Treasury Chief to Urge Currency Shift in China
MICHELE NORRIS, host:
Treasury Secretary Henry Paulson is on his way to China in a meeting on Thursday with several of Beijing's highest leaders. Paulson and the Chinese will be trying to hash out some of the most contentious issues in the global economy. The U.S. will be urging China to speed up economic reforms in its pledge to pursue. The Chinese will almost certainly explain that they are quite happy with their current pace.
As NPR's Adam Davidson reports, the stakes will be high for everyone in the room.
ADAM DAVIDSON: When Treasury Secretary Henry Paulson walks in that room, economist Peter Morici says there's going to be one rather large issue on his mind.
Mr. PETER MORICI (University of Maryland): His place in history, Paulson was hired to fix the China problem.
DAVIDSON: Before Paulson became treasury secretary, he had already pretty much everything an ambitious financier could hope for. After a wildly successful career, he became the head of Goldman Sachs, or roughly speaking, the king of Wall Street.
According to his friends, Paulson didn't want to be treasury secretary. He didn't need yet another high honor. He took the job because he wanted to make a big, big difference. He wants a legacy.
Mr. MORICI: And China is both his opportunity and his obstacle.
DAVIDSON: Or China is an opportunity because it's an obstacle. China has been a huge problem for the last several treasury secretaries, and none of them solved it. The problem is this - by most accounts, China manipulates its currency. It keeps the yuan artificially cheap. That means Chinese products cost less and Americans buy more of them.
In the short run, this is pretty good, says Morici who teaches at the University of Maryland. We can all buy lots of DVD players and t-shirts and other things at discounted prices.
Mr. MORICI: But little by little, our industry moves away. We lose our jobs. At some point, we won't have any industry left. Then where are we?
DAVIDSON: Paulson wants to convince the Chinese to let their currency's value increase. He wants them to let the yuan trade more freely, adjusting constantly to market forces. That's what happens with the dollar and the Euro. If he gets them to do that, Morici says, it would be a huge success for Paulson, and also for his boss, President Bush. The president is of course facing all sorts of criticism over his handling of Iraq and North Korea and Iran.
Mr. MORICI: The only opportunity President Bush has left to do something meaningful in the foreign arena that might be perceived as positive is to fix the China problem.
DAVIDSON: Rich Clarida was assistant secretary of the treasury for international affairs during President Bush's first term and now teaches at Columbia. He says that sure, China should try to revalue its currency. Paulson is right to push for that. But Morici, like many in Congress, vastly overrates the importance of this issue.
Mr. RICHARD CLARIDA (Columbia University): Well, no. I wouldn't agree with that at all.
DAVIDSON: Clarida says the U.S. has a large trade deficit because Americans consume more than they produce. We spend too much. We save too little. In other words, Clarida says, the trade deficit is our fault. Not China's. And even if we do convince China to let the value of its currency rise, the result might be that we buy less from China, but then we just buy more stuff from other low wage countries. In short, Clarida says, the Chinese currency is just one factor in a very complex global economy.
Adam Davidson, NPR News.