Time the US stopped bashing China's currency policy

Bernd Debusmann says the US would do well to give credit to changes in the past few years

PUBLISHED : Wednesday, 28 November, 2012, 12:00am
UPDATED : Monday, 27 June, 2016, 11:50am

If Washington were a place where logic reigned supreme and facts always trumped spin, there would be a long pause in the protracted debate over China's currency policy. In the real Washington, that can't be taken for granted.

China is a tempting scapegoat for economic problems that began on Wall Street. Both President Barack Obama and his Republican challenger, Mitt Romney, portrayed themselves as defenders of American workers against a rising superpower that uses unfair practices. Romney is history, but his alarmist portrayal of China as a destroyer of American jobs lives on.

There's no doubt Sino-US rivalry will play a growing role in Obama's second term. The idea of the US "pivot to Asia" is to counter the regional influence of China, a country Obama has termed "an adversary but also a potential partner in the international community if it's following the rules". As US officials tell it, China has not followed the rules, using a currency kept artificially low as an effective export subsidy.

China is not the only country to influence the value of its currency to boost trade balances. This summer, the Washington-based Peterson Institute for International Economics published a policy paper that listed 20 countries it said engaged in such practices. They ranged from Denmark, Israel and Switzerland to China, Russia and Thailand.

American arguments that the Chinese have been fiddling with their currency's exchange rate bring to mind the old saying that people in glass houses should not throw stones. In the final stretch of the election campaign, an op-ed in The Wall Street Journal carried the headline "Ben Bernanke: Currency Manipulator". Columnist Mary Anastasia O'Grady argued that the head of the Federal Reserve undermined the value of the US dollar by "quantitative easing", or printing money.

In Obama's first term, Treasury Secretary Timothy Geithner exerted pressure on Beijing. He is leaving and his successor would do well to put China's currency policy into context and give credit to changes made. The new man could take his cue from a prominent get-tough-on-China advocate of 2010, Paul Krugman.

Back then, Krugman recently noted, "an undervalued renminbi was a significant drag on advanced economies, including the United States. Since then … the real exchange rate of China against the US (based on consumer prices) has appreciated significantly. At the same time, China's surplus has come way down." Therefore, he noted, it would be odd to make a confrontation over China's currency a centrepiece of economic policy.

That sounds like a logical conclusion. But as to logic in Washington, see above.

Bernd Debusmann, a former Reuters columnist, writes from Washington about international affairs