SCOTT SIMON, host:
This is WEEKEND EDITION from NPR News. I'm Scott Simon.
U.S. Treasury Secretary Timothy Geithner is winging his way to China today. On Monday and Tuesday, he'll meet with officials, including China's president, Hu Jintao. In January, Mr. Geithner angered Chinese officials when he accused them of manipulating China's currency to boost exports. The Chinese shot back that the U.S. should get its own house in order and referred to the growing U.S. budget deficits and its role in the global financial crisis.
NPR economics correspondent John Ydstie joins us. John, thanks very much for being with us.
JOHN YDSTIE: My pleasure, Scott.
SIMON: And would you anticipate these meetings will generate more fireworks or are they being held to kind of tamp water on them?
YDSTIE: I think the latter. China and the U.S. need to find some common ground and start to work out some of the big issues they face. The most immediate item on the agenda will be assessing the steps that each country's taken to address the economic crisis. But the more fundamental issue, that 800-pound gorilla, is dealing with the one-and-a-half trillion dollars the U.S. owes China, the bulk of which is U.S. government debt that China holds.
SIMON: So essentially Secretary Geithner is going to see the banker to say, don't worry, we're still good for it?
YDSTIE: I think you could fairly put it that way. The Chinese are nervous about the huge deficits that the Obama administration is projecting over the next few years. They're afraid those deficits could lead to high inflation, which could erode the value of the dollar. And if you hold $1.5 trillion in assets, as the Chinese do, you could lose a lot of money.
So the Chinese wants some reassurance that the Obama administration is serious about reducing deficits once the U.S. economy begins to recover.
SIMON: What ideally would the U.S. like to accomplish in these talks?
YDSTIE: Geithner wants to ensure that the Chinese will continue to lend the U.S. money because stimulating our way out of recession and propping up our banks and auto companies is costing trillions of dollars that the government doesn't have. So we're going to have to continue to borrow from the Chinese for some time.
At the same time, the U.S. wants over the longer term to fix the fundamental imbalance that led China to acquire so much U.S. debt in the first place - its big trade surplus with the U.S.
SIMON: It would seem that Mr. Geithner and the U.S. don't have a lot of leverage here because the U.S. has to persuade the Chinese to keep lending us money.
YDSTIE: Well, that's true, but China also needs the U.S. America is China's biggest customer, and in order to have jobs for Chinese workers, they need to keep shipping goods here.
There's one other thing. You know, we've all heard about China's trade surpluses and its U.S. debt holdings for years, and it's easy to tune the issue out. But you know, it turns out they played a critical role in fueling the current financial crisis.
Lots of economists, including Federal Reserve Chairman Bernanke, now say all those dollars that China got for its exports and then lent back to the United States flooded the U.S. financial markets with too much excess cash. That drove interest rates down and it made it difficult for the Federal Reserve to raise rates to control the mortgage frenzy that's at the heart of the financial crisis.
So China's huge trade surplus helped bring you the global financial crisis.
SIMON: Is Secretary Geithner going to ask the Chinese to do something?
YDSTIE: Yeah, he'll try to convince the Chinese to allow their currency to appreciate so that their exports won't be as cheap and their trade surplus will fall. And he'll try to convince the Chinese to stimulate demand among their own consumers so that China's economic growth doesn't depend so much on exports.
But you know, this is a big long-term issue, not likely to be solved in one meeting.
SIMON: NPR's economic correspondent John Ydstie, thanks.
YDSTIE: You're welcome, Scott.