China’s Response to POTENTIAL Action on RMB Clear, but What about IMMINENT Action

China Business Services Blog had a recent post highlighting the ongoing debate between the US and China over currency manipulation.  The post concisely concluded that, “the debate on the RMB and the US trade deficit with China will continue in Washington, in the Strategic Economic Dialogue, and in the media. And China will continue with its gradualist approach.” 

Having observed the way that the Chinese government has dealt with similar issues in the past, I agree that they are not going to bow to pressure and that they will continue with the approach that they feel is the best for their own country.  What the  post fails to mention though, is what will happen as the 2008 elections loom and the RMB manipulation and trade imbalance issues becomes increasingly politicized (see this great post from Imagethief for a telling example of how other China related concerns are becoming election issues).  It seems reasonable to anticipate that the public will demand that candidates take a very firm stance on this issue and that could result in more significant, bolder action on the part of the US, whether it be through the WTO or directly in the form of economic sanctions.  It’s difficult to disagree with the fact that China isn’t going to change their gradualism policy as long as the US response is dialogues and potential action, but how will China respond if and when concrete action becomes imminent?

One Response to “China’s Response to POTENTIAL Action on RMB Clear, but What about IMMINENT Action”

  1. I think Ben’s post is really topical, especially given the IFC’s recent promise to shame nations that manipulate their exchange rates into obedience, which the Bush administration has been lobbying for (sort of) for some time. Seeking Alpha points out that at least one Nobel prize-winner doesn’t think that Beijing shouldn’t let go of the yuan, and I know that Hank Paulson isn’t holding his breath either waiting for any concessions from Beijing. Clearly, China is wary of falling into the pit of despair that Japan found itself in for almost two decades. It will be very interesting to see what happens when political pressure builds against a patient, prosperous and powerful Peking. Reminds of that great physics mystery; what happens when an unstoppable force hits an impenetrable object?