China Comment

Energy, Environment, and Economy

Obama’s China Policy

Barack Obama recently achieved status as the presumptive Democratic Party Presidential nominee, so it seems worthwhile to address what his future China policy might be like, should he be elected.

CHINESE CURRENCY REEVALUATION

Obama wants faster Chinese currency reevaluation, and threatens to levy duties against the Chinese if they do not move to strengthen the RMB against the dollar. 

The bill Obama promotes, S. 796, Sen. Bunning (R), and Stabenow (D)’s Fair Currency Act of 2007, appears similar to the failed Baucus’ 2006 bill S. 295 which attempted to designate China a currency mainpulator but which eventually did not pass because of fears that it was non-WTO compliant. 

Likewise, the Fair Currency Act appears similar to the unadopted 2007 S. 1607 Baucus/Grassley bill which sought to replace the current Treasury reporting structure which merely analyzes if foreign countries “manipulate the rate of exchange between their currency and the United States dollar for the purposes of preventing effective balance of payments adjustments or gaining unfair competitive advantage in international trade” (1) with a requirement that Treasury identify “fundamentally misaligned” currencies and designate them for priority action in semi-annual reports to Congress, whether or not the currency manipulation is maliciously intended.

Such a bill would introduce countervaling duties against Chinese exports to the United States, arguably helping domestic American manufacturers. Prices of goods will rise to some degree, but more manufacturing jobs will (theoretically) remain in the United States. (Read the bill HERE.) [A further analysis on the Bill and currency evaluation/manipulation will follow in a later article.] 

Former ambassador to the UN Economic and Social Council Terry Miller gives some insight into the effects of such a bill, arguing that “changing the exchange rate will, however, affect U.S. producers who use intermediate goods imported from China in their U.S. production processes. Renminbi appreciation will increase their costs of production. U.S. consumers of basic commodities like oil will also be hurt, as renminbi appreciation will make dollar-denominated commodities like oil cheaper for the Chinese. Chinese demand, already rising rapidly, will drive up the dollar price of such commodities worldwide, forcing American consumers to pay even more at the pump.” All Roads Lead to China had another interesting analysis on the wisdom of encouraging a currency reevaluation. I’m not certain I agree with either statements, but they make intriguing arguments. The economy is never quite as simple as it initially appears.

Ultimately, the Chinese RMB has appreciated 18% since 2005 when it removed its peg from the dollar and began to float against a market basket of currencies; but the bill argues China’s currency is still undervalued by as much as 40%.

PELOSI AND ANTI-CHINA SENTIMENTS

Barack Obama, if elected, will lead a Democratic Party alongside a powerful anti-China House Majority Leader, Nancy Pelosi. Pelosi is famous (in China) for unveiling a pro-democracy banner in Tian@nmen Square in 1991 while on a Congressional docket- hardly a subdued gesture by a future national leader. She is often confrontational against China, very pro-T*b*t, and has pushed for changes in China’s population control policies. A commentary in Xinhua, the AP of China, has many derisive things to say about her.

Depending on how much influence Pelosi and the rest of the Democrats’ anti-China lobby might have on Barack Obama, Sino-American relations could degrade under an Obama presidency.

OBAMA AND TAIWAN

Obama supports the “One China Principle” and congratulates Taiwan for its developing democracy, but beyond that has had few constructive statements or declarations of policy on the situation.

CONCLUSION

Although Obama has yet to construct a fully cohesive China policy, a vote for Obama appears to be a vote against coddling China economically. It remains to be seen whether he is a military anti-China hawk, like the recently ousted air force generals who promoted purchases of 381 new F-22 jets in opposition to the Bush Administration’s suggested number of 183, partially because they saw America’s future as confronting conventional armed forces rather than insurgencies.

 The Council on Foreign Relations discusses more of Obama and the other candidates’ China policies at length HERE.

[A future article  on this site will examine McCain's China Policy]

–(1) Exchange Rates and International Economic Policy Coordination Act of 1988. A part of the: Omnibus
Trade and Competitiveness Act of 1988. Cornell University Law School. 1988. http://www.law.cornell.edu/uscode/html/uscode22/usc_sec_22_00005301—-000-.html

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11 June, 2008 - Posted by | China Economy, China Future | , , , , , , , ,

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