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U.S. Treasury Secretary Henry Paulson departs for China this weekend to commence a series of discussions next week with Chinese leaders concerning economic issues at issue between the two great powers.
Thursday the U.S. Senate’s Finance Committee voted 20-1 to force China to raise the value of its currency. As part of the proposed Senate Bill, the Treasury would be required to identify nations with “fundamentally misaligned” currencies, potentially opening the door to economic sanctions. This should send a strong signal to the Chinese that the U.S. intends to curb some of the financial practices that have made China a world-class economic power.
The net impact of China’s undervalued currency is a trade deficit for the U.S. with China of a record $232.5 billion in 2006. That deficit will certainly be larger this year.
When Secretary Paulson starts his talks in China on Monday, the basis of the discussions will be the US-China Strategic Economic Dialogue (SED) launched last year. This covers a range of economic and environmental issues, although the currency issue is the centerpiece.
Paulson said on Friday, “We would like to see the Chinese move and show more flexibility,” he said, and “the right way to deal with a sovereign nation is not through protectionist actions, but by making the case to them very directly as to why it’s in their best interests … that they proceed with their reforms.”
Paulson’s week-long dialogue with the Chinese will include meetings with Chinese President Hu Jintao and Vice Premier Wu Yi.
“This trip is part of an ongoing process to strengthen our strategic economic relationship — to address long-term issues such as working with China to rebalance its growth and increase the flexibility of its currency, and also to address short-term issues as they arise,” Paulson said in a statement.
Peace and Freedom wishes Secretary Paulson good luck in China.
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