Four is an unlucky number in China, so folklore might suggest that the 44th US president could be a doubly unfortunate one. With the early crackle of tension in the air surrounding Sino-US trade relations, Obama will be hoping not to tempt fate any further.
Treasury Secretary Tim Geithner’s remarks on currency manipulation may have created a stir but should we be surprised at what was said? Out on the campaign trail, Obama flagged that he was ready to talk a tougher line than the “patsy” George W Bush in trade negotiations.
Speaking in Pittsburgh in April 2008, Obama posed as the new sheriff riding into town, one who would look the Chinese in the eye and tell them, “You guys keep on manipulating your currency and we are going to start shutting off access to some of our markets.” This was not just talk; Obama supported the 2005 Schumer-Graham legislative amendment demanding duties on Chinese imports unless the yuan was allowed to rise in value.
But Geithner’s recent comments have upped the rhetorical ante. They have also brought an end to the ‘three no’s policy’ (no finger pointing, no lecturing and no America-bashing) that the Asia Society’s Banning Garrett says Beijing followed during the US presidential campaign.
Of course, some change in tone was always likely to occur, with the transition in US personnel. Former Treasury Secretary Hank Paulson went out of his way to avoid public discussion of Chinese monetary policy and created the Strategic Economic Dialogue process to reduce the potential for flare-ups. The Chinese press expected communication to carry on improving. Nice things were said about Geithner’s Mandarin language skills on news of his appointment.
At heart this is a debate about the trade deficit, which hit record levels again in 2008. The “artificial” exchange rate is said to be laying waste to the American manufacturing heartland. But millions of American consumers continue to benefit from China’s flood of imports. Walmart – the biggest employer in the US after the federal government – stocked more than $9 billion of Chinese-made products on its American shelves in 2008. If import tariffs are raised in anger, price-sensitive customers will start to feel the pinch. Perhaps some of its 1.4 million employees will start to fear for their jobs too.
Then, there are the bailouts. Beijing, which already holds $650 billion of US Treasury debt, will be asked to shoulder some of the additional $1 trillion in US deficit spending. Akin to provoking a row with your bank manager immediately before asking him for a second mortgage, Obama’s room for manoeuvre seems limited.
So will he be the man that says no to China? Expect bluster perhaps but not much more. In his current predicament, for the president to restrict access to Chinese goods would be an audacious act indeed.
© ChinTell Ltd. All rights reserved.
Sponsored by HSBC.
The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.