Obama backing down on China

Hillary Clinton, the new Secretary of State, hinted as much when she said at a Jan. 27 press conference that the United States needs “a comprehensive dialogue” with China and while the economy is a very important aspect of the bilateral relationship, “it is not the only aspect of our relationship.”

This raises the possibility that the Senior Dialogue, headed previously by the Deputy Secretary of State, may become the main channel for dialogue and that State rather than Treasury may become the main interlocutor with China. That would be fine but it is important that a high-level economic dialogue should continue to take place, especially at a time when economic problems are assuming greater importance in the relationship.

Besides, the currency problem is not going to go away. In April, the Treasury Department is due to issue another of its six-monthly reports on global currency policies, and the U.S. will have to decide whether to accuse Beijing of currency manipulation. Such a charge could trigger sanctions against China, which would certainly lead to Chinese reprisals. For this reason, the Bush administration never made such a determination. However, Vice President Biden, in commenting on whether China was manipulating its currency, said that the Obama administration would say things to China that the Bush administration “was reluctant to do.”

China has repeatedly warned against protectionist measures, but signs of protectionism are already evident with Congress attaching a “buy American” provision to the stimulus legislation backed by Obama. This may well have the same impact as the Smoot-Hawley Tariff Act of 1930, which preceded the Great Depression.

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