On Capitol Hill on Thursday, Tim Geithner sent a little thrill up the leg of all the American trade unions that worked so hard to get Barack Obama elected. The Treasury Secretarydesignate whose appointment, despite his embarrassing tax travails, was waved through to the full Senate yesterday by the Finance Committee declared in a written statement to the committee that China was guilty of "manipulating" its currency for trade advantage.
For all the pressure the Bush Administration put on Beijing to increase the value of the renminbi (RMB), which increases the price of Chinese-made goods in export markets and thus in theory should help diminish China's massive trade surplus, the U.S. Treasury has never formally cited China for currency manipulation. Doing so under U.S. law would compel the White House to open formal negotiations with China over its currency policy. Trade hawks in Congress, pushed by union allies and some manufacturing lobbies in Washington, have long pined for this. But the Bush Administration resisted, preferring to fold the currency issue into the broader biannual "strategic economic dialogue" (SED) started by former Treasury Secretary Hank Paulson. That less confrontational setting was more likely to produce results on the currency issue than any forum that smacked of the U.S. putting Beijing on trial for "manipulation," the Bushies believed. In fact, over the past two years, the RMB did rise nearly 20% against the dollar. (Read "China's Trade Slump Worsens in December.")
Geithner's rhetoric before the Senate raises the question: Is the less confrontational approach now history? The short answer: in tone, perhaps. But in substance, not a whole lot is likely to change. The young Treasury Secretarydesignate knew the "manipulator" line would get a lot of attention, as it has. So the tone is already different. Further, though Beijing may not know this yet (and will be mortified to learn), some senior economic officials in the new Administration have made it plain that they have little use for SEDs. Some view them as pointless, time-consuming gabfests that accomplished little from the U.S. perspective (which is exactly why the Chinese loved them). For the Obama crowd, the SEDs may be DOA, though one senior official tells TIME that there will no doubt be some other configuration for Cabinet-level talks between Beijing and Washington.