Tags: Obama | breathing | room | china | Yuan

Obama Gets Breathing Room From China’s Yuan Shift

Monday, 21 Jun 2010 11:05 AM

 

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China's signal of a more flexible currency policy could give U.S. President Barack Obama breathing room in the face of growing election-year pressure to get tougher with Beijing on exchange rates and trade.

But U.S. lawmakers' continued skepticism shows that Obama, who has relied mostly on quiet diplomacy to nudge China toward unpegging its currency, can expect only a limited reprieve unless Beijing acts quickly to allow the yuan to rise.

Obama will have to tread a cautious line in response to China's announcement on Saturday that it was prepared to start easing currency controls that critics say give Beijing an unfair trade advantage and hurts U.S. jobs.

Initial enthusiasm in Washington about China's shift was quickly tempered by its assertion on Sunday that any changes in the yuan's valuation would be gradual and modest.

China's announcement appeared timed to deflect criticism at an upcoming Group of 20 summit in Canada, placate an increasingly insistent Obama administration and buy time with a hostile U.S. Congress.

Obama now faces a delicate balancing act at home and abroad.

With his Democratic Party threatened in November's congressional elections by high unemployment and a fragile economy, he wants to show Americans he is protecting U.S. jobs against rising Chinese competition.

Washington is also mindful that Beijing holds massive amounts of U.S. debt, and Obama needs China's cooperation on a range of issues, including boosting the global economy and pressuring Iran and North Korea over their nuclear programs.

China's statement of intent marked a tangible achievement for Obama's non-confrontational approach on the currency issue, but analysts said the president would not be fully vindicated unless Beijing matched words with deeds.

"It gives the administration some breathing room on Capitol Hill by getting the Chinese to be responsive," said Kenneth Lieberthal, a China expert at the Brookings Institution. "The question now is how far Beijing will go in following through."

If Beijing meets its pledge, Obama may be able to cool anti-China sentiment in Congress where Democrats and Republicans want to punish Beijing to show voters before November elections that they are protecting U.S. jobs.

Otherwise, Obama will come under increasing pressure to formally label China a currency manipulator, a decision that was delayed in April but which the administration has promised to review again after the June 26-27 G-20 summit.

With his approval ratings languishing at around 50 percent, Obama can ill afford to become the target of public ire over China as he struggles to convince Americans of his leadership in tackling other challenges, such as the devastating Gulf of Mexico oil spill.

For now, however, the Obama administration is relieved to have averted any immediate threat of an international showdown over China's currency.

Despite persistent friction over the yuan, the two powers had worked to improve relations after months of disputes over U.S. arms sales to Taiwan, China's Internet censorship and Obama's meeting with the Dalai Lama at the White House.

China has become a lightning rod for criticism in the United States where it is widely accused by politicians and the media of purposefully keeping its exchange rate low to unfairly boost Chinese exports by keeping them cheap. Many economists say the yuan is undervalued by 25 to 40 percent.

With the G-20 summit looming, Obama on Friday prodded China over its exchange rate policies, telling his summit colleagues in a letter that free-floating currencies were essential to global economic recovery. The White House left little doubt he was pointing the finger at Beijing.

Obama may have been trying to show his resolve against an increasingly assertive Beijing after facing criticism at home for being too soft with China's leaders on his trip there in November.

A day after his G-20 letter, Obama was quick to welcome China's announcement of greater currency flexibility as a "constructive step."

But U.S. Democratic Senator Charles Schumer, who has led a congressional charge against China, said on Sunday that Beijing's gradual approach to lifting its currency peg amounted to "backing off" its promises.

"It is only strong legislation that will get the Chinese to change and will stop jobs and wealth from flowing out of America as a result of unfair trade policies," he said.

Even if Washington gives China time to prove its commitment to currency flexibility, Obama could again find himself in a difficult spot just weeks before Election Day. Another Treasury Department report on currency manipulation is due on Oct. 15.

© 2014 Thomson/Reuters. All rights reserved.

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