Currency Reform and Fair Trade

October 5, 2010

In an interview with Diane Rehm, Kenneth Lieberthal discusses current legislation addressing currency manipulation by U.S. trading partners, particularly China. Lieberthal cautions against currency manipulation, arguing instead for gradual appreciation of the Chinese currency.

DIANE REHM: We are talking about China’s currency, how it’s fluctuated and how the U.S. House of Representatives has passed a bill that would begin the process of imposing some kind of penalty on China for continuing to manipulate its currency. It would be a very long process. […] Ken Lieberthal, I know you wanted to comment.

KENNETH LIEBERTHAL: Many Chinese see the U.S. now as engaged in a wide-ranging effort to stop China’s rise because we’re the preeminent power in the world. We, in their view, cannot tolerate another power rising to a roughly coequal status. And so they attribute evil motives around this kind of logic to a lot that the U.S. does. That simply reinforces the virtue of our making this a multilateral effort and not being the point of the spear on it because when India, Indonesia, Brazil and others join in the pressure on China, then this makes it a more legitimate issue on the Chinese.

REHM: But how likely is China to respond?

LIEBERTHAL: I think the Chinese will respond, but I think they’ll respond gradually. Our image of the Chinese economy — the popular image is it’s just booming along, and these guys are in a tremendously enviable position. Their image of their economy is they’ve got problems everywhere. They face a lot of social instability. They’re very worried about unemployment. And with the succession coming up in China, everyone is afraid to rock the boat. So you get a lot of cautious reaction there rather than bold reform and bold initiative. So I think they will move the value of their currency up. I think it’s going to be much more gradual than it should be, and we would like it to be. But that’s where their politics take them.

Listen to the full interview on The Diane Rehm Show web site »
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