Obama to get tough with China
President Barack Obama vowed to “get much tougher” with China on trade and currency rules to ensure U.S. goods do not face a competitive disadvantage, adding to a range of issues weighing on relations.
With U.S.-Chinese ties strained over U.S. arms sales to Taiwan and Obama’s planned meeting with Tibet’s spiritual leader, the Dalai Lama, the U.S. president said his administration was pushing China and other countries to enforce trade rules and further open their markets.
However, analysts cautioned against reading too much into Obama’s comments, saying his words were as much aimed at appealing to a domestic audience rather than to seriously put pressure on Beijing.
U.S. manufacturers have complained for years China’s currency policies give local companies an unfair price advantage. China says exchange rate policy is an internal matter.
“Even if China wants to adjust its exchange rate, it is nearly impossible for Beijing to meet the demands of the U.S. — this is China’s own business,” Li Jian, a researcher with a think-tank under China’s Ministry of Commerce, told Reuters.
Markets too were not counting on a brisk rise.
“Previous tough comments on the yuan from the U.S. administration have typically led nowhere,” said a U.S. bank dealer in Shanghai. “The market is not sure the latest comments by Obama will really lead to a tougher U.S. stance on the yuan.”
Offshore one-year dollar/yuan non-deliverable forwards (NDFs), a rough gauge of market sentiment, on Thursday implied a 2.8 percent rise in the yuan over the next 12 months, slightly less than on Wednesday. The yuan’s spot exchange rate, which is tightly controlled by the central bank, was nearly flat.
Obama told a meeting with Senate Democrats on Wednesday that Washington was trying “to get much tougher about enforcement of existing rules, putting constant pressure on China and other countries to open up their markets in reciprocal ways”.
“One of the challenges that we’ve got to address internationally is currency rates and how they match up to make sure that our goods are not artificially inflated in price and their goods are artificially deflated in price,” he added.
Obama said he would not take a protectionist stance toward China, the world’s third-largest economy, warning that “to close ourselves off from that market would be a mistake”.
YUAN SEEN AS UNDERVALUED
The Peterson Institute for International Economics estimated China’s yuan was undervalued by about 30 percent against all world currencies and about 40 percent against the dollar.
Obama has twice declined to label China as a currency manipulator, but faces a third decision on that issue in April.
Finance ministers and central bank governors of the Group of Seven rich nations will discuss China’s currency this weekend in Canada, a U.S. Treasury official said.
“The Chinese currency issue is on everybody’s mind. It’s an issue for everybody,” the official said.
Zuo Chuanchang, a researcher with the Academy of Macroeconomic Research, a think-tank under the National Development and Reform Commission, said a row over the yuan would not lead to anything like a trade war.
“It’s very normal to see some disputes between China and the United States, but this doesn’t mean there will be a bust-up,” he said.
“It’s a political show, and it does really mean too much.”
Mid-term elections for U.S. Congress later this year are likely to be a test of the popularity of the policies of the Obama administration. With economic concerns uppermost in many voters’ minds, trade and currency tensions with China may become a electoral issue.
REVILED AS SEPARATIST
China on Wednesday warned Obama against meeting the Dalai Lama, reviled by Beijing as a separatist for seeking self-rule for Tibet. The meeting may happen as early as this month.
Beijing was already upset with Washington over a $6.4 billion U.S. weapons package for Taiwan, the self-ruled island that Beijing deems a breakaway province.
China has postponed a second round of free trade talks with Taiwan until after this month’s Lunar New Year holiday, though the Taiwanese side is downplaying any political reason for the delay.
The latest flare-up in Sino-U.S. ties also comes amid disagreements over Internet freedoms in China, after search engine Google Inc threatened to pull out over censorship and hacking attacks.
Beijing has become increasingly assertive about opposing the Dalai Lama’s meetings with foreign leaders and the issue is a volatile theme among patriotic Chinese, who see Western criticism of Chinese policy in Tibet as meddling.
The Dalai Lama fled Tibet in 1959 after a failed uprising against Chinese Communist Party forces who entered the region from 1950. He says he wants true autonomy for Tibet under Chinese sovereignty but Beijing says he seeks outright independence.
Previous U.S. presidents, including Obama’s predecessor George W. Bush, have met the Dalai Lama, drawing angry words from Beijing but no substantive reprisals.
Source: Reuters