Obama Administration Refuses To Call Out China on Currency Manipulation Yet Again

Once again the Obama administration refuses to label China a currency manipulator. This is when the U.S.-China trade deficit looks on target to hit $300 billion and China just slapped the United States with a unjustified 22% additional tariff on American SUVs.

In the U.S. Treasury's Semi-Annual Report to Congress on International Economic and Exchange Rate Policies, team Geithner and the Obama administration literally refuse to label China a currency manipulator in spite of overwhelming evidence.

The Report highlights the need for greater exchange rate flexibility, most notably by China, but also in other major economies. Based on the ongoing appreciation of the RMB against the dollar since June 2010, the decline in China's current account surplus, and China's official commitments at the G-20, APEC, and the U.S.-China Strategic and Economic Dialogue (S&ED) that it will move more rapidly toward exchange rate flexibility, Treasury has concluded that the standards identified in Section 3004 of the Act during the period covered in this Report have not been met with respect to China. Nonetheless, the movement of the RMB to date is insufficient. Treasury will closely monitor the pace of RMB appreciation and press for policy changes that yield greater exchange rate flexibility, a level playing field, and a sustained shift to domestic demand-led growth.

Earlier the Senate easily passed a bill to confront China's currency manipulation. The bill is S. 1619: Currency Exchange Rate Oversight Reform Act of 2011. Speaker of the House John Boehner refuses to bring the bill to the House floor for a vote, in spite of the strong bi-partisan support. If the bill was allowed a vote, it is strongly projected to pass and become law, assuming President Obama would not veto the bill.

The reactions are coming in fast and furious. Scott Paul, Executive Director, Alliance for American Manufacturing (AAM) said:

China’s currency is still enormously undervalued—that fact is clear despite the Treasury report. I’m disappointed that President Obama has now formally refused to cite China six times for its currency manipulation, a practice which has contributed to the loss of hundreds of thousands of American manufacturing jobs.

The ball is now is Speaker Boehner’s court, since the President has failed to show leadership in this area. The House of Representatives should pass currency legislation as soon as it returns in January.

GOP hopeful Mitt Romney jumped on the lack of action by this administration, promising to label China a currency manipulator as one of his first acts in office.

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post dollar economy?

The whole dollar rmb relationship may be in the process of becoming mute. I’ve read (can’t remember the source) that China and Japan have agreed on a direct exchange between their currency. Thus eliminating the dollar ‘middle man’. As it is now, they have to buy dollars with their respective currencies and then buy the other’s currency with the dollar. Given that they are the number 2 and 3 largest economies in the world, it seems that elimination of dollar middle man between them would lead to a dramatic decrease in demand for dollars with a corresponding change in exchange rate between dollar and each of their currencies. In that situation the exchange rate of the dollar and rmb will also change dramatically without manipulation or legislation.

I’ve read China has been promoting similar non-dollar exchanges with S.E. Asia countries. And, there is continual talk of eliminating the dollar as the basis of world currency. Perhaps we should think more about a post-dollar world economy and how we are going to fit into it; rather than the more myopic view of rmb dollar exchange rate. In the long run, the exchange rate does not seem to be significant. Also, changes in exchange rate will affect the cost of goods sold in US. Careful what you wish for. If consumer prices in places like WalMart increase significantly, the implication for jobs and the economy are not good; especially when tittering on the cusp of another recession.
Best
Tom

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trying to remove the U.S. dollar reserve currency status

You're right, China-Japan have made a direct currency exchange agreement, removing the U.S. dollar in the exchange. I think it's another attack on the U.S. dollar being the world's reserve currency, which isn't good news in my view. Being a reserve currency gives a lot of privileges, such as running the debt to GDP ratio much higher.

China has been pushing to remove the USD as a reserve currency for some time. Another question is does this help Japan peg the Yen?

China just let a Japan bank into China, allowed to issue Yuan denominated bonds.

Japan just made a small agreement with India for currency swaps as well.

As far as China being labeled a currency manipulator, if one wants to assume the reason the Obama administration is not doing this as retaliatory action by China, well, that seems to be happening anyway.

China has a long way to go to remove the U.S. dollar as a reserve currency.

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China's "Long March"

"China has a long way to go to remove the U.S. dollar as a reserve currency."

LONG is not a problem for China - Remember Mao's "Long March". They're still marching one step at a time. What are we doing? Indeed, who is 'we'?

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Long is approximately a decade

Why this article points to legislation. I'm being sarcastic but the China PNTR came into effect 2000 and in less than a decade China has our manufacturing in so many words and is well on their way to become the #1 global economy. Meanwhile our government is bought and paid for by MNCs who have no qualms selling the U.S. down the river to get to that mythical 1.5 billion mythical Chinese consumer market as well as labor arbitrage.

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