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Busch: Wen Answers The Call

Wen Jiabao
Frederic J. Brown | AFP Getty Images
Wen Jiabao

By now, most of you have read the comments by Chinese Premier Wen Jiabao at his annual press conference.

However, there are some aspects worth expanding on for their importance.

With arm sales to Taiwan, Dalai Lama meeting, and the Copenhagen climate talks all important areas for questions, the very first question he was asked and addressed dealt with the currency.

This doesn't happen randomly.

Clearly, this issue is of critical importance to the Chinese. "First of all, I do not think the renminbi is undervalued...We are opposed to countries pointing fingers at each other or taking strong measures to force other countries to appreciate their currencies.To do this is not beneficial to reform of the renminbi exchange-rate regime."

"I can understand that some countries want to increase their share of exports.....What I don't understand is the practice of depreciating one's own currency and attempting to press other countries to appreciate their own currencies solely for the purpose of increasing one's own exports. This kind of practice I think is a kind of trade protectionism.....Since the U.S. is the issuer of the main international currency, any instability in its currency causes us great concern.

Last year I said I am worried, and this year I also say I am worried," stated Wen.

Last week, I wrote about the Obama administration has a goal of increasing exportsover the next five years and how the President critiqued China for their currency peg. I also stated that the IMF and Roubini both thought that China would move on the currency and I agreed with them. The comments by Wen underscore the salient point that China will not be backed into a corner on the currency and will act when it's in their best interests. Clearly, they are not there yet.

But there's a gathering storm on China and their trade. Here's a NYT article today discussing the Chinese using global trade to their advantage. Also, U.S. Senator Chuck Schumer announced Friday that he would be moving forward on legislation aimed at stopping China from manipulating their currency. "Now more than ever, there is a consensus to finally confront China's currency manipulation. It is the single biggest step we can take to promote U.S. job creation, particularly in the manufacturing sector. We plan to move forward with revamped legislation on this issue in the coming days," he said.

Today, a bipartisan group of 130 US lawmakers asked the Obama administration to take action against the Chinese. "The impact of China's currency manipulation on the U.S.

economy cannot be overstated. Maintaining its currency at a devalued exchange rate provides a subsidy to Chinese companies and unfairly disadvantages foreign competitors," the lawmakers said in a letter to U.S. Secretary Timothy Geithner and Commerce Secretary Gary Locke according to Reuters. The US Treasury will have to rule in mid-April on whether China manipulates their currency.

The Chinese currency question will continue to follow a circuitous path but the direction is towards more confrontation than less. Real or not, this should add volatility into the picture as the language for a trade war will be kicked around and minor trade sanctions will continue to be brought up.

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Andrew B. BuschDirector, Global Currency and Public Policy Strategist at BMO Capital Markets, a recognized expert on the world financial markets and how these markets are impacted by political events, and a frequent CNBC contributor. You can comment on his piece and reach him hereand you can follow him on Twitter at http://twitter.com/abusch.