It is clear that China is going to keep manipulating its currency — and crowding out every other exporter — until the world pushes back. So it was good to hear Treasury Secretary Timothy Geithner speaking out this week on Capitol Hill, warning that an undervalued Chinese currency “makes it more difficult for goods and services produced by American workers to compete.”
The problem is that if the United States is the only one pushing back then Beijing will find it all too easy to ignore — claiming that it is resisting the American bully.
The policy is not in China’s long-term interest — as Mr. Geithner made clear in his testimony. It yields little employment growth and represses household spending. But Beijing has been reluctant to give up a strategy that has underpinned years of stellar economic growth.
It is once again swamping the world with exports. And it is unlikely to change until more countries — in Europe and Asia but especially India, Brazil and other developing countries, which China sees as its political constituency — start complaining. They are also the countries most hurt by Beijing’s currency manipulation. Mr. Geithner told Congress that he would look at the Obama administration’s entire “mix of tools.” The decision this week by the United States trade representative to bring cases at the World Trade Organization against China’s punitive tariffs on American steel and its discrimination against American debit card companies is a start.
The administration will also have to be careful not to unleash something it can’t control. Protectionist impulses run frighteningly deep in Congress.
At the hearing, Senator Charles Schumer declared that “China’s currency manipulation is like a boot to the throat of our recovery. This administration refuses to try and take that boot off our neck.” Nearly 100 members of the House from both parties recently sent a letter to the leadership asking for a vote on legislation that would impose new tariffs on Chinese imports to make up for its artificially cheap currency.
That can be a dangerous game. Unilateral trade sanctions could quickly lead to retaliation and escalate into a bilateral trade war that would benefit nobody and damage everybody.
The administration’s softly-softly approach has made very little headway. China announced in June that it would release its currency peg to the dollar. Its currency, the renminbi, has appreciated less than 2 percent against the dollar since, and it has declined against the euro, the yen and other currencies.
It is good to hear Mr. Geithner speaking out. It was also good to hear Japan this week criticizing China’s currency manipulation. The Obama administration now needs to persuade more countries to speak up. That may be the only way to get China to abandon its victim act and its policy that is doing huge economic damage around the world.
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