[CTC] How China’s currency move shows the limits of White House influence

[Arthur Stamoulis]

Two articles on currency below...


http://www.politico.com/agenda/story/2015/08/how-chinas-currency-move-shows-the-limits-of-white-house-influence-000196 <http://www.politico.com/agenda/story/2015/08/how-chinas-currency-move-shows-the-limits-of-white-house-influence-000196>
How China’s currency move shows the limits of White House influence

By DANNY VINIK <http://www.politico.com/reporters/DannyVinik.html>
 

On Tuesday, the People’s Bank of China devalued its currency by 2 percent, a major change that roiled markets and was the topic of the day on Wall Street.

The timing took even veteran currency-watchers by surprise, though it makes sense for China: Ever since its stock market crashed over the past few months, China has been seeking ways to keep its economy growing strongly, and a cheaper currency is one way to improve its companies’ competitiveness.

So far analysts have focused on what this means to the Chinese economy. But the move also matters to the U.S. — not least as a signal that the White House has less influence on Chinese currency policy than it likes to claim.

Just a couple of months ago, the threat of currency manipulation was a big stumbling block for the Trans-Pacific Partnership, the huge trade deal Obama is trying to close this year. Lawmakers like Rep. Sander Levin (D-Mich.), Sen. Sherrod Brown (D-Ohio) and Sen. Rob Portman (R-Ohio) insisted that the deal should include enforceable language to prevent TPP countries from manipulating their currency. (China is not part of the TPP but could be added to it in the future.)

The White House argued that any currency chapter acceptable to other TPP countries would infringe on America’s own monetary policy. They also implied it wasn’t necessary, and said things like this <https://www.whitehouse.gov/the-press-office/2015/05/08/remarks-president-trade>:

“Some countries, they try to lower their currency so that it makes their goods cheaper, makes our more expensive. There was a time when China was pretty egregious about this. When I came into office, I started pounding on them. Every time I meet with them, I’d be talking about currency. And we pushed back hard, and China moved. In real terms, their currency has appreciated about 30 percent since I came into office. And we're going to keep on going after it."

That's President Obama in May, when he delivered a speech at Nike’s headquarters to promote the TPP.

His implication was that the White House’s strategy has been successful. Today’s move suggests that his strategy is not as powerful as he thinks.

In its response, the administration framed this as potentially all part of the plan. The People’s Bank of China called Tuesday’s action a “one-time depreciation,” and a U.S. Treasury spokesperson expressed hope that this was the case: “China has indicated that the changes announced today are another step in its move to a more market-determined exchange rate.”

Critics of the White House’s position have a less charitable view. “There is reason to be skeptical of believing that the largest devaluation of the Chinese currency in over two decades is merely about moving to a market-based exchange rate,” Rep. Levin said in a statement.

More importantly, the critics say, neither the White House nor its critics know the actual goal of Chinese authorities. And that alone, they say, is the reason the U.S. still needs a clear plan to combat currency manipulators, such as imposing tariffs on countries that Treasury deems to manipulate their currencies.

“It certainly takes away the argument that China no longer manages their currency or that it's not misaligned,” said Jared Bernstein, the former chief economist to Vice President Joe Biden. “It's also a reminder that whatever happens with the TPP, we need a strategy to deal with this tactic.”

 

Politico: Brown, Schumer Blast Chinese Currency Manipulation
 
8/11/1512:25 PM EDT
Brown, Schumer Blast Chinese Currency Manipulation: Two Senate Finance Committee Democrats have denounced China's move today to devalue its currency in relation to the U.S. dollar, with Sen. Sherrod Brown arguing the move shows the importance of trade tools to fight currency manipulation.

“China will stop at nothing to give its exports an unfair advantage in the global marketplace and this devaluation by the Chinese government is concerning," Brown said in a press release. "[T]he U.S. needs to ensure American businesses and workers have a backstop to fight back against currency manipulation. That means passing our bipartisan bill to punish currency manipulation and demanding rigorous currency disciplines in TPP, which China may seek to join at a later date.”

The Ohio Democrat backs currency language put forward by Sen. Chuck Schumer in the Senate version of the customs reauthorization bill, which would allow the Commerce Department to take currency manipulation into consideration as part of its anti-subsidy duty investigations.

Brown also said it's unclear whether this action by Beijing would be the beginning of a "prolonged intervention" or merely an isolated event. "Given China’s history of currency manipulation, this depreciation must be monitored closely," he said.

Schumer, meanwhile, argued that the move shows the renminbi should not be made a reserve currency by the International Monetary Fund.

“Allowing the renminbi to be declared a reserve currency is akin to putting the fox in charge of the henhouse," Schumer said in a statement.

In a statement <http://www.pbc.gov.cn/publish/english/955/2015/20150811090338341860668/20150811090338341860668_.html>, a spokesman for the People's Bank of China called the move a "one-time correction," but did not use the word devaluation, referring to it instead as a nearly 2 percent change "in the depreciation direction" against the U.S. dollar.

— Victoria Guida <http://www.politicopro.com/reporters/?id=1326>
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