By Kindred Winecoff
Some have taken note of Timothy Geithner's comments during his confirmation hearing suggesting that the Chinese are continuing to devalue the RMB to stimulate exports. The U.S. bond market tanked, supposedly fearing Chinese backlash in the form of a sell-off of U.S. Treasuries. Geithner also said that Obama will encourage China to engage in fiscal stimulus to try to boost lax Chinese domestic demand (psst: they're already doing it).
A few have freaked out, expecting a rising of tensions between the two nations that could culminate in a trade war, while one guy in England thinks that would be a good thing, as he expects the Great Salvific Trade War of 2009 as the best mechanism for producing needed structural adjustment.
But Salmon and Drezner both yawned; in the words of Drezner, Geithner merely "said out loud what everyone knows to be true." Salmon called Geithner's remarks "content-free". Still, it's important to notice the change in rhetoric, right?
Wrong. For one thing, this is nothing new from Obama: back in 2007, he co-sponsored (with Hillary Clinton) Senate legislation to put tariffs on Chinese goods if they didn't allow the RMB to appreciate. For another, since mid-2006 Secretary Paulson has been harping on China's currency manipulations, most recently last month. The Chinese have shrugged off harsher statements than this for the past three years or more, and I don't see any reason to think that they won't do so now.
Now if Obama actually decides to actually slap tariffs on Chinese goods using the infamous 301 provision, then a few things could happen: China dumps Treasuries and the U.S. dollar sinks; China decides to further subsidize its export industry to offset the tariffs; or the WTO steps in and forces the U.S. to back down or accept tariffs on its own goods. None of these seem very likely to me, since China and America (nee Chimerica) still need each other to balance their supply-and-demand profiles. So put me in the "yawn" camp, until something actually changes.
