U.S. Treasury Secretary, Essay Example

A recent article in the New York Times (NYT) reports that the U.S. Treasury Secretary, Tim F. Geithner has asked China to allow its currency, the Yuan to appreciate and take another step towards modernizing its economic policy since opening its markets in the 1970s. But Chinese Central Bank Governor, Zhou Xioachuan rejected Mr. Geithner’s demand, claiming that market has a way of correcting the imbalance in the exchange rate and Commerce Minister Chen Deming blamed U.S. trade balance deficit on U.S. export controls. The Obama Administration claims that China uses undervalued currency to gain unfair advantage in trade (Bloomberg News).

China gains an advantage in trade of balance because undervalued Yuan makes its exports cheaper for the customers in international markets including Americans. The result is an increase in demand for Chinese products. Similarly, Chinese customers may lower their demand for American products due to the more expensive Dollar which makes American products more expensive. This is why U.S. wants China to allow Yuan to appreciate because it will help U.S. improve its trade balance as well as grow its economy by increasing demand for American products in China while reducing demand for Chinese products in the U.S. The article also mentions that Secretary Geithner did give credit to China for Yuan’s 13 percent gain over the past two years. In addition, Obama Administration is also careful not to call China a currency manipulator even though it continues to press China to do more. One can see a change in the U.S. Government’s positions which may be a sign that the government has realized more can be achieved through diplomacy than outright criticism. U.S. wants China to allow its currency to trade freely in the open market. U.S. believes that Yuan will appreciate in value due to China’s economic growth as well as its place as a popular foreign direct investment (FDI) destination.

I believe U.S. assertions are correct because even though Chinese Yuan might have appreciated in value over the last two years, the Chinese Government’s role means it has not appreciated to such an extent which should reflect the strength of Chinese economy and exports. Countries including U.S. have every right to protest because they want their economies to recover through exports and Chinese unfair actions are slowing their recovery. China should seek growth by encouraging local consumption and fortunately, the article does mention that Chinese Government is shifting some focus from exports to domestic consumption to support economic growth.

If it were up to me, I would probably also follow the current government policy. Even if we don’t agree with China, it may not be beneficial for the U.S. to confront China aggressively. The best course of action is diplomacy because China is a major economic player and is a major lender to the U.S. In addition, China is also a major attraction for the U.S. companies many of whom expect their future growth to come from countries like China. Because of the huge stakes involved, U.S. cannot afford to be too aggressive with China.

Reference

Bloomberg News. U.S. Presses China on Value of Its Currency. 3 May 2012. 4 May 2012 <http://www.nytimes.com/2012/05/04/business/global/us-presses-china-on-its-currency.html>.