The Guardian Unlimited, January 23, 2011
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When China’s President Hu Jintao came for his state visit last week the White House press corps completely ignored almost all the substantive issues raised by Mr. Hu’s visit. The domestic policy issues raised by this trip were altogether invisible in the reporting in major news outlets.
The news accounts were filled with the long list of items that President Obama was likely to raise with Mr. Hu. There are issues about China respecting the patents and copyrights of U.S. firms. The U.S. has concerns about market access in China for our retailers, our financial firms and some of our manufactured products.
And then there are issues about the relative value of the dollar and yuan. Yep, the White House press corps got together the whole list, presented it to the public, and then went home and had a drink.
If these reporters actually had to cover the news to get a paycheck then this checklist of concerns would have been just the beginning of their job. It’s great for the Obama Administration to come up with a wish list that it would like from China’s leadership. But this is not Disney World.
China doesn’t hand the United States everything on its wish list. China is a huge superpower that doesn’t have to do whatever the United States wants. It makes concessions to the United States in exchange for items on its own wish list.
This means that the United States is not going to get everything on its list. In fact, President Obama must decide which items he will prioritize with China and put these items as top priorities, as opposed to other items that he will tell Mr. Hu are of less consequence. Any real reporters in Washington last week would have been trying to find out the actual priority that President Obama was assigning to the various items on his list.
This is what the public needs to know. Different items on the list will obviously matter more to some people than others. Most people in the United States probably don’t give a damn if the Chinese pay Bill Gates for making copies of Windows.
The public may even applaud if Chinese companies make unauthorized copies of Pfizer’s drugs so that more people in China can afford the medicine they need to save their life. They probably also don’t care much if China’s bureaucracy makes it difficult for Wal-Mart to expand or for Goldman Sachs to be a big player in China’s financial markets.
However, most of the public really does have a very big interest in the value of the yuan against the dollar. If the dollar is over-valued against the yuan by 30 percent, then this is the same thing as the United States imposing a tariff of 30 percent on the items that we may try to export to China. It is pretty hard to export goods if you impose a 30 percent tax on them.
On the other side, a currency that is over-valued by 30 percent is equivalent to providing a subsidy to China’s manufacturers of 30 percent for the goods that the United States imports from China. A 30 percent subsidy for imports gives them a very large advantage competing with U.S.-made goods.
Not surprisingly, this over-valuation is making it very difficult for U.S. manufacturers to compete with China. The over-valuation of the dollar against the Chinese yuan and other currencies is the main reason for the huge U.S. trade deficit. It is one of the main reasons that the country has lost 6 million manufacturing jobs in the last dozen years.
The loss of relatively good paying manufacturing jobs put downward pressure on the wages of large segments of the U.S. workforce. It is one of the main factors behind the growth of inequality in the United States in the last three decades.
So, we know that the value of the yuan was one of the items on President Obama’s wish list, but we do not know how high up it was on the list. Did President Obama tell Mr. Hu that he doesn’t care about Microsoft and Pfizer and Wal-Mart and Goldman, he wants to see the dollar fall against the yuan?
Or, did President Obama tell Mr. Hu that he would like to see the yuan rise against the dollar, but he understands the problems that this would create in China. Instead, Obama may have suggested that Mr. Hu do more to protect Pfizer’s patents and swing a few more deals to Goldman.
The fact is that the public has no clue as to what the Obama Administration’s priorities were in negotiating with China because the media made no effort to find out. It somehow escaped the White House press corps, but the deals with China are first and foremost about battles over domestic policy. President Obama either pushed for Goldman Sachs or he pushed for the nation’s workers, but it doesn’t make sense that he pushed for both.
The media apparently is not going to tell the American people which side the President chose. Fortunately, the currency markets will.