Obama unlikely to push China hard on currency

China's central bank made its subtle yet surprising shift in the wording of its exchange-rate policy on Thursday. In the arcane language that governs the US$3-trillion-a-day currency markets, many analysts read the shift as a signal that Beijing was getting ready to let the yuan resume rising against the dollar.

The dollar has been sliding in value against many major currencies. U.S. exports to Europe have benefited, because the dollar has fallen about 18 percent against the euro since early March.

And since the Chinese have linked their currency to the dollar, the dollar's fall has benefited them, too. It's made Chinese products cheaper in Europe and elsewhere where currencies have risen against the dollar. If Beijing let the yuan rise, those Chinese goods would become more expensive.

For now, a weak yuan isn't all bad for the U.S. It's meant a break for American consumers and retailers, such as Wal-Mart, that buy goods imported from China.

But many countries have complained about the weaker dollar and China's close link to it. Some, such as Thailand, South Korea and Russia, have sought to stem the dollar's rise against their currencies by buying dollars.

American manufacturing groups blame the low yuan for contributing to the loss of 5.6 million manufacturing jobs in the past decade. During that time, America's trade gap with China has soared.

“The rising trade deficit is an ominous sign for an economic recovery anytime soon,” Scott Paul of the Alliance for American Manufacturing said after the government reported Friday that the deficit with China jumped sharply in September.

The issue has riled some on Capitol Hill at a time when the U.S. unemployment rate has hit a 26-year high of 10.2 percent and lawmakers are under pressure to help create jobs. Legislation in the House and Senate would allow for tariffs on Chinese goods if Beijing's currency policies don't change.

Treasury Secretary Timothy Geithner, at the Asia-Pacific Economic Cooperation finance meetings in Singapore last week, repeated his mantra that “it's very important to the United States that we have a strong dollar.”

The administration has done nothing to halt the dollar's slide. Some have seen that as a signal that the U.S. feels a weak dollar relative to major currencies, other than the yuan, helps U.S. exports.

But with the United States reliant on foreigners to finance nearly US$8 trillion in publicly held debt, it can't openly back a weaker dollar. Doing so would cause investors to dump dollars. The dollar would sink, U.S. interest rates would likely surge and the fledgling U.S. economic recovery could risk collapse.

Many economists contend that even if China let its currency rise sharply against the dollar, Beijing would still enjoy trade advantages. Those include its low-wage work force and barriers it's erected to limit imports of U.S. and other foreign-made goods.

Other factors contribute to the trade gap. China is a high-saving country. It relies on exports to power growth. By contrast, U.S. consumers have driven global growth for decades with high spending and low savings.

“Achieving global balance sounds great in theory, but there are a lot of skeptics out there who wonder what the enforcement mechanism will be,” said Nicholas Lardy, an economist at the Peterson Institute for International Economics in Washington.

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