Obama's choice for Treasury issues warning on China

January 23, 2009

Timothy F. Geithner, Barack Obama's nominee for Secretary of the Treasury, had his confirmation hearing on Thursday in the United States Senate. If confirmed he will succeed Henry Paulson in this position, which is analogous to the finance minister in other nations. During Geithner's testimony in the Senate, he said that the Obama administration believes China is "manipulating" its currency. The New York Times says this suggests a confrontational stance toward China on trade issues.

"President Obama backed by the conclusions of a broad range of economists believes that China is manipulating its currency," Geithner said in his written responses to the Senate.

In his spoken response, Geithner said he would "use aggressively all diplomatic avenues open to him to seek change in China's currency practices."

"The signal this sends is not good [for China-US relations]", said Charles W. Freeman, a fellow at the Center for Strategic and International Studies and former head trade negotiator for China at the Office of the United States Trade Representative. "It opens a Pandora’s box. We need the Chinese to hold onto their Treasury and agency debt."

China "will be more than annoyed — they don’t like being singled out, and they don’t like countries explicitly criticizing them for the way they run their economy," said Nicholas Lardy of the Peterson Institute for International Economics.

Bloomberg L.P. said that US treasury securities dropped in value following Geithner's statements.

"It has to be done very carefully," said Frank Vargo, VP at the National Association of Manufacturers. "You know the world has changed a lot with the financial crisis and China has a lot in U.S. Treasuries. This needs to be done in a cooperative, not a confrontational, way."

"But...we all know the Chinese currency is deliberately undervalued," Vargo added.

Geithner was also questioned about taxes he failed to pay on income earned while working for the International Monetary Fund. However, this issue was largely forgiven by the senators.

Senator Orrin Hatch said he was certain Geithner was "a person of great integrity, even though he’s made these mistakes."

Senator John Cornyn said he was "willing to give Mr. Geithner the benefit of the doubt" on his tax mistakes.

Senator Jon Kyl was not as forgiving on the tax issue. "He [Geithner] has not been as candid with me or the committee as I think he should have been," Kyl said.

US law requires the Treasury to list countries that manipulate their currency. Former Secretary Paulson cited the 21% appreciation of the yuan since July 2005 as evidence that China was not manipulating the exchange rate, and kept China off the list.