Monday, July 27, 2009

High Level talks between China and US

“. . . The Obama administration is going out of its way to praise Beijing for the help it has already provided on pressuring North Korea to abandon its nuclear program. . . . Clinton . . . praised China on Sunday for being ‘positive and productive’ in dealing with North Korea.

"’We've been extremely gratified by their forward-leaning commitment to sanctions and the private messages that they have conveyed to the North Koreans,’ Clinton said . . .."

“. . . Both sides are emphasizing the importance of the meetings. The Chinese are bringing 150 diplomats — one of the largest delegations it has ever assembled for discussions in Washington — and the administration will start the discussions with remarks Monday by President Barack Obama.

‘With the global economy mired in recession, the United States and China have enormous stakes in resolving tensions in such areas as America's huge trade deficit with China and the Chinese government's unease over America's soaring budget deficits.”

“. . . Three years ago, then-Treasury Secretary Henry Paulson used the initial U.S.-China talks to press Beijing to let its currency, the yuan, rise in value against the dollar to make it cheaper for Chinese to buy U.S. goods. U.S. manufacturers blame an undervalued yuan for record U.S. trade deficits with China — and, in part, for a decline in U.S. jobs.

“The U.S. efforts have yielded mixed results. The yuan, after rising in value about 22 percent since 2005, has scarcely budged in the past year. Beijing had begun to fear that a stronger yuan could threaten its exports. Chinese exports already were under pressure from the global recession.

“But the Obama administration intends to remain focused on the trade gap, telling Beijing that it can't rely on U.S. consumers to pull the global economy out of recession this time. In part, that's because U.S. household savings rates are rising, shrinking consumer spending in this country.

“For the United States, suffering from a 9.5 percent unemployment rate, the ultimate goal is to help put more Americans to work.

“While the U.S. trade deficit with China has narrowed slightly this year, it is still the largest imbalance with any country. Critics in Congress say unless China does much more in the currency area, they will seek to pass legislation to impose economic sanctions on China, a move that could spark a trade war between the two nations.

“. . . For their part, Chinese officials are making clear they want further explanations of what the administration plans to do about the soaring U.S. budget deficits. China, the largest foreign holder of U.S. Treasury debt — $801.5 billion — wants to know that those holdings are safe and won't be jeopardized in case of future inflation.

"The Chinese delegation, especially Vice Premier Wang, will make the request that the U.S. side should adopt responsible policies to ensure the basic stability of the exchange rate of the U.S. dollar and protect the safety of Chinese assets in the United States," Zhu Guangyao, an assistant Chinese finance minister, told reporters in Beijing last week.

“The Chinese are likely to hear a repeat of the assurances Geithner gave them when he visited China last month. He said then that the administration is committed to cutting the U.S. budget deficit — expected to hit $1.84 trillion this year — in half once the emergency spending to ease the recession and the financial crisis are no longer needed.”


This report speaks well for the Obama administrations diplomatic efforts with China. Solutions for two problems with need to be pursued with China. The first has to do with the pressure they are willing to exert upon North Korea in getting them to behave. The second has to do with the trade deficit. We have a large trade-deficit, but much of it, as the article explains, is the fault of China. They need to let their Yuan float in relation to the dollar so the Chinese people can better purchase America goods. If they do, and the Chinese begin purchasing American goods in large quantities as is expected, then we can expect our trade deficit to decline. China has a vested interest in America’s improving its economy; so the Obama administration should be able to make some progress here.

For China, the North Korean issue will probably seem of secondary importance, and perhaps it should for the US as well. North Korea keeps trying to get the US to speak one-on-one with them, but the US during the Bush administration wanted all talks to be part of the six-party concept. The Obama administration is continuing this policy. China, Japan and South Korea have a vital interest in a friendly North Korea – more so than America does; although many in the US will not agree with this. North Korea has been maintaining that America intends to invade it; thus necessitating the need for their nuclear weapons. This is nonsense, and I’m sure they are hearing that from China and perhaps from South Korea as well; so we can afford to let this play out slowly – as long as North Korea doesn’t sell any of their nuclear weapons to terrorists or rogue states.

But many of us want the same sort of assurances from the Obama administration that Zhu Guangyao is asking for: that the US adopt responsible polices to assure the basic stability of the exchange rate. Letting the Yuan float won’t solve the whole thing. The US has to quit spending money like a drunken sailor (to use an expression from my Marine Corps past).

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