Obama Administration Wears Velvet Gloves in Beijing

It's kinda amazing that less than two months ago the punditocracy was openly kvetching about the strong possibility of a US-China trade war.  I wasn't buying it, but I must say that even I'm a little surprised at how quickly the tone from the Obama administration (and its Party faithful) has changed.  Take this story from today's FT on the US-China Strategic and Economic Dialogue (S&ED), which started today:

China has made progress in rebalancing its economy towards domestic consumption and away from exports even though its currency remains pegged to the dollar, Tim Geithner, US Treasury secretary, said as he prepared for the start of the annual US-China summit.

Adopting a conciliatory tone on Sunday ahead of two days of meetings in Beijing starting on Monday, Mr Geithner said China had relaxed some of the restrictions facing multinationals that have angered parts of the US business community in China....

The US has long been pressing China to rebalance its economy by adopting a stronger currency, especially since the renminbi was re­pegged to the US dollar in mid-2008. But Mr Geithner admitted that Chinese government policies were reducing its dependence on exports.

He said: “It looks as if there has been a durable shift towards domestic consumption in China. Domestic demand is growing more rapidly than [gross domestic product], and there’s been a big drop in the external surplus.”

China’s current account surplus dropped from 11 per cent of GDP in 2007 to 5.8 per cent last year as its aggressive stimulus plan drew in record imports of commodities.

The US administration is likely to soft pedal over the currency issue in public this week, for fear of provoking a backlash from its hosts in Beijing.

But officials acknowledge that if China has not shifted policy by the G20 summit in late June, political pressure will rise in the US for trade measures directed at China.

The US will also lobby China over a series of new rules that some foreign businesses in China say are making it harder for them to operate. Mr Geithner acknowledged, however, that China had changed so-called “indigenous innovation” rules introduced last year, which multinationals claimed would exclude them from public procurement contracts.

I'd like to think that this is a case of sanity finally prevailing over political nincompoopery, but I'm quite sure that the politics of China-bashing ain't dead for this year.  Instead, it's just taking a little nap so key administration officials can pleasantly meet in Beijing with their Chinese counterparts and so the Chinese can appreciate the RMB against the Dollar in advance of the June G-20 summit without appearing to do so because of intense foreign pressure (the Chinese have their own domestic political pressures, you know).  However, when (not if) the Chinese let their currency strengthen a little, it certainly won't be enough to satisfy the currency hawks in Congress who will gladly demagogue the issue all the way to the November midterms.  So it's all but certain that, contrary to what the FT article says above, the politics of US-China trade aren't going to get any better once the RMB appreciates by a measly old 5% (or less).  Nope, only an election can cure what ails the currency crazies.  So sanity should just enjoy its little moment in the sun right now, because it's going back in the closet very soon and probably won't be back 'till mid-November at the earliest.

Now let's just hope that, in the meantime, nobody does anything supremely stupid to make the whole US-China trade relationship actually go off the rails.