Tension and heavy manners ahead of this week's S&ED talks with China

Posted by scapozzola on 05/02/2012

Tremulous times in the world of U.S. trade with China.  Tomorrow, Treasury Secretary Tim Geithner and Secretary of State Hillary Clinton will travel to Beijing for the latest semi-annual Strategic and Economic Dialogue (S&ED).  At ManufactureThis, we've previously termed these meetings "chit-chat diplomacy"-- business-as-usual photo-op summits that receive the requisite press coverage, with Secretary Geithner offering rote praise of the good progress Beijing has made.

But there's an element of underlying frisson, a strange tension developing.  Everyone knows that China's continued currency undervaluation should be a top point of discussion.  However, Beijing has astutely signaled of late that it has begun trading its currency with wider latitude--albeit, a very incremental 1% band, rather than the previous 0.5%.

Such moves are always perfectly timed, giving Beijing room to say that it is making progress, and allowing Secretary Geithner enough wiggle room to fend off critics.  Of course, nothing gets accomplished.

However, the critics are already out, and in more force than usual, which adds a slightly disturbing undercurrent of anticipation.

In Politico, Josh Boak cautioned that, while Thursday will launch another round of negotiations about the economy and security, it wouldn't be wise to "expect too much to be done about the exchange rate."

Boak says that, given the role the economy is playing in the 2012 election, "there’s huge pressure at home on the Obama administration to get the Chinese to raise the value of their currency against the dollar."   The fact that no one expects progress to be made in Beijing, makes the overall talks appear to be strangely superfluous.  Similarly, Geithner's recent praise for China's "very significant and very promising" steps drew "withering criticism from the Alliance for American Manufacturing."

Bottom line: No one is buying the party line any more.

The low expectations for the S&ED come amidst a slightly more chilling turn in U.S.-China relations.  Blind Chinese dissident Chen Guangcheng recently escaped from house arrest and took refuge at the U.S. embassy.  In an already complicated scenario, the Chen affair could overshadow the entire talks.

Niall Ferguson, author of 'Civilization: The West and the Rest,' sees the incident as one of the launching points to a potentially "dangerous time for U.S.-China relations."  As Ferguson explains, "the one thing you do not do in China: intervene in their domestic and political affairs and criticize them on human rights issues."  This will put Secretary Clinton in a tricky position because, says Ferguson, "to get into an argument about one dissident is a high-risk strategy."

While Ferguson expects China's economic policies to be "on the table" this week, he cautions that Western media have been too quick to give China a pass on its internal economic issues.  The "slowdown" of China's economy has been "over sold."  He says that adjustments to China's overheated economy were "actually in the 5-year plan so it is not exactly a surprise."

All the more reason why Secs. Geithner and Clinton should travel to Beijing with fire in their belly, and should take a strong stance on so many of China's more egregious practices: dumping, subsidies, intellectual property theft, piracy, currency misalignment...

But the odds are that nothing will happen.

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