From AP, “US-China talks end with wide differences remaining,” reporting on the conclusion of the U.S.-China Strategic and Economic Dialogue:

After two days of talks, the two sides announced a range of modest agreements aimed at increasing sales opportunities for U.S. companies in China. But there was no breakthrough on a key U.S. demand – letting China’s currency rise in value at a faster rate against the dollar. The currency issue gained new urgency in the view of American manufacturers with release of a Chinese government report showing that China’s trade surplus with the world had surged in April.

The yuan has appreciated about 5 percent since the government unfroze the currency last June, but it remains seriously undervalued — by as much as 40 percent, by some estimates.

U.S. manufacturers expressed disappointment at the outcome of the latest talks, saying the small achievements will do little to lower a U.S. trade deficit that hit an all-time high of $273 billion last year.

“This is the Chinese year of the hare but when it comes to fixing their currency, intellectual property theft and investment protectionism, it has been the year of the tortoise,” said Frank Vargo, vice president for international affairs at the National Association of Manufacturers.

The People’s Daily, the official Communist Party organ, hailed the talks, cheering, “China, U.S. co-op in promoting transformation of economic development pattern has significance for future.” The paper also editorializes, “China-U.S. dialogue requires pragmatism.”

And from Xinhua, the official press agency of the government of the People’s Republic of China:

• “China’s investment in US to expand in future”
• “Clinton says US, China have built trust through dialogues”
• “China, US could further strengthen financial cooperation: PBOC governor”
• “Experts say stronger yuan mainly due to dollar depreciation, warn of “hot money” influx“

In a much-anticipated speech to the Commonwealth Club in San Francisco on Monday, Treasury Secretary Timothy Geithner again put pressure on China to let its currency rise toward market levels.

The current rate of change, if continued, could result in enough appreciation to begin reducing global trade imbalances. The trend is clearly visible in the graph of the change in the dollar against the yuan (below).  This graph and the related exchange rate data can be found at nam.org/yuan.

The question, though, is how long the trend will continue.  The yuan, for example, has not been allowed to appreciate in the last three days.  China needs to allow it to appreciate on a meaningful trend.

Currency appreciation would be good not just for reducing global trade imbalances, but also for China’s domestic economy – which risks inflation and an asset bubble if it continues to amass exchange reserves and pump the equivalent amount of yuan into its domestic economy. 

China’s recognized currency imbalance is far from the only factor to consider in its economic relationship with the United States and the rest of the world. Chinese leadership here, however, stepping up to its responsibility as one of the world’s two leading economies, would do much to help assure global economic growth and the strength of the global trading system.   

Treasury has not yet posted Geithner’s remarks. News coverage…

• Stanford Daily, “Treasury secretary criticizes Chinese exchange-rate policy“
• San Francisco Chronicle, “Geithner talks about China currency in Palo Alto“
• MarketWatch, “Treasury secretary wants Chinese currency to rise“
• San Jose Mercury News, “Treasury secretary wants Chinese currency to rise“

 Frank Vargo is the NAM’s vice president for international economic affairs.

The New York Times explicates President Obama’s goal of doubling U.S. exports within five years and reports, “Hurdles Deter Obama’s Pledge to Double Exports.” 

Opening access to foreign markets, especially the fast-growing developing countries in Asia and South America, remains a politically touchy matter that will require the cooperation of Congress. A free-trade agreement with South Korea that was negotiated under President George W. Bush and that has been endorsed by Mr. Obama still awaits Congressional ratification, as do agreements with Colombia and Panama, and important issues remain unresolved in each.

Even more critical, by some measures, is the rising strength of the dollar, which increases the cost of American goods and makes them less competitive. The dollar has risen in value relative to the euro and the pound and remains overvalued, in the view of many economists, against China’s renminbi.

The story cites the NAM’s “Blueprint to Double Exports in Five Years,” released last week, calling it a “detailed critique of United States trade policy.” The reporter then emphasizes currency issues, i.e., the relatively strong U.S. dollar and the Chinese’s valuation of its yuan, as an overriding factor. But as the Blueprint explains, it will take a broad array of action to achieve the goals outlined in the President’s National Export Initiative.

And some of those actions can be taken immediately, such as submission of the pending U.S. free trade agreements with Colombia, Panama and Korea to Congress for enactment.

The NAM released the trade paper last week with the support of the American Farm Bureau Federation and Coalition of Service Industries. Our joint news release is here.

The U.S. Treasury Department on Thursday released its semiannual Report to Congress on International Economic and Exchange Rate Policies and concluded that the renminbi remains undervalued, but did not cite China for currency manipulation. The reason, of course, was China’s June 19th announcement that it would allow its exchange rate to be more responsive to market forces. The report went on to say that “What matters is how far and how fast the renminbi appreciates…We will closely and regularly monitor the appreciation of the renminbi.”

The National Association of Manufacturers has long held that the Chinese currency is a major factor in our trade imbalance with China and was a contributing factor to the global imbalances that have yet to be fully righted after the recent financial crisis. We have urged the Administration to engage with our trading partners and use every multilateral opportunity to press China to end its persistent currency undervaluation. We have also worked with our counterpart organizations in other countries to make the same case to their governments.

This is exactly what happened in recent months as governments from around the globe spoke out about the need for China to allow for a more market-determined currency value. Recognizing that is also in its own interest, China took the important step of moving away from its dollar peg in June. But Secretary Geithner is correct — how much China allows the renminbi to appreciate is key. The next Treasury report is due to Congress in October, and that is ample time to see enough movement in the currency to determine if the Chinese government is serious about correcting its significant undervaluation. Treasury is monitoring and we are all watching.

This Senate Finance Committee hearing set for Wednesday ,”The U.S. – China Trade Relationship: Finding a New Path Forward is timely given China’s announcement on Saturday that it was going to allow its currency to rise. The only two witnesses listed so far are Commerce Secretary Gary Locke and U.S. Trade Representative Ron Kirk.

China’s announcement certainly shook things up. On Friday, this was AFP’s lead: “OTTAWA (AFP) – – China’s controversial currency policy will be discussed at an upcoming G20 summit, a Canadian official said Friday, despite an earlier warning by Beijing not to bring up the yuan issue.”

On Sunday, AFP’s report was, “Chinese yuan under scrutiny before G20 meeting“:

BEIJING/WASHINGTON – Policymakers in the world’s major economies will closely monitor the Chinese yuan this week for signs it is actually moving after Beijing announced it would make its exchange rate more flexible.

The Group of 20 nations will meet in Canada next weekend to hash out a course for the future as the world gradually emerges from the worst financial crisis since the 1930s.

China is a member of the G20, which holds its semi-annual meeting starting Saturday in Toronto, but is NOT a member of the G8, which precedes the meeting with sessions at Muskoka in Ontario’s cottage country .

News accounts, reaction:

• AP, China lets yuan float, warns move won’t fix global economy
• Reuters, Germany welcomes Chinese move on yuan flexibility
• Channel News Asia, “No major yuan revaluation despite China’s currency reform pledge: analysts“
• Economic Times, “Renminbi appreciation won’t benefit India: Lewis Wan” (Wan is Chief Investment Officer, The Pride Group)
• Reuters, “Chinese yuan under scrutiny before G20 meeting“

From The San Francisco Chronicle, “JP Morgan: Global Manufacturing Growth Hits A 70-Month High“:

It’s not just the U.S. and China that are experiencing record manufacturing activity growth. The entire world is rebounding hard, with JP Morgan’s Global Manufacturing PMI index hitting a 70-month high in March.

JP Morgan: Growth of production and new orders regained most of the momentum lost in February, while global trade volumes rose at a survey- record pace. Output growth will remain strong in coming months, as the manufacturing boom enters a new phase in which companies raise output to align the rate of inventory accumulation with the growth of sales.”

Bloomberg, “Manufacturing From China to U.S. Expanding in Global Recovery“:

April 2 (Bloomberg) — Factories from China to the U.S. accelerated in March, pointing to a rebound in international trade that is contributing to a global economic recovery.

Manufacturing in China grew for a 13th month and U.S. factories expanded the most since July 2004, reports showed. Business sentiment in Japan rose to the highest since 2008, while factories in Britain and the euro region stepped up production.

Surging economic growth in China is helping pull the global economy out of its worst slump in more than six decades and benefiting companies from Honeywell International Inc. in the U.S. to Germany’s Bayerische Motoren Werke AG.

The ISM Report figured in many of the stories: “Economic activity in the manufacturing sector expanded in March for the eighth consecutive month, and the overall economy grew for the 11th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM Report On Business®.”

• Kansas City Star, “March survey of regional manufacturing industries shows promising signs”
  Bloomberg, “U.K. Factory Index Rises to 15-Year High on Exports (Update1)”
  Ottawa Citizen, “United States. Manufacturing sector expands in March“

Los Angeles Times, “In China, Obama’s hosts show no signs of budging“:

Not only is the U.S. president coming away without any definable concessions, but the Chinese appeared to be digging in their heels.

On Tuesday, just hours after Obama stood with President Hu Jintao in the Great Hall of the People, praising China’s commitment to “move toward a more market-oriented exchange rate over time,” a senior Chinese official called a news conference across town to issue a rebuttal.

“We maintained a stable yuan during the financial crisis, which not only helped the global economy but also the stability of the world’s financial markets,” He Yafei, deputy foreign minister, said, adding that it was too soon since the worldwide financial crisis to talk about a change of strategy.

• Christian Science Monitor, “Obama bids China farewell with Great Wall tour, modest expectations“
• Washington Post, “In Obama’s China trip, a stark contrast with the past“
• Dallas Morning News, “Obama, Chinese president low key in talks”

The Nightly Business Report last night covered President Obama’s meetings in Beijing, including important issues involving trade and currency. Darren Gersh reported, and NBR has already posted a transcript. Excerpt:

GERSH: American exporters argue the yuan is kept artificially undervalued in order to boost Chinese exports, a complaint President Obama will raise in Beijing. But Win Thin [senior currency strategist, Brown Brothers Harrisman] expects Chinese leaders will not allow the yuan to budge until the financial crisis is safely behind them, meaning next summer at the earliest. Even so, the Chinese are aware a loose yuan policy may overheat their economy.

THIN: Where does all that liquidity go? It does go to buying goods. It goes to buying — perhaps into investing in plants and infrastructure. But a lot of it is going into asset markets. The property market is approaching bubble territory. Equity markets are very frothy. So I think the policy makers are concerned.

GERSH: Trade expert Dan Griswold is somewhat less concerned. He argues U.S.-China trade has provided stability to the global economy.

DANIEL GRISWOLD, CENTER FOR TRADE POLICY, CATO INSTITUTE: Part of the rebound in east Asia is countries ability to export to China and to hitch their wagon to China’s continued strong growth. So I think it is in China’s interest to liberalize its currency, but I don’t see any crisis.

GERSH: While many U.S. manufacturers would like to see China boost its currency, they are not expecting rapid results. At the National Association of Manufacturers, Frank Vargo thinks the Chinese aren’t quite sure how to settle this currency debate.

FRANK VARGO, VP INTERNATIONAL, NAM: And I think within the Chinese government there are different schools of thought. There are the old- liners from the industry ministries who say you just can’t do this. And there are those I think from the financial ministry who say we’ve got to do it.

A more complete transcript for the evening broadcast is also posted here. Quick work!

From a Reuters interview with President Obama earlier in the week in anticipation of his trip to Asia, “Obama: strains unless US, China balance growth“:

[He] warned that the economic relationship between the two countries had become “deeply imbalanced” in recent decades, with a yawning trade gap and huge Chinese holdings of U.S. government debt.

Obama said he would be raising with Chinese leaders the sensitive issue of their yuan currency — which is seen by U.S. industry as significantly undervalued — as one factor contributing to the imbalances.

“As we emerge from an emergency situation, a crisis situation, I believe China will be increasingly interested in finding a model that is sustainable over the long term,” he said. “They have a huge amount of U.S. dollars that they are holding, so our success is important to them.”

“The flipside of that is that if we don’t solve some of these problems, then I think both economically and politically it will put enormous strains on the relationship.”

The Hill had a follow-up story, “Obama to China: Currency and trade imbalances a focal point,” with the NAM’s positive reaction.

I think it is significant he brought this up in an interview and it’s more than a passing comment,” said Pat Mears, who works on China issues for the National Association of Manufacturers. She said U.S. manufacturers don’t expect things to change overnight, but offered hope that China will again allow its currency to appreciate against the dollar, as it did for more than a year before the financial crisis hit in 2008.

And new stories on the cusp of his departure today.

• BBC News,”Obama leaves for Asia trade drive”
• The Associated Press, “Obama faces daunting challenges in Far East tour”
• Wall Street Journal, “An Agenda for Obama in China
• Asia Times Online, “China trade surplus shadows Obama visit“

From The Washington Post, “Trade Groups Seek More Limited Plan to Regulate Derivatives Market“:

While government officials are seeking to rein in the excesses that contributed to the financial crisis, business lobbyists have been warning key lawmakers that companies such as Ford, Johnson & Johnson and Coca-Cola could suffer if the new regulations are far-reaching. …[snip]

The Coalition for Derivatives End-Users, organized by groups such as the U.S. Chamber of Commerce, the Business Roundtable and the National Association of Manufacturers, sent a letter to lawmakers last week saying that “some reform proposals would place an extraordinary burden on end-users of derivatives in every sector of the economy — including manufacturers, energy companies, utilities, healthcare companies and commercial real estate owners and developers.” The letter was signed by more than 170 companies and trade associations.

Here’s the coalition’s letter.

From Reuters, “U.S. groups eye second Obama decision on China yuan“:

WASHINGTON (Reuters) – U.S. labor and manufacturing groups urged President Barack Obama on Tuesday to live up to his campaign rhetoric and formally label China a currency manipulator in a Treasury Department report due out next week….[snip]

The largest U.S. manufacturing group, the National Association of Manufacturers (NAM), also wants Obama to designate China a currency manipulator to increase pressure within the International Monetary Fund on Beijing.

“A lot of people were surprised they didn’t cite China before. NAM’s view is that if the U.S. doesn’t cite China under the law, then it is unlikely that the IMF is going to do so,” said Frank Vargo, vice president for international economic affairs at the manufacturers’ association.