Ben Bernanke says that the low value of the renminbi is an "effective subsidy" to Chinese exporters. He doesn't say that it is also an effective subsidy to U.S. borrowers. Who is paying this subsidy? Ultimately the taxpayers of China. Brad Setser comments:
RGE - Bernanke: an effective subsidy; Treasury: not manipulation: Bernanke: an effective subsidy; Treasury: not manipulation
Brad Setser | Dec 19, 2006: Bernanke's comment didn't rub me the wrong way (more on that later), but it certainly hit a nerve elsewhere. I suspect the Treasury -- which wants China to appreciate as much as anyone -- wasn't among those who were not thrilled by Bernanke's choice of words. Not because they disagree intellectually. But because Bernanke's comment will be contrasted with the language in Treasury's foreign currency report.
Still, I don't think anyone will be surprised to see that the Treasury declined to find that China meets the technical requirements for being charged with currency manipulation. The language in the law about "intent" gives the Treasury a lot of wiggle room. Paulson telegraphed this pretty much from the day he arrived at the Treasury.
Plus, I doubt the Chinese would have hosted a Strategic Economic Dialogue if they thought they were going to be hit over the head to a "manipulation" charge. "Manipulation" would turn the "dialogue" into a "negotiation" real fast.
Max Baucus is probably right: The semiannual Treasury report ``is no longer a relevant tool to deal with currency issues,'' Senator Max Baucus said in a statement today. The Montana Democrat will be Chairman of the Senate Finance Committee, which oversees U.S. trade policy, when Democrats take control of the Senate in January.
``It's time for a new approach and new tools,'' said Baucus, who promised to work toward legislation that better addresses what he deems unfair currency policies of U.S. trading partners.
But finding new approaches and new tools won't necessarily be easy. Grassley-Baucus seems a bit softer than the likely mood of the new US Congress. Just a guess.