“Strategic Economic Dialogue” Or “Spin And Public Relations”?

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The US-China Strategic Economic Dialogue sounds great, but like all things strategic it is only likely to be useful if based on solid understanding of the facts (rather than political posturing, or “spin” as we like to call it over here). Luckily The Economist made some interesting observations ahead of the meeting (though I doubt it is ready by many in Congress):

    • On the US side it notes that the trade deficit with China has more to do with the changing structure of supply chains in Asia, together with American spending and Chinese saving rates, than with China’s currency, and that “China is a scapegoat for broader economic anxieties to do with stagnant wages, rising income inequality and dwindling health and pension benefits”.

    • On the Chinese side the paper suggests that the government needs to seem tough ahead of the Party Congress (that nationalism again) and that raising the value of the RMB would actually be in China’s self interest – as it would help shift “the balance of growth away from investment and net exports towards consumption”.

It also lists the myths that inform (not) many of the US arguments. These are outlined below:

    1. The RMB is “grossly undervalued”: The US deficit with China is not proof of this (see above and here) and academics are split on the valuation issue – with estimates on its undervaluation ranging from 0% to 50% depending on the methods used.

    2. The rise in China’s trade surplus is due to cheap exports: The surplus growth from 2004 was impacted by slower import growth more than by faster export growth. Imports are expected to recover over time.

    3. Chinese exports hurt US jobs: The US job market is actually strong (4.5% unemployment), and Chinese jobs are mostly in different areas than US ones. In the meantime US workers benefit from low-priced Chinese goods.

    4. An RMB revaluation would reduce the US trade deficit: This is “the biggest myth of all” and the real cause is that “Americans spend too much and save too little”. In addition US-made goods would not be able to replace all those from China – they would instead come from other parts of Asia.

So much for the background. What about the “strategic economic dialogue”? Not much it seems, according to AP:

    “The United States and China concluded high-level trade talks Wednesday with progress reported in a few areas but no breakthrough in the biggest dispute, China’s undervalued currency…the scant signs of success left China’s critics vowing to push ahead with legislation seeking to punish China for what are seen as unfair trading practices that have driven U.S. trade deficits to record levels and cost thousands of manufacturing jobs.

    Hoping to head off punitive legislation, Wu and other members of her team – the largest high-level Chinese delegation ever to visit the United States – met behind closed doors with congressional leaders after the talks with members of President Bush’s Cabinet had concluded.

    Paulson headed a U.S. team that included 18 Cabinet and other top economic officials, Federal Reserve Chairman Ben Bernanke among them. Wu’s team included 17 top Chinese government officials.

    They were participating in the second round of Strategic Economic Dialogue talks following an initial session held last December in Beijing. The talks will take place twice a year and are designed to address economic tensions between the two countries in light of a U.S. trade deficit with China that hit an all-time high of $232.5 billion last year.”

While the big issue remained unresolved, there were some minor successes, including:

    • An agreement “to more than double the number of daily passenger flights between the two nations by 2012”.

    • Expansion of market access in financial services, “but not the lifting of the caps on foreign ownership of banks, securities firms and insurance companies that U.S. firms had sought”. (Upsetting for the Treasury Secretary, Hank Paulson, who may have hoped for some victories here).

    • Agreement for “closer cooperation in the area of increasing use of environmental technology but no announcement that China would cut its tariffs to increase sales of U.S. energy and environmental products in China”.

It is no surprise that the results, just like the arguments, are perceived differently on opposite sides of the debate. The lead Chinese negotiator, the formidable Wu Yi, said they were “a complete success” , while Kevin Kearns, President of The U.S. Business and Industry Council (whose members are SME manufacturers), felt that the dialogue “has been nothing but a cynical Bush administration exercise in spin and public relations”.

Either way, one hopes that a more genuinely strategic and well-informed dialogue is going on behind closed doors, and that the headlines do not completely obscure the facts. After all, nobody wants a (pointless and damaging) trade war…do they?

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2 Responses to ““Strategic Economic Dialogue” Or “Spin And Public Relations”?”

  1. Finance information » Blog Archive » “Strategic Economic Dialogue” Or “Spin And Public Relations”? Says:

    […] fferent areas than US ones. In the meantime US workers benefit from […] Read more at Jeremy Gordon

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