Obama Stresses Trade Deficit in Call to China

February 2, 2009

http://www.reuters.com/article/vcCandidateFeed1/idUSTRE50T5TM20090130

The linked article reports on a phone call that took place between Barack Obama and Chinese leader Hu Jintao on Friday.  It seems that Obama’s main thrust during the call was to emphasize the need to “correct global trade imbalances.” 

U.S. President Barack Obama told Chinese leader Hu Jintao in a phone call on Friday the two countries must work together to correct global trade imbalances and unclog credit markets to fight the world economic crisis, the White House said on Friday.

This is another good sign that president Obama “gets it” when it comes to trade and the role of the trade deficit in the collapse of our economy.  Of equal interest is Jintao’s predictable response:

The Chinese news agency Xinhua said Hu told Obama that China firmly opposed trade or investment protectionism as part of settling the crisis and said Beijing would join Washington in promoting stable development at an economic summit in London in April.

Isn’t it interesting that the nation with the huge trade surplus opposes any protectionism on the part of the United States, while conveniently forgetting or ignoring the Chinese protectionist policies that are actually supported and enforced against the U.S. by the WTO (World Trade Organization)?  Jintao can “oppose” all he wants, but he’s powerless to do anything about it.  If the U.S. imposes tariffs on China, regardless of whether it’s done out of an erroneous belief that China manipulates its currency or if it’s done out of recognition of the role of population density in skewing trade results, China’s only option is to retaliate with tariffs of their own, a classic case of cutting off their nose to spite their face.  A trade war between the U.S. and China will only hurt the nation who begins the war with a trade surplus, and that’s China. 

The phone call took place just days after U.S. Treasury Secretary Timothy Geithner angered Beijing by telling a Senate confirmation hearing that China manipulated its currency.

Geithner’s statement was no slip of the tongue.  Both he and his boss, Obama, knew exactly what was being said and what China’s reaction would be, but had the guts to tell it like it is anyway. 

China had reacted angrily to Geithner’s statement. Premier Wen Jiabao told the World Economic Forum in Davos the United States was responsible for the global economic crisis, citing its “inappropriate macroeconomic policies,” low savings rates and high consumption.

Here, I actually agree with the Chinese premier.  “Inappropriate macroeconomic policies” of the U.S. – specifically our trade policy which has allowed a collosal trade imbalance to persist – is directly to blame for the global economic crisis.  And the time is long overdue for the Obama administration to eliminate this huge imbalance.  Overpopulated nations like China, Japan, Korea, Germany and others can finally step up to the plate and start pulling their weight, buying as much from us as we buy from them, or we can do it without them by imposing tariffs.  It’s their choice, but it’s time to act.


Geithner: China Currency Manipulation a “Significant Issue”

January 21, 2009

http://www.reuters.com/article/companyNewsAndPR/idUSN2148652720090121

As reported in this linked article, Timothy Geithner, Obama’s Treasury Secretary nominee, when questioned about currency manipulation by China, described it as a “significant issue” and as “… an important issue for the country …” 

I’ve really got my antennae up, alert for any clues as to whether or not Obama will really take meaningful action to restore a balance of trade.  This is just one, small, early indication that he’s willing to take it on.  Yes, I’m making a bit of a leap from Chinese currency manipulation to our overall trade deficit, but why else would Obama be concerned about this issue?  Does he merely want American consumers to pay more for imports from China?  It doesn’t seem logical that that’s all he’s after.  A strengthening yuan would indeed drive up the cost of Chinese imports, but what he’s really after is a restoration of the profit potential to motivate a return to manufacturing products domestically, driving up the demand for labor which, in turn, would drive up incomes, more than off-setting any rise in prices. 

Of course, if we wait for currency valuation to improve the trade deficit, we’ll be waiting forever, just as we have for the last three decades.  The dollar may fall against the yuan, but the Chinese will simply compensate in some other way – perhaps by increasing the government’s subsidies of Chinese manufacturers – in order to hold prices down.  So the real question is how quickly Obama will run out of patience.  When he does, it’s going to be fun to watch what happens!