Although Obama believes Beijing is manipulating RMB exchange rate, the Treasurer nominee Timothy Geithner may give more priority to economic stimulus policies in both China and the US.
The "saving glut" theory blaming countries with high reserve ratio, China in particular, for the financial crisis created by the US is triggering Chinese government’s concern that the brand new Obama administration could impose protectionism on China
Geithner responded in a letter to Senate Finance Committee members on January 22 that Obama believed China was manipulating its currency and would "use aggressively all the diplomatic avenues open to him to seek change in China's currency practices". Geithner also said in this letter that Obama’s conclusion was supported by a broad range of economists. Obama used to support relevant proposals to revenge on countries manipulating currencies including China when he was in the Senate.
Geithner emphasized "the question is how and when to broach the subject in order to do more good than harm". Under the current circumstance, Obama’s new economic team will "forge an integrated strategy on how best to achieve currency realignment in the current economic environment".
In October last year during his presidential campaign, Obama said that the huge trade surplus China obtained from Sino-US trade was led by its manipulation of RMB exchange. Geithner’s tough remarks also differed from Former Treasury Secretary Henry Paulson, who refrained from labeling China an illegal "manipulator" of its currency.
Taking Obama’s earlier stance on the RMB exchange rate into account, Geithner may be just echoing Mr. Obama’s statements during the campaign. At least in the near future, due to the severe economic situation, the US is unlikely to focus on the exchange issue.
In response to some Senators�requirement to sanction China on exchange rate, Geithner said tactfully that the US was seeking constructive economic dialogues with China on a series of short-term and long-term issues, with RMB rate as an important one. But taking into count of the current crisis, Geithner said the key point now should be the problem of domestic demand in both China and the US.
Geithner said according to the latest data, the Chinese economy grew by 9% in 2008, 4bp lower than 2007. Since China takes up a large part of the world economy, Geithner believes the further softening Chinese economy will lead to an apparent slowdown of the world economy, and decline of America’s export, and therefore bring a negative impact on the economic revival.
Hence, for Geithner, it is urgent for the US to convince China to also adopt a more aggressive stimulus package "as we do our part to try to pass a stimulus package here at home."
As for the strategic economic dialogue between the two countries, Geithner didn’t responded directly to some Senators repeatedly inquiry about the stance of the Obama administration and whether to continue this dialogue mechanism. However, he reiterated that the Sino-US economic relation as America’s most important relations, where lie apparent challenges as well as lots of opportunities. Geithner pledged to deepen communication between senior officials of both sides, expose differences, and adopt effective solutions if he was officially appointed as the Treasury Secretary.
On the same day of Geithner’s remarks, the finance panel approved Geithner’s nomination in an 18-5 vote. The Senate is going to vote on the nomination in a few days.