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Obama gives China a free pass to continue currency manipulations
Howard Richman, 5/19/2011
On May 13, the United States and China concluded the third meeting of the U.S.-China Strategic & Economic Dialogue. A joint factsheet about the meeting, which appears on the Chinese Ministry of Foreign Affairs website, lists the terms of the agreement. In return for a some concessions, mainly to those American businesses that already market to China from China, the Obama administration gave the Chinese government a free pass to continue their currency manipulations. Here is the relevant section of the agreement:
In accordance with economic recovery in the United States, the Federal Reserve will continue to adjust its monetary policy as appropriate to promote sustainable economic growth and price stability. The People's Bank of China will continue to adopt a mix of monetary policy tools to implement prudent monetary policy, in order to promote growth sustainability and price stability. The United States will maintain vigilance against excess volatility in exchange rates, and China will continue to promote RMB exchange rate flexibility.
China is not being required to let its currency, the RMB, rise versus the dollar, they are being permitted to continue to shadow the dollar with their exchange rate. As Nouriel Roubini recently pointed out, this artificially weakened RMB forces other emerging market governments to manipulate their exchange rates versus the dollar so that China doesn't steal market share from their industries. The worsening U.S. trade deficit that will result from almost all of the emerging market governments manipulating currency exchange rates will likely grow the U.S. trade deficits and prevent the U.S. economic recovery. In other words, President Obama has agreed to let China steal American economic growth.
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