WASHINGTON - Earlier this year, many in Washington DC, were hopeful that
Chinese President Hu Jintao's attendance at the Nuclear Security Summit, the US
Treasury Department's decision to hold off on naming China as a "currency
manipulator", and Beijing's support of UN sanctions against Iran all pointed to
a warning in the cool relationship between the Barack Obama White House and
Beijing.
But the spring thaw has segued into a summer squall as US politicians, in
anticipation of mid-term elections in the autumn, are making renewed calls for
the Treasury Department to list China for manipulating the yuan exchange rate.
Beijing, for its part, has contributed to the downturn in relations by cutting
military exchange programs between the US and China for
2010 to protest US arms sales to Taiwan and express its concerns over a pending
decision by the White House to authorize the sale of new F-16 fighter jets to
Taiwan.
Chinese frustration with the US military support of Taiwan became particularly
evident on June 4 when Major General Zhu Chengdu, director of China's National
Defense University, made a pointed public attack against the US
"I believe this sort of arms sale sends to the Chinese the wrong signal: that
is, the Chinese are taking the Americans as partners as well as friends, while
you Americans take the Chinese as the enemy," he warned at the Shangri-La
Dialogue in Singapore, an annual meeting of defense ministers.
The freeze in military exchanges is just the latest in Beijing's protests over
arms sales, but the suspension of military ties would suggest a growing
confidence from China in both its military capabilities and its ability to
impose real costs on Washington for policies which Beijing interprets as
designed to prevent the unification of Taiwan with the mainland.
US Secretary of Defense Robert Gates responded to the Chinese decision with his
hope that US-China military relations would move beyond the issue of Taiwan
arms sales.
"But we will maintain our obligations and, frankly, I would very much like
to...see the military-to-military relationship cease being the sole focus of
the response to these sales because I think that there is great opportunity and
great benefit in a greater dialogue between us," said Gates.
While Gates may have been focusing on the deterioration in the military
relationship, the growing row over China's currency is gaining momentum in
Washington as lawmakers, facing a contentious summer of campaigning amidst a
flagging US economy, seek to pursue the populist agenda of attacking China's
valuation of the yuan.
High unemployment numbers and a US business community which is increasingly
critical of China's valuation of its currency and its failure to adequately
enforce intellectual property rights protection has pushed lawmakers to take a
critical stance towards China's economic policies.
Last week, Senate Finance Chair Max Baucus demanded that the Barack Obama
administration stop overlooking the growing economic issues in the China-US
relationship in favor of the broader strategic issues of the relationship.
During last week's Senate finance panel hearing on US-China trade relations,
Treasury Secretary Timothy Geithner found himself on the receiving end of
congressional frustration with the widening trade deficit with China and
continuing high unemployment numbers at home.
"Billions and billions of dollars, millions and millions of jobs flow to China
simply because their currency is manipulated," said Senator Chuck Schumer.
Adding to the tensions on Capitol Hill is the fact that the Treasury is two
months overdue in issuing its annual report on currency misalignment.
Last Wednesday, senate Republicans succeeded in introducing an amendment to a
pending tax bill which would require the administration to make a quarterly
report of the dangers posed by China's holdings of US debt.
Indeed the tone of US-China relations over the summer months might be
determined more by the outcome of the disagreement between lawmakers on Capitol
Hill who are seeking a tougher stance toward China's growing trade surplus with
the US and a White House which seeks to maintain good diplomatic relations and,
among other policy goals, might be looking to improve military ties and various
other bilateral relationships after the combative meetings in Singapore earlier
this month.
The US Treasury has, so far, avoided listing China as a currency manipulator, a
move that many lawmakers perceive as an attempt by the administration to
slow-dance one of the more challenging issues in US-China economic relations.
During his senate testimony last week, Geithner sought to defuse congressional
anger with China's currency and the Treasury's foot-dragging in confronting the
problem.
"The distortions caused by China's exchange rate spread far beyond China's
borders and are an impediment to the global rebalancing we need," he said.
Reform is "critically important to the US and the global economy".
Geithner has found himself in the middle of a difficult balancing act between
an increasingly impatient congress and sensitive diplomatic exchanges with
leadership in Beijing who do not want to be seen as bending to US pressure.
At the US-China Strategic and Economic Dialogue last month, Hu indicated that
Beijing was still committed to the reform of its currency and, publicly, US
Treasury officials had said that Beijing should be allowed to make adjustments
to its currency at its own pace.
The Chinese Foreign Ministry issued a rebuttal to the combative language coming
from Washington during a press conference on Tuesday in Beijing.
Yuan appreciation "will neither resolve the trade imbalance between China and
the US, nor address other domestic issues in the US such as low savings, credit
spending and unemployment. We hope the relevant US political figures could
think seriously about how to resolve the structural problems in US economy
instead of blaming others all along," said Foreign Ministry spokesperson Qin
Gang.
Qin said, "When and how the reform [of the exchange rate] will take place
depends on our overall consideration based on the changes in world economic
situation and the performance of China's economy."
As congressional midterm elections draw closer the White House will face the
tough challenge of maintaining positive diplomatic relations with leaders in
Beijing who are exhibiting new levels of assertiveness on military and economic
issues while, at the same time, facing down lawmakers who are feeling pressure
from their constituents to take action against Chinese policies perceived,
wrongly or rightly, to be contributing to the trade imbalance and high
unemployment.
The White House, no doubt, sees that maintaining good relations with Beijing
can help in controlling North Korea, imposing an enforceable multilateral
sanctions regime on Iran and easing the inherent tensions as China aspires to
take on great power status. But domestic political pressures this summer will
test the White House's ability to follow through on its foreign policy agenda.
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