WASHINGTON — Treasury Secretary Timothy Geithner and Secretary of State Hillary Clinton this week face an unenviable task of trying to convince China to free up its currency's fixed rate against the dollar amid a gathering crisis in Europe that threatens to stall a global economic recovery.
Geithner and Clinton are in China for the Strategic and Economic Dialogue, a bilateral meeting Monday and Tuesday between top officials from both governments. Geithner was scheduled to meet with the Chinese central bank chief, the vice premier and President Hu Jintao.
China's undervalued currency won't be the only high-profile issue, as the two top Obama administration officials also will be pressing China to help pressure Iran to abandon its nuclear ambitions and to punish North Korea for allegedly sinking a South Korean naval vessel.
Days ahead of a deadline to determine whether China is manipulating its currency, Geithner announced on April 3 that he'd delay any decision for three months, in part to use the Strategic and Economic Dialogue meeting to keep pressing China.
Unlike Democrats in Congress who are calling for retaliatory tariffs on Chinese products, Geithner maintains a low-key approach to China, noting he feels that public pressure will not get China to change.
In an interview carried Sunday in China's People's Daily, Geithner emphasized the positive.
"The relationship with China is very strong on all fronts," Geithner told the English-language paper. "I think that both countries have played enormously important roles in trying to lift the global economy away from financial crisis."
But briefing reporters last week before the trip, Treasury's senior coordinator for China affairs, David Loevinger, said Geithner would be firm in his currency message to China.
"We remain confident that — while we don't know when China is going to move, we remain confident that they're going to determine that it's in their interest to move to a more market-determined exchange rate," he said.
The United States thinks the fixed exchange rate unfairly favors Chinese exporters by making their products cheaper on global markets. In doing so, China also makes it more expensive domestically to import goods from the United States.
Geithner's job of privately convincing China to do as most developed nations and let markets set the value of it currency has grown much more difficult in recent weeks as Greece's debt problems have spread into a global financial threat.
If China was reluctant to revalue its currency, now around 6.8 yuan to the dollar, when the dollar was relatively weak globally, it is far more reluctant now. Since the start of the year, the dollar has strengthened globally as a safe-haven currency in turbulent times. It has risen in value by about 15 percent against the euro, the currency of 16 European nations.
With the euro plunging in value, and some analysts predicting a one-to-one value with the dollar by year's end, readjusting its currency against the dollar makes China's exports more expensive, especially so against competition from Europe.
And financial analysts are fretting that Europe's gathering storm, on top of last year's brutal slowdown in the United States, points to a slower global market for China's exporters. Readjusting the currency now amid a slowdown in China would not be popular at home.
But a strengthening dollar and weakening euro also threaten to widen the imbalances between currencies that already exist. And should China not protectively carry out some readjustment, it could be akin to tossing gasoline on a simmering fire. There are already growing political pressures and protectionist sentiment in Europe and the United States.
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