In order to clear the way for a Senate vote on President Barack Obama’s quest for special authority to negotiate an Asian trade deal, fellow Democrats insisted Thursday on parallel legislation aimed at currency manipulation by Asian nations, particularly China.
They said nations such as China devalued their currency, to unfairly promote their exports at the expense of U.S. jobs.
But that’s an outmoded argument attacking yesterday’s problem.
China is not devaluing its currency, and it’s actually moving away from policies aimed at propping up its exports.
Its yuan has gained 0.6 percent against the dollar over the past three months, and more than 10 percent over the past year when adjusted for inflation.
This comes as China has been transitioning from an export-led economy to one driven by domestic demand for goods and services.
When the global economy shuddered amid the U.S. financial crisis of 2008-09, China accelerated its move away from an export-led economy, so much so that it no longer holds the largest trade surplus with the United States.
That inglorious honor now belongs to export superpower Germany, which is seldom mentioned as a target for U.S. penalties imposed on its exports.
The White House on Thursday opposed the Democratic proposal to impose retaliatory penalties against currency manipulators – which passed the Senate 78-20 – arguing it would “undermine our international efforts to address this issue.”
What Obama didn’t say is that the International Monetary Fund, established to oversee the world’s currencies, is close to declaring that China no longer manipulates the yuan.
“We are now reaching a point where we are close to, it’s no longer being undervalued,” Markus Rodlauer, deputy chief of the IMF’s Asia department, said last month.
That’s significant. The United States has long pointed to the IMF assessment to bolster its argument that China pegs the yuan at too low a rate against the dollar. The manipulation argument will also become hollower if China’s currency begins trading more freely on global financial markets.
China adopted the IMF’s accounting standards this month for its balance of payments with other countries, part of its bid to have its currency join the U.S. dollar, Japanese yen or Europe’s euro as a “freely usable” reserve currency used to settle debts between countries.
If the IMF gives China such status later this year, the yuan’s value would be deemed to be sufficiently convertible, or set by markets, to be treated as seriously as the dollar, yen and euro.
“It’s not fully convertible, but they are moving in that direction,” said Kevin Logan, chief economist for HSBC Securities (USA) Inc., an arm of the global bank HSBC. “Now capital is (increasingly) a two-way street.”
It’s still possible that China would revert.
With China struggling to meet its growth goal this year, calls are growing within that country to devalue the yuan. If China’s economy slows even further, it might prove a test of how serious Beijing is about sticking to a more market-driven rate.