White House says Geithner Currency Comments were Campaign Rhetoric
The White House insisted this week that written comments prepared by U.S. Treasury Secretary Tim Geithner for his confirmation hearings, which declared that China is manipulating its currency, were a restatement of President Obama's campaign position on the issue, and that the administration would only make a determination on China's currency for a twice-yearly report on currency later this spring.
"...I think what Mr. Geithner was doing was restating what the president had said during the campaign, not making any determinations," White House Press Secretary Robert Gibbs clarified on Jan. 26.
Gibbs reiterated that Obama believed that the U.S. must take a "comprehensive approach to enhancing our economic relationship" with China. Gibbs also noted that the administration must make a determination about currency each spring.
"That determination will be made not any differently in this administration some time in the spring," Gibbs said. The legislative requirement for a report on currency manipulation was created in the 1988 Trade and Competitiveness Act.
A domestic industry group supporting quick action on China's undervalued currency praised Geithner's written comments that said China was involved in currency manipulation, and called for fast Congressional action on a currency bill.
"President Obama has understood for months how currency manipulation by China and other Asian trading partners in particular has devastated otherwise thoroughly competitive domestic manufacturers, and cost the U.S. economy hundreds of thousands of valuable, high-paying manufacturing jobs," said Kevin Kearns, the U.S Business and Industry Council president.
"It's time for his party's Congressional leadership to stop dithering and move a currency manipulation bill to his desk as soon as possible."
According to a labor source, Geithner's public statement of the "simple words" that China is engaged in "currency manipulation" is a "good place to start." However, proponents of a tougher U.S. policy toward China's currency recognize that the process of persuading Beijing to revalue the renminbi will not be "easy or uncomplicated," the source stressed.
Another group involved in the currency debate, the Engage China Coalition, studiously ignored Geithner's comments on China currency. The group, comprised of financial services industry groups, instead praised Finance Committee Chairman Max Baucus for calling for the continuation of the Strategic Economic Dialogue (SED).
"Engage China commends Senator Max Baucus for his leadership in recognizing the critical importance of open engagement with the world economy, particularly China," the coalition said in a Jan. 21 statement.
"The Senator's call for quick action to continue the Strategic Economic Dialogue (SED), or a similar high-level dialogue with China, demonstrates his understanding of the importance of this critical relationship to U.S. economic growth and job creation."
The Financial Services Forum, which chairs the Engage China Coalition, praised Geithner for supporting high-level engagement with China in a statement released after his confirmation, but refrained from commenting on the his written comments on currency manipulation.
"Tim's stated commitment, articulated during his confirmation hearing, to 'deep engagement' between senior U.S. and Chinese economic officials during his term, is the right course of action," said the statement released by Forum President Rob Nichols on Jan 27.
In an interview, Nichols did not believe that Geithner's comments indicated a far tougher position on China by Obama. Nichols stressed that Geithner's currency comments must be viewed "as part of a broader debate" on the U.S.-China relationship.
To that end, the comments by Gibbs clarifying the Obama administration position were "important," Nichols said. The administration is examining "the range of tools . . . to figure out what works," he said.
Geithner was approved by the committee by an 18-5 vote, with five Republicans opposing the nomination.
None cited the answers on China as the reason for the opposition, instead focusing on Geithner's failure to pay income taxes while employed at the International Monetary Fund (IMF).
At issue on currency was Treasury Secretary Tim Geithner repeating a charge that President Obama made during the presidential campaign that China is manipulating the value of its currency, according to written answers he provided to Sen. Charles Schumer (D-NY) as part of his confirmation process.
But Geithner also made it clear that the Obama administration would proceed cautiously in seeking to remedy this situation. His responses were released by the Senate Finance Committee on Jan. 22.
"The question is how and when to broach the subject in order to do more good than harm," he wrote. "The new economic team will forge an integrated strategy on how best to achieve currency realignment in the current economic environment."
Su Ning, vice governor of the People's Bank of China said that the allegation could sidetrack the effort to track the real cause of the financial crisis, according to a report by state-owned media company Xinhua, posted on a Chinese government website this week.
Geithner's statement reiterates a charge that Obama made in an Oct. 31 letter to the National Council of Textile Organizations. "The massive current account surpluses accumulated by China are directly related to its manipulation of its currency's value," Obama wrote in that letter.
"The result is a large imbalance that is not good for the United States, not good for the global economy, and likely to create problems in China itself," he continued in the letter.
"That is why I have said that I will use all diplomatic means at my disposal to induce China to make these changes," Obama wrote (Inside US-China Trade, Nov. 5).
Geithner also reiterated that point in his written responses. "President Obama has pledged as President to use aggressively all the diplomatic avenues open to him to seek change in China's currency practices," Geithner wrote.
In a separate answer on whether the new administration would continue the SED in its current form,
Geithner did not specify whether the SED would continue and, if so, where the SED would be based in the Obama administration. But he did stress the need for high-level dialogue.
"A deep engagement" with China must be continued to address a number of topics, including currency, intellectual property rights (IPR) protection, food and product safety, and non-tariff barriers, but "[e]xactly what form that will take is something that we are considering," Geithner said. The question, submitted by Ranking Member Charles Grassley (R-IA), explicitly asked if Treasury would remain the lead agency for the SED.
Geithner said currency is one of the issues in the U.S.-China economic relationship that needs "careful and prompt attention" by senior economic officials.
In written answers provided in her nomination process to the Senate Foreign Relations Committee, Secretary of State Hillary Clinton also said it is important to have high-level discussions on economic issues with the Chinese government. "We expect high-level engagement to continue in some form," she wrote. Sources have speculated that Clinton would want to bring the SED under State Department jurisdiction.
Geithner's carefully worded comments did not include the charge that China is manipulating its currency for the purpose of gaining an unfair trade advantage.
That is the threshold for a treasury secretary to invoke negotiations on a foreign country's currency policy under the 1988 Trade and Competitiveness Act. Under Section 3004, the Treasury Secretary must decide annually if foreign trading partners manipulate the exchange rate between their currency and the U.S. dollar for purposes of preventing an effective balance of payments adjustment or gaining unfair competitive advantage in international trade.
That finding should be made in consultation with the International Monetary Fund, according to the law. If the secretary makes that designation with respect to countries that have "material global current account surpluses" and have significant bilateral trade surpluses with the United States, the secretary shall initiate negotiations with them on an "expedited basis" either bilaterally or in the IMF, according to the law.
But the secretary does not have to begin these negotiations if they would have a "serious detrimental impact on vital national economic and security interests" of the U.S., according to the law. The Bush administration has never cited China as a currency manipulator and frequently delayed the submission of reports to Congress on that issue.
Last week, House Ways and Means Trade Subcommittee Chairman Sander Levin (D-MI) predicted that the
Obama administration would take a tougher stance on currency, but stopped short of predicting that it would name China a currency manipulator under the 1988 Trade Act.
According to Levin, the current economic crisis has made it clear that there needs to be "some action internationally" relating to currency manipulation (Inside US-China Trade, Jan. 21).