditions, it would be reasonable to expect, as some trading companies in the United States have done, that the United States wants to get more aggressive on the issue now.
Yet the chances of Congress passing two bills aimed at China before the current session ends are low. The bills are important in certain states (particularly those with large manufacturing sectors perceived as being harmed by Chinese policies) but not to others (particularly those with booming exports to China). Top members of the committees have given mixed signals on the subject, suggesting the bills will not be put on the floor for a vote immediately. Whether the bills could pass in either house remains in doubt, and there is little time to reconcile a passing bill between both houses. Industrial groups opposed to the bill were more vocal this year than before, perhaps suggesting a heightened level of anxiety, but also suggesting they may have grown more confident. Instead, other strategies, such as petitioning the World Trade Organization (WTO), appear to be receiving more favor, and such an option, even if it is immediately exercised, does not suggest an aggressive move — the currency dispute does not fit neatly into the WTO’s purview and would take years to adjudicate, while the outcome would not necessarily benefit the United States.
Moreover, while comments made by U.S. Treasury Secretary Timothy Geithner on the currency dispute were somewhat sharper than before — matching the heightened passions at the hearings — they did not suggest imminent plans by U.S. President Barack Obama’s administration to move against China. Geithner emphasized that the yuan had not risen fast enough or far enough in the previous three months since
China announced a policy change. He also said that this would be taken into account for the report on foreign exchange policies due Oct. 15, where he retains the ability to cite China for currency manipulation.
Geithner did not indicate that his department or the administration would take tougher action immediately, however. He emphasized the continued monitoring of the yuan’s progress and focused on the existing bilateral dialogue mechanisms for resolving the dispute. Geithner also pointed, along with others, to the upcoming G-20 meeting in Seoul in November as a time to further discuss China’s currency policy. In addition to the G-20 meeting, several other bilateral meetings between the United States and China are approaching in the coming months, beginning with a meeting between Obama and Chinese Premier Wen Jiabao around Sept. 21-23, providing occasions for further discussion and more time for China to let the yuan rise. None of what happened on Capitol Hill on Sept. 16 suggests that Washington is immediately going to intensify the pressure on China.
So why is Washington holding back?
Beijing’s recent attempts to reduce the pressure have provided the Obama administration with reason to delay more decisive action. These have included accelerating the pace of appreciation in recent days so Beijing can point to a token 1.5 percent rise in the yuan over the past three months and restating goals to continue increasing imports from the United States and to make greater room and stability for
American investment in China.
The Obama administration appears to want to avoid a trade war or drastically upsetting relations such that other areas of U.S.-Chinese relations become more fraught. And unless new evidence emerges of greater impetus in Congress to pass the bills against China, the dispute most likely will remain within the current range of ups and downs for the time being.
The long-term issues between the United States and China remain in place, however. These include not just the specific value of the yuan but also the more general problem of China’s avoidance of a freely convertible currency, as well as the numerous other disagreements with Washington. The United States will not forgo the option of toughening its stance on currency in the near future if China proves unyielding, as observed by Geithner’s reference to the foreign exchange report due in October. From Beijing’s point of view, this means it will be necessary to continue with the carefully calculated process of managing U.S. expectations. Thus, China will grant just enough concessions here and there to undermine the strongest critics while not yielding so much as to invite greater pressure. For the United States, this outcome appears tolerable for the time being.
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