United Liberty

This week, Treasury Secretary-Designate Timothy Geithner faced hearings on his appointment from the Senate Finance Committee. In response to written questions submitted by the Senators (Chuck Schumer (D-NY) in this case), Mr. Geithner had this to say:

President Obama - backed by the conclusions of a broad range of economists - believes that China is manipulating its currency. President Obama has pledged as President to use aggressively all the diplomatic avenues open to him to seek change in China’s currency practices. While in the U.S. Senate he cosponsored tough legislation to overhaul the U.S. process for determining currency manipulation and authorizing new enforcement measures so countries like China cannot continue to get a free pass for undermining fair trade principles. The question is how and when to broach the subject in order to do more good than harm. The new economic team will forge an integrated strategy on how best to achieve currency realignment in the current economic environment.

In a time where the U.S. is in a recession with record budget deficits, I have to question the wisdom of such economic saber-rattling. China is our second largest trade partner and will likely surpass Canada as our number one source of imports (at well over $300B) before too long. Further, China holds nearly $700B in U.S. Treasuries, and we will need them to have the appetite for more if we are going to fund a $1T+ deficit.

The state-owned newspaper, the People’s Daily, responded with this article yesterday and indicated that the People’s Bank of China was preparing a response. Stating that this was a signal of more friction to come between the two nations, Cao Honghui pointed that,

This is the first comment made by the Obama administration on Sino-U.S. economic ties.

Economic relations between the U.S. and China will be very important as both sides begin to criticize the current unhealthy, yet symbiotic, relationship.