The U.S. begins economic talks with China; currency should be the main topic of discussion

Posted by scapozzola on 05/09/2011

U.S. officials get underway today with their Chinese counterparts for a high-level Strategic and Economic Dialogue (S&ED).  Treasury Secretary Tim Geithner and Secretary of State Hillary Clinton will meet with Beijing officials on matters related to both trade and military policies.

As Alliance for American Manufacturing Executive Director Scott Paul explained in a statement this morning, China's undervalued currency should be the key topic of discussion:

China’s currency manipulation should be the main focus of these talks.  If the Administration will not get tough and demand that China play by the rules, Congress will have no option but to once again pass tough legislation to counter the artificial advantage China enjoys on trade.

Forbes Bric Breaker's Ken Rapoza discussed the S&ED with Paul, and asked about previous U.S. efforts to address currency manipulation by trading partners.  In the 1980's the U.S. held the Plaza Accords with Japan to press for a revalued Yen.  Paul explained:

“Comparing China to Japan is tough,” says Scott Paul, executive director at the Alliance for American Manufacturing in Washington, DC. “What the Plaza Accord ultimately achieved was that it revealed a lot of structural problems in Japan, such as a relatively closed economy. I think the yuan’s appreciation is going to uncover additional issues, like subsidies and massive state involvement that all impact the trade imbalance we have with China,” he says.

Those were the days. In the 1980s, the US took a more assertive approach on Japan, and said if it didn’t appreciate the yen, there would be consequences, like trade barriers. Although trade barriers against China would largely be illegal under the World Trade Organization, the US has not asserted itself against China’s currency policy becuase elite opinion among the team ofDemocratic and Republican economists, coupled with Wall Street and US multinationals “are perfectly happy with getting better profit margins out of China,” Paul says.

This week's S&ED may well serve as another example of chit-chat diplomacy, with little of substance accomplished.  But ManufactureThis will be observing the talks and will report on any developments.


ADDENDUM: The White House reports the President's schedule for today as it relates to the S&ED:

Later, the President and the Vice President will meet with the co-chairs of the U.S. and China Strategic and Economic Dialogue, including Secretary of State Clinton, Treasury Secretary Geithner, Chinese Vice Premier Wang Qishan and State Councilor Dai Bingguo in the Oval Office. This meeting is closed press. 

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