Here’s the US Treasury’s terse statement on the Geithner visit to Beijing:
This evening in Beijing, U.S. Treasury Secretary Tim Geithner, President Barack Obama's special representative, met with his counterpart Vice Premier Wang Qishan of the State Council and special representative of Chinese President Hu Jintao.
The two sides exchanged views on U.S.-China economic relations, the global economic situation and issues relating to the upcoming economic track dialogue of the second U.S.-China Strategic and Economic Dialogue, to be held in Beijing in late May.
Here are my major takeaways:
- US Treasury Tim Geithner met with Vice Premier Wang Qishan and released a very brief comment Thursday with obviously no details. They plan to meet again in late May for SED talks.
- The US Treasury recently delayed its report on currency manipulation and this meeting was generating talk of a breakthrough on the currency issue. My most likely scenario is that China returns to its previous crawling appreciation peg (wider trading band) with a potential small one time revaluation of 2-4%.
- Currency proxies for the Chinese yuan like the Korean won and the Japanese yen have been appreciating since the revaluation discussion began, but were mixed in overnight trading.
- Again, this is one small part of the machinery to rebalance trade and current accounts. It will not generate any significant increase in jobs or exports for the US.
- It will provide the Obama administration additional time to work on more agreements with China on the strategic “III” areas of investment, internet and Iran.
- It will take away an important topic for Democrats to use for the mid-term elections and may defuse the Schumer-Graham trade bill bomb. Democrats in the House will not like this and they will continue to rattle the trade tariff saber.
- This is clearly part of a pivot by the Obama administration away from domestic matters towards foreign affairs. As a sign of this shift, today President Obama signed a nuclear arms agreement with Russia and stated that he expects to secure tough new sanctions on Iran this spring.
Next week, there will be large gathering of world leaders (50) in DC for a summit on preventing nuclear terrorism.
There will be plenty of media discussion of a quid pro quo between US-China for a currency-for-Iran agreement.
However, this is a necessary step for the two countries as they need to continue to work on critical IIIs that will benefit both countries.
Programming Note: Mr. Busch will be on CNBC today at 11:30 AM discussing Treasury Secretary Geithner’s trip to China and the potential for a revaluation of the Chinese currency.
Andrew B. BuschDirector,