Following Paul Krugman's recent intervention (see previous post) China is fighting back. Multinationals know which side of the bread is buttered.
Robert Pozen at least speaks some sense.
China asks US groups to back it on currency [FT]
China called on US multinationals on Tuesday to lobby the Obama administration against taking protectionist measures over the Chinese currency, just as attitudes towards China appear to be hardening in the US Congress.
Yao Jian, a spokesman at the Chinese commerce ministry, said that some companies had already been lobbying against recent restrictions on Chinese imports to the US and he hoped this would increase.
“We hope that US companies in China will express their demands and point of views in the US, in order to promote the development of global trade and jointly oppose trade protectionism,” he said.
The comments came as the political heat surrounding China’s currency policy intensified in Washington. Led by Chuck Schumer, the New York Democrat, and Lindsey Graham, the South Carolina Republican, a group of senators said China’s refusal to let its currency appreciate was damaging the US economic recovery and hurting American competitiveness.
“China’s currency manipulation would be unacceptable even in good economic times. At a time of 10 per cent unemployment, we will simply not stand for it,” Mr Schumer said.
The senators have proposed a bill that would require the Treasury to identify countries with “fundamentally misaligned currencies” as well as those that need to be tackled with “priority action”.
Those countries would have nearly a year to adjust the value of their currency before the US administration was required to bring a case against them at the World Trade Organisation, according to the proposal. The Treasury would also have to “consult” the Federal Reserve and other central banks about “remedial intervention in currency markets”.
Expecting an appreciation, some measures could be taken earlier, including forbidding Chinese companies from participating in US government contracts, requesting an International Monetary Fund consultation with China, and including currency undervaluation as part of dumping calculations. Mr Schumer and Mr Graham have been leading the charge in Congress against China’s currency policy for several years, and have periodically presented similar proposals.
But their efforts may have gained fresh impetus on the back of a recent flare-up in tensions between Beijing and Washington on issues including currency.
On Sunday, Wen Jiabao, Chinese premier, warned other countries that pressing China on currency policy amounted to protectionism and insisted the renminbi was not undervalued.
“That was the last straw,” said Mr Schumer, who complained that the US had been “lectured”. “We are fed up, and we are not going to take it any more.”
On April 15, the Treasury will release its latest semi-annual currency report, and pressure is building on the administration to describe China formally as a “manipulator” – a move that it has resisted until now even though President Barack Obama was sharply critical of its currency regime during the 2008 election campaign.
Tim Geithner, the Treasury secretary, said in an interview with Fox Business News on Tuesday: “I think ultimately [China] is going to decide over time it’s in their interest to move to a more flexible exchange rate.” He said the Schumer bill was “an illustration of how strong people feel about this, and it’s understandable and it’s true in countries round the world”.
A Treasury official said: “A more market-oriented Chinese exchange rate will make an essential contribution to a stronger, more balanced global economy.”
US multinationals operating in China have long been opposed to Washington taking action over the perceived undervaluation.
“A 10-15 per cent appreciation of the renminbi would have a very modest effect on the margins of the US current account deficit,” Robert Pozen, chairman of MFS Investment Management and a senior lecturer at the Harvard Business School, told the Financial Times. “The US needs to stay quiet. Hopefully, it won’t name China a currency manipulator.”