Political India: Engaging America

In a move that may cause an unprecedented disruption to the delicate balance of trade negotiations between the United States and China, the United States Senate has passed a bill aimed at punishing China for allegedly manipulating its currency and holding it at an artificially low level.

Bill 1619, known as the “Currency Exchange Rate Oversight Reform Act of 2011,” passed by a majority of 63-35 in the Democrat-controlled Senate faces stiff opposition in the Republican-controlled House of Representatives and also from the White House.

Already, Speaker of the House John Boehner was said to have denounced the bill a day after it passed the Senate, saying it posed a “very severe risk” of starting a trade war between the world’s two biggest economies.

Under the bill’s proposals, the administration would be required to identify “fundamentally misaligned currencies” on a semi-annual basis. As a preliminary step, the bill would task the Secretary of the U.S. Treasury to seek to consult bilaterally with “the country that issues such currency in order to facilitate the adoption of appropriate policies to address the fundamental misalignment.”

If the misalignment were not corrected at that point the bill would then start introducing penalties, initially via multilateral platforms including the International Monetary Fund and the Overseas Private Investment Corporation.

In the case of what the Senate bill describes as “persistent failure to adopt appropriate policies”, that is, if there was no remedial action taken 360 days after the currency in question was identified as misaligned, Congress would then authorise the administration to take action at the World Trade Organisation.

It would also permit the U.S. government to directly attack the price misalignment in the export sector by adjusting the calculation of the export price under the U.S.’ current antidumping laws, a move towards subsidies and trade protectionism that, some warned, could spark off a wider trade war with China.

While China was nowhere named directly in the bill, a bitter brew of contention between China and the U.S. over the currency issue has been simmering for several years now.

Responding to the passage of the Senate bill Chinese Foreign Ministry spokesman Ma Zhaoxu said in a written statement, “China calls on the U.S. government, its Congress and various communities to oppose the pressure put on the RMB exchange rate by domestic legislation and to tackle trade protectionism.”

Turning the Senate’s argument on its head Mr. Ma argued that the U.S. Senate was “essentially practising trade protectionism by making an accusation of currency manipulation... which is a serious violation of the rules of the World Trade Organisation”, a sentiment also echoed by China’s Commerce Ministry Spokesman.

Labels: currency manipulation, U.S.-China ties

From The Hindu

In comments to media made in Beijing, United States Defence Secretary Robert Gates and Chinese Minister of National Defence General Liang Guanglie suggested that they had broad agreement on the need for stronger bilateral military ties. Yet they respectively hinted that China’s development of a stealth aircraft and the U.S.’ arms sales to Taiwan last year were points of disagreement.

Following a series of meetings between top defence officials from the two countries this week, a precursor to Chinese President Hu Jintao’s visit to Washington on January 19, Mr. Gates said that “In order to reduce the chances of miscommunication, misunderstanding or miscalculation, it is important that our military-to-military ties are solid, consistent and not subject to shifting political winds.”

Regarding China’s development of a new, fifth-generation stealth fighter, which was said to have demonstrated anti-satellite and anti-ship ballistic missile capability, the American Forces Press Services quoted a U.S. defence official saying, “China must defend itself, but... the Chinese should be clear about their strategy and doctrine. That would go a long way toward dispelling concerns about the Chinese military.”

At a press briefing, Mr. Liang responded to the issue arguing that the gap between the Chinese military and more advanced countries was “at least two or three decades,” and that the military improvements were not targeting any one nation.

Touching upon the U.S.’ arms sales to Taiwan last year, following which Beijing broke off military-to-military contact with Washington, Minister Liang noted, “On that our position has been clear and consistent: We are against it, because the U.S. arms sales to Taiwan seriously damaged China's core interests.”

Mr. Liang added, “We do not want to see that happen again. Neither do we want the U.S. arms sales to Taiwan [to] again and further disrupt the development of our military-to-military relationship.”

Yet both leaders noted that the high-level meetings this week laid down a “very solid foundation for the settlement of our differences and the future progress of our relations.”

In particular they expressed solidarity regarding discussions on North Korea and the crisis in the Korean peninsula. Mr. Gates said the U.S. and China could “work to maintain peace and security on the Korean peninsula by facilitating engagement between the two Koreas and working toward the de-nuclearisation of the Korean peninsula.”

The AFPS also reported that Mr. Gates assured Chinese military officials that “American exercises off the Korean coast are not in any way directed at the Chinese, but rather are driven by growing concern over North Korea.”

He was quoted as saying “Our efforts have been directed at deterring further provocations on the part of North Korea... This is an area where the U.S. and China have worked together cooperatively, and we acknowledge and appreciate China's constructive actions late last fall in terms of trying to tamp down tensions on the peninsula.”

Labels: China, U.S.-China ties, United States

From The Hindu

Chinese Foreign Minister Yang Jiechi met United States Secretary of State Hillary Clinton this week to lay the ground for Chinese President Hu Jintao's visit to Washington on January 19 and to advance their discussions on the North Korean crisis.

Mr. Yang, who also met U.S. National Security Advisor Tom Donilon, said in joint remarks with Ms. Clinton on Wednesday that Mr. Hu's visit would occur against the backdrop of an “ever-evolving international situation”.

The remarks were said to be a reference to tensions between North and South Korea, which escalated after an exchange of artillery fire in November led to civilian casualties on Yeonpyeong Island near the countries' shared border.

Ms. Clinton said during the briefing that she felt “a great sense of responsibility to ensure that it continues the positive, cooperative, comprehensive relationship between our two countries”.

Trade imbalance
Regarding the meeting between Mr. Yang and Mr. Donilon, the White House said Mr. Donilon had “stressed the importance of effective efforts to reduce imbalances in both the global economy as well as in U.S.-China trade”.

The two officials also touched upon ways to advance non-proliferation objectives, including issues relating to Iran and North Korea. They also agreed on the importance of ensuring that the referendum on southern Sudan proceeds peacefully.

State Department spokesman, Philip Crowley, was quoted in media as expressing hope that China and the U.S. would “reach agreement on addressing the crisis”, during Mr. Hu's visit to Washington.

Labels: China, U.S.-China ties, United States