The Latest US-China Currency Spat: All You Need to Know About US Politics
No econ knowledge necessary to understand this one. There is an election coming up in the US this Fall and, although the economy is growing, it is a jobless recovery. In other words, people are upset and Obama/Democrats are feeling the heat.
Good summary of the issue here:
[T]he real problem is the way the lack of employment has pushed folks in the US to push Obama towards a currency confrontation with China.
Schumer and Krugman are both pushing hard for one, and more are on the way.
Geithner and Obama don’t want to have to do this, and know that the result of such unilateralism will be damaging.
But, if pressured hard from the left, Obama will be left with little choice but to offend his counterparts in Beijing.
That’s really all there is to it. The smart bet is still (as always) that the Treasury Department report on currency manipulation will fail to name China. But times are tough and the elections could turn into a bloodbath for the Dems this year.
As I alluded to yesterday at some point (I think on Twitter — @chinahearsay), there are a lot of things that the Dems can do short of confronting China formally that would establish their credibility as being “tough on China” sufficient for campaign purposes.
The most recent example is this letter sent to Geithner by 100+ members of Congress asking him to name China as a currency manipulator in the next Treasury Report. If Geithner agrees, China will be pissed off, but the members of Congress can go back to their constituents and claim that they are trying to save US jobs (in addition to their own, that is).
If Geithner declines to act, the members of Congress can still go back to their constituents and say “We tried, but failed” to get the administration to do something against China. In a mid-term election, such criticisms of the administration by fellow Democrats is allowed.
So the letter is a win-win for Dems. Formal actions might get the administration into trouble. Either way, don’t forget as the rhetoric heats up that this has everything to do with domestic politics and much less to do with the US-China relationship.
I don’t understand …. is it really thought that a re-valued reminbi will help create jobs in the US? The jobs that were lost to China were mostly manufacturing jobs …. and they’re not coming back. Who has the $ or the desire to build a factory in the US? The reminibi would have to re-value A LOT to be able to justify that cost!
And a re-valued RMB would also drive the cost of goods up. With bad unemployment, do people really want their Wal-Mart purchases to get more expensive?
Don’t assume that anyone is actually thinking that far ahead (re: the cost of imports, if the jobs will actually come back).
Agree with you completely. A big hit to Chinese imports will push jobs to Bangladesh, Mexico, Vietnam, etc. It will not do much, if anything, for U.S. employment. Seems pretty obvious.
Basic tenet of political economy: power of a concentrated group (e.g. manufacturing) is always much greater than a diverse, widespread constituency (e.g. consumers). No one ever lobbies for policies that will keep imports cheap.