Currency dispute latest China irritant

NY Times:

To the growing list of grievances between the United States and China, add one more: the Obama administration is reviving American pressure on China to stop artificially depressing its currency, a policy that fuels its persistent trade gap with the United States.

The administration has told Chinese officials that currency policy will be high on its agenda this year for economic talks with China, a senior official said on Wednesday. The White House is also weighing whether to designate China as a country that manipulates its currency, when the Treasury Department issues its semiannual report on foreign currencies in April.

President Obama signaled the tougher line on Wednesday, telling Democratic senators that the United States needed “to make sure our goods are not artificially inflated in price and their goods are not artificially deflated in price; that puts us at a huge competitive disadvantage.”

Reopening the battle with Beijing over its currency may pay political dividends for Mr. Obama at a time of double-digit unemployment and growing fears that China is stealing American jobs. But experts say the president will have even less leverage over Beijing than President George W. Bush did. Mr. Bush prodded China for years to adjust its exchange rate with little success.

China, they say, is determined to reignite its export machine after a global recession that sapped demand for Chinese goods. A cheap currency is vital to that goal. And China’s leaders have grown impatient with lectures on economic policy from their chief debtor, the United States.

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China is not stealing US jobs. However China's manipulation of the exchange rate has made goods that it creates cheaper than they might ordinarily be. This means American consumers pay a lower price for them. It also means that Chinese consumers pay a higher price for US goods. That is a bad deal for the Chinese.

While this irritant has been around for awhile, it appears that the Obama administration is going to pick at all the scabs in the relationship with China after the Chinese refused to go along with Iran sanctions. Obama seems determined to make the Chinese pay a price.

After prompting an angry response with the trade deal with Taiwan, Obama then agreed to meet with the Dalia Lama of Tibet, which the Chinese also object to. The message Obama si sending is that we are not going to overlook our other disagreements with China as long as they prop up the religious bigots of Tehran. If doing deals with Iran is more important to them than doing business with the US, then China has its priorities out of whack.

The Chinese are not amused. Right now, it appears that both sides are ready for bad relations. That could hurt the trade that China is trying to prop up with its currency manipulation.