Treasury Secretary Tim Geithner, in Beijing today for a “Strategic and Economic Dialogue” with his Chinese counterparts, delivered a message that was both capitulatory, in that it drops any insistance on de-pegging the yuan from the dollar, and at the same time confusing – simultaneously urging China to develop its domestic economy while chastising them for favoring domestic producers.
In prepared remarks for delivery at an opening ceremony for the two-day Strategic and Economic Dialogue, Geithner indirectly urged China to ease up on its “indigenous innovation” policies aimed at giving Chinese companies a larger share of new cutting-edge technologies developed in China.
… “As we reform the U.S. economy to promote savings and investment, China is reforming its growth model to promote domestic demand and consumption,” Geithner said.
How does a country “ease up on indigenous innovation” and simultaneously “promote domestic demand and consumption?” Forgive the use of a crude abbreviation, but the Chinese must be left wondering, “WTF?” Is it any wonder that our trade results are such a mess when this is the kind of message we send?
The only message that came through loud and clear is that China has a green light from the Obama administration to do as it pleases in trade with the U.S. Yuan appreciation is now off the table. Cooperation on Iran and North Korea is on the table and “freer trade” is the only chip the U.S. has to play if it wants to secure China’s cooperation on those issues. At least that’s the way the Obama administration sees it.
Since the end of World War II, the U.S. has consistently used American manufacturing jobs as a bargaining chip for securing international cooperation. What has it gotten us? A weakened economy, reduced clout with other nations and endless lectures about how to manage our economy from countries empowered by our trade policy largesse.
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P.S.: By the way, what exactly is the Obama administration doing to “reform the U.S. economy to promote savings and investment?” Everything they have done so far has been aimed at restarting the debt machine and restoring consumer confidence to get Americans spending again. Wouldn’t rising incomes promote a higher rate of savings? It’s no coincidence that high income earners save far more than those with low incomes. Wouldn’t it make sense to restore a balance of trade, bring millions of manufacturing jobs back home, reduce unemployment and thus start driving up incomes again if we want to “promote savings and investment?”