China, America, and tensions

We forget that before 9/11, which was fateful in many ways all across the world, the US-China relations were absolutely tense.  Remember the military incident on China's Hainan Island?  PBS' Frontline had a fantastic piece on the importance of this a couple of years ago.  That was in April 2001--only a couple of months into Bush's presidency.  It seemed like the decade would be one of economic, political, and military confrontation with China.

Everything changed only a few months later, on September 11th.  In the nearly seven years since the Hainan Island incident, China has become one money-generating machine from which America borrowed like crazy.  Taiwan, which was the reason why that Hainan incident happened, became a far less important issue compared to Al-Qaeda, Iraq, Afghanistan, Pakistan, Iran, North Korea.

Now, all these geopolitical issues have not gone away.  But, we seem to be starting the new presidential administration with a warning shot to China.  Only, this time it is not at all about Taiwan, but about China's economic policies.  

The Washington Post reports:

As Timothy F. Geithner moved closer yesterday to confirmation as Treasury secretary, he signaled a more confrontational approach toward China, bluntly stating that the new administration thinks Beijing is "manipulating" its currency and it will act "aggressively" using "all the diplomatic avenues" to change China's currency practices.

James Fallows, who has written extensively on China, is not at all happy with this memo to China.  He writes:

we've got a situation where a journalist (moi-meme) is listening to a renowned expert and wondering, Can he possibly believe that things are as simple and bald as what he's just said?

The expert in question is our old friend Timothy Geithner, who when he was not being grilled about his tax problems today was saying (in his written answer to questions) that China is"manipulating" its currency. Oh my. Where do we start with this.

- That the Chinese government manages the value of the RMB against the US dollar and other currencies is not an accusation but an observation of universally-accepted plain fact. Until about three years ago, the RMB's value was flat-out pegged against that of the dollar, at a rate of just over 8:1.  Was that "manipulation"? Yes, in the same sense that the yen was for years "manipulated" at a steady rate against the dollar, or perhaps in the sense that the US "manipulates" its national borders by controlling them. 

Fallows goes on to list many more wonderful points, before concluding:

I lack the energy to go any further down this list, and this is enough to make the point. These are just a tiny few of the factors that go into any US government consideration of how the RMB/dollar relationship affects the economies of both countries. And to boil it down to the bald assertion that "China is manipulating its currency" ignores, vulgarizes, and misconstrues a lot more than it clarifies. 

Hey, it seems to be a strange new year (year of the ox) greeting from the US!