24/7 Wall St.

Treasury chief Tim Geithner is about to make an unannounced trip to China today to meet with the Chinese Vice Premier, Wang Qishan,  the official most involved with monetary policy.  This may lead to speculation that the People’s Republic will re-value the yuan will come sooner than expected.

Both the Chinese government and the US administration are under tremendous pressure to address what is perceived as a disparity between the dollar and the yuan.  More than 100 members of Congress have told the White House that they are prepared to take the matter into their own hands.

China has argued that it will show a trade deficit in March and that any action to end the yuan’s “peg” to the dollar will raise Chinese labor costs to the point where the nation would not be competitive in the global markets. US officials have argued that the yuan’s value is artificially manipulated by the Chinese. Treasury put off an April 15 deadline when it might have labeled China a “currency manipulator”, a move which would have triggered a number of tariffs and sanctions.

It is now almost certain in the battle of the yuan’s value that the Chinese have blinked. It has become more clear that the political climate in the US as the midterm elections approached is such that Obama’s say in the yuan matter will be undermined by effort of members of Congress to get re-elected who might blame China’s currency as a cause for high US unemployment.

Neither China nor the US wants a trade war, but it now seems certain that China wants it less.

Douglas A. McIntyre