I hope Snow is tough on this issue with China, but I doubt if he will be tough enough.
[The New York Times]
September 2, 2003
U.S. Official Adds Pressure Against Low Yen and Yuan
By JAMES BROOKE
TOKYO, Sept. 1 - Making his first stop on a trip to Japan and China, Treasury Secretary John W. Snow took veiled aim today at the artificially weakened yen and yuan, praising "flexibility" six times in one five-minute speech.
"A well-functioning international financial system is one that's based on flexible exchange rates determined in competitive markets," Mr. Snow said in a news conference here, without mentioning Japan and China by name. These two nations are responsible for 35 percent of the United States trade deficit of $244 billion for the first half of this year.
Before Mr. Snow's visit here, a group of American manufacturers and farm organizations released a report accusing China of increasing exports by keeping the exchange rate for its currency fixed at an artificially low level and Japan of devaluing its currency through huge yen sales.
"Japan and China were the currency manipulation leaders in July," the Coalition for a Sound Dollar said in a report issued on Friday. "On the eve of the U.S. Treasury Secretary Snow's visit to China, Asian governments are intervening more than ever before to artificially underprice U.S. manufacturers and farmers."
Although Japan spent a record nine trillion yen, or $77 billion, to help weaken the yen in currency markets from January to July, Japanese politicians today tried to make common cause with Mr. Snow as he prepared to fly to Beijing on Tuesday for a two-day visit.
"The Chinese yuan should be allowed to fluctuate 20 to 40 percent vis-à-vis the Japanese yen," Taro Aso, policy chief of Japan's ruling Liberal Democratic Party, told Mr. Snow this morning.
In response, Mr. Snow said that Washington wanted to ensure "that we are heard on the subject of maintaining flexibility in exchange rate regimes as well so that American manufacturers and American firms are not disadvantaged."
Japanese leaders are alarmed that China, with its cheap currency, displaced Japan last year as America's third-largest trading partner, after Canada and Mexico. This year, China is expected to displace Japan as the world's third-largest exporter.
As China emerges as Asia's trading powerhouse, it is expected this year to displace the United States to become the top trading partner for Japan and South Korea.
Japanese officials often complain of a trade deficit with China. But if Japan's trade with Hong Kong is added to the China statistics, Japan had a $24 billion surplus last year.
And in trade with the mainland China alone, Japan's exports surged 49 percent in the first half of this year, while Japan's imports from the mainland increased only 24 percent. The half-year trade deficit dropped 38 percent, to $9 billion.
Accruing more profits to Japan, about 60 percent of the bilateral trade is conducted within Japanese companies. China, with its "undervalued" currency now absorbs 16 percent of Japan's imports, more than double the portion of a decade ago.
"It is strange thing for Japan to be pressing China to devalue," said a longtime American currency strategist here. "This is the proverbial pot calling the kettle black. China may be the No. 1 intervener in the foreign exchange market, but Japan is No. 2."
This evening, an official with Japanese ministry of finance sought to broach the revaluation idea as gently as possible with China.
"We agreed that China should think what is best for themselves," the official told reporters after Mr. Snow had dinner with Japan's finance minister, Masajuro Shiokawa. "We will tell the Chinese what we think, but we will not force it upon China."
Mr. Snow is visiting Tokyo and Beijing ahead of a meeting of finance ministers from the Asia-Pacific Economic Cooperation forum at the Thai resort of Phuket, to be held later in the week.
Today, his visit to Japan took a political turn as he virtually gave the Bush administration's endorsement to Prime Minister Junichiro Koizumi who is running for re-election at the ruling party congress here Sept. 20.
By winning re-election to the post of president of the Liberal Democratic Party, Mr. Koizumi would be almost certainly guaranteed two more years as Japan's prime minister.
"I had the opportunity to commend the prime minister on his policies, his efforts," Mr. Snow, a former railroad executive, said before a bank of Japanese television cameras at an American embassy news conference. "We commended him on his vision, his leadership in making economic reforms of financial institutions, deregulation, privatization, the postal service reform."
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