Gentle admonishments won't do much to stop currency manipulation

Posted by mmcmullan on 05/13/2014

Another day, another expensive dollar: U.S. Treasury Secretary Jack Lew met with his Chinese counterpart today and pressed him on the undervalued exchange rate of China’s currency.

'It is important that China demonstrate a renewed commitment to move to a more market-determined exchange rate,' Treasury Secretary Jacob Lew told China's top economic official, Premier Li Keqiang, in a meeting.

It is important! But why is this a big deal? Well: The New York Times reports that the yuan has fallen in value by 3 percent this year:

Analysts say China’s central bank is intervening in the currency markets to engineer a slide in the value of the currency. That would punish speculators and prevent big capital flows from the entering the country.

It also drives the price of China’s exports down by making the dollar more expensive in comparison. By weakening its currency, the Chinese authorities not only siphon off capital flows and crack down on speculators, they create an uneven playing field that adversely impacts American manufacturers. And doing so has cost a lot of manufacturing jobs here in the past.

The Treasury Department that Jack Lew oversees had a chance recently to name China a currency manipulator and initiate negotiations to end the practice. But the Treasury Department declined. Instead, Lew (and by association, the Obama Administration) opted for the gentle admonishment that he delivered today.

That’s puzzling, because even the suggestion of serious action on currency manipulation in the past has caused China’s currency to move toward a “market-determined exchange rate."

A Senate procedural vote in 2005 that marked the first step toward addressing Beijing's currency manipulation provoked an immediate rise in the yuan. When then-Treasury Secretary Timothy Geithner threatened action ahead of a G-20 meeting in 2010, the yuan rose. It rose again during House and Senate votes on currency legislation in 2010 and 2011. And when President Barack Obama and GOP challenger Mitt Romney promised to get tough on the Chinese government's trade practices during the 2012 campaign, guess what happened? The yuan moved.

Funny how that works. Meanwhile, the rate of the yuan's appreciation was actually faster during the Bush administration than it has been during President Obama's time in the White House. This recent backsliding won't help that disparity.

Related recent Blogs

@KeepitMadeinUSA on Twitter

  • ICYMI: Senate passed its version of Highway Trust Fund bill; shortened length of extension to Dec. instead of May 2015. Heads back to House. 50 min 40 sec ago
  • The Senate is now debating legislation to reauthorize the Highway Trust Fund (well, until May 2015). Watch on @cspan: 4 hours 42 min ago
  • RT @SteveRattner: Amazing shift in US jobs -- gone from making things to taking care of sick people 5 hours 39 min ago
  • We must be close to election season. Candidates are talking a big game about unfair trade on the campaign trail: 8 hours 3 min ago
  • Looks like @amazon is getting into the 3D printing business. 9 hours 26 min ago
  • RT @WisconsinOven: MT @KeepitMadeinUSA @ScottPaulAAM shares ideas in @HuffingtonPost on how to restore American manufacturing leadership:ht… 10 hours 11 min ago
  • BTW, ALL the machines at that Indianapolis Adidas plant helped produce LeBron jerseys. Plus more in Iowa & Cleveland. 10 hours 11 min ago
  • !!! RT @darrenrovell The LeBron jersey assembly line at Adidas facility in Indianapolis 10 hours 14 min ago
  • Wisconsin companies are going on a national tour to promote American manufacturing: 11 hours 2 min ago
  • This --> @USAToday examines the myth of the STEM workers shortage. 1 day 5 hours ago