Will the US Punt on China Currency Manipulation?

The US faces a number of foreign policy concerns at present, including several that could develop into significant crisis situations (think Bay of Pigs, for those who are versed in 20th century diplomatic/military history). One is the situation in Iran, which thus far, President Obama has chosen to largely ignore, pursuing a light wrist-tapping diplomatic model rather than the harder-line stance of his predecessor. Yet this could change as Iran gets closer to threatening Israel and potentially others with a real nuclear weapon versus just posturing with what it will have available in the coming years (if not sooner). In fact, some reports are even suggesting that the US might be willing to go easy on China for currency manipulation if it begins to apply pressure on Iran as well.

According to MSNBC, "After months of tense relations, China is showing new willingness to engage in talks with the United States, a diplomatic opening that may help the Obama administration achieve U.N. consensus on tightening sanctions on Iran ... China's new willingness to discuss another round of Iran sanctions has led experts to observe that Tehran could no longer depend on its trump card, its good ties with China to shield its controversial nuclear program." For those who support sanctions against Iran, this turn of relations is critical because "China has also become Iran's largest trading partner" and provides the largest percentage of its gasoline (because Iran lacks refining capacity even for its own needs).

China, of course, viewing the US as both a key trading partner but also a rival threatening its own economic, political and military interests, did not just change its tune on Iran because it was the "right thing to do" for an emerging superpower. Some experts believe the key motivation behind the move is the US' willingness to go slow on accusations and trade sanctions based on continued RMB manipulation, which make China's exports cheaper than they should be under a truly floating currency. In other words, if the US punts on a tough line economic policy with China, the communist giant will support our foreign policy agenda to isolate a severe military threat not only in the middle east, but worldwide.

Even though I hardly count myself as a supporter of Obama's economic and trade policy, I must say this move ultimately comes off as positive and crafty. By playing the trade trump card to bring China on board against Iran as well as to rebuild closer relations following the US' recent criticism of China's human rights, product quality and other areas, the Obama administration could pull off a near-term foreign policy victory that placates both nations from a policy perspective as well as companies further up the supply chain from both an import and expert perspective (but still at the expense of US raw and basic material producers).

Jason Busch

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