Expanding U.S. Economic Opportunities with China
11 June 2010
Senate Finance Chairman Max Baucus, left, greets Treasury Secretary Geithner before a hearing June 10 on U.S.-China economic relations. (Photo: AP Images)
By Merle David Kellerhals Jr.
Staff Writer
Washington — U.S. Treasury Secretary Timothy Geithner told Congress that the economic strengths of the United States and China are complementary and each nation benefits from the growth of the other.
At a Senate Finance Committee hearing June 10, Geithner said the United States wants China to provide a level playing field for American products and investments by American companies. The Obama administration is also looking for China to change its growth strategy, striking a new balance that relies less on exports to foreign markets and more on domestic consumption.
Geithner told the senators that he has seen some progress by the Chinese government, but there are still many challenges.
For the United States, President Obama has pledged to rebalance the U.S. economy away from one characterized by overwhelming consumer demand to one that relies on greater savings and exports over the next five years. According to the U.S. Commerce Department’s trade report, the U.S. trade deficit with China rose 14 percent in April to $19.3 billion, compared with $16.9 billion in March.
The Senate Finance Committee, which has oversight responsibility for the U.S. economy and the Treasury Department, is evaluating U.S.-China economic relations, and will determine if legislation is necessary to improve fairness in the relationship.
Since the global financial crisis that began in December 2007, regarded as the steepest economic decline since the Great Depression of the 1930s, ended about the middle of last year, U.S. exports to China have rebounded more rapidly than overall U.S. exports, and are now running 20 percent above their pre-crisis levels. China is the third largest destination for U.S. merchandise exports, up from 11th place in 10 years, Geithner said.
“In the first quarter of 2010, U.S. goods exports to China rose almost 50 percent compared to the same period the year before, while U.S. exports to the rest of the world have risen by less than 20 percent,” he testified. There has been double-digit growth in several export sectors like high-end manufactured goods, chemical products and agricultural goods like soybeans, he added.
As China is fast becoming the world’s second-largest economy and potentially could become the largest foreign market for U.S. exports of goods and services, it is consuming more. As a consequence, China’s overall trade surplus has fallen sharply, by approximately half as a share of its economy, Geithner told senators.
Coupled with that is the specter of inflation. China’s prices in May were 3.1 percent higher than a year earlier. The inflation rate in April was 2.8 percent, the government said in an economic report.
“China has to be a key part of any strategy to increase U.S. exports and jobs. Our strategy to improve the balance of benefits for Americans in this relationship focuses on change in three important areas: trade and investment policies, including China’s policies to favor domestic producers and domestic technology; economic reforms to reduce China’s reliance on exports and encourage more import growth; and exchange rate reform,” Geithner told senators.
Geithner said distortions caused by China’s exchange rate spread far beyond China’s borders, and they are an impediment to global economic rebalancing being sought by the United States and also the Group of 20 major economies, including China. Economists argue that an undervalued Chinese currency makes Chinese-made products cheaper and U.S. exports more costly in China, which can create an unfair trade advantage.
“Reform of China’s exchange rate is critically important to the United States and to the global economy,” Geithner testified. “And it is in China’s own interest to allow the exchange rate to reflect market forces.”
“A stronger renminbi [also known as the yuan] would benefit China because it would boost the purchasing power of households and encourage firms to shift to production for domestic demand rather than for export,” Geithner said.