WASHINGTON — U.S. Treasury Secretary Timothy Geithner will make an unscheduled visit to Beijing today for talks with China’s vice premier for economic affairs as the two sides appear to be bent on continuing a delicate dialogue to resolve a heated dispute over China’s currency policies.
Geithner’s meeting with Vice Premier Wang Qishan, following a two-day visit to India, comes at a tense time for the U.S. and China, which have traded barbs for months about the value of the Asian nation’s currency and its impact on commerce.
A government source said an announcement on a change in currency policies is not expected during this meeting. The officials will discuss a range of issues that will be on the Strategic and Economic Dialogue agenda in May, the source said.
Geithner revealed on Saturday he was postponing a highly anticipated report to Congress that could have potentially labeled China as a currency manipulator, which would lead to consultations and possible sanctions by the U.S. at the World Trade Organization if China refused to allow its currency to appreciate.
On Tuesday, Geithner told an Indian TV station that he thought China was likely to see the benefits of allowing the yuan to move to a more flexible exchange rate but that the decision was China’s to make. While Chinese officials maintain that country has never manipulated its currency for trade benefits and is not the reason behind the trade imbalance with the U.S., Chinese media reported there was a possibility it might allow the yuan to revalue.
“Both China and the United States recognize that it’s in neither of our interests to escalate trade tensions,” said Francisco Sanchez, undersecretary for international trade at the Commerce Department, at a press briefing in Washington.
“We have to find ways to work together in solving whatever problems we have,” said Sanchez, who will travel to Brazil, China and India in the next 60 days.
“I think this is going to be a successful mission for the Treasury secretary,” said Phillip Swagel, a former assistant secretary for economic policy at the Treasury Department and a visiting professor of finance at the McDonough School of Business at Georgetown University. “It is in China’s best interest to allow its currency to get stronger against the dollar. They are having trouble with inflation and a lending boom, and it would make sense that as a part of the tightening of their monetary policy the Chinese government would allow its currency to appreciate.”
Swagel said he doesn’t expect much price impact.
“It doesn’t seem like it will be dramatic,” he said. “My guess is the change in the exchange rate will be absorbed in price-cost markup, partly on the manufacturers’ side in China and partly on the retailers’ side in the U.S.”
The U.S. imported $31.8 billion worth of apparel and textiles from China in 2009. U.S. retailers and apparel importers have been wary of the dustup between the U.S. and China because of significant exposure to potential punitive tariffs. The domestic textile industry has pushed for the government to label China as a currency manipulator, arguing the sector is one of those hard hit by that country’s currency practices.
News of Geithner’s meeting in Beijing and the delayed report did not immediately calm the waters on Capitol Hill. A wide range of critics, including President Obama and members of Congress, charge China undervalues its currency, which drives down the cost of Chinese imports and puts U.S. goods at a competitive disadvantage.
China delinked the yuan to the dollar in 2005 and pegged it against a basket of currencies, allowing it to rise by about 20 percent through 2008. But the yuan has been frozen for more than a year as the global economy grappled with a recession that is slowly easing.
“Every administration has thought it could get something done by talking to China,” said Sen. Charles Schumer (D., N.Y.), who has cosponsored a bill to confront China’s currency manipulation with punitive tariffs. “But years of experience have shown that the Chinese will not be moved by words. They only respond to tough action.”
Sanchez said the Commerce Department will have several chances this year to determine whether currency manipulation can be considered a countervailable subsidy. Several petitions working their way through the system charge that China’s currency policies effectively subsidize exports.
“What I can tell you is that my message, and Secretary [Gary] Locke’s message when we go forward, is that it’s in both our countries’ interests to foster business environments and follow policies that expand trade for both countries,” Sanchez said.
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