Editorial - Mr. Obama and Mr. Hu

We think President Obama made the right decision — for now — not to pick too public of a fight with China over its currency manipulation.

The administration postponed a report to Congress due this week on Chinese monetary policy. After Mr. Obama met with President Hu Jintao of China in Washington on Monday, the White House made a low-key statement that Mr. Obama had pressed Mr. Hu on the need to “move toward a more market-oriented exchange rate” and played up China’s pledge of cooperation on sanctions for Iran.

Beijing’s aggressive undervaluation of the renminbi is a serious problem for the American economy and the global economy. Going one on one is likely to backfire. The best hope for persuading China to change its ways is with sustained pressure from many countries. It will certainly make it harder for Beijing to hide behind claims of sovereignty and accusations of big power bullying.

That means that Mr. Obama will have to work hard to rally others to jointly press the issue. The best forum is coming in June when the leaders of the world’s biggest economies gather at the Group of 20 meeting in Toronto. They need to use that occasion to tell China, in no uncertain terms, that it cannot keep building up its own economy by undercutting the rest of the world’s exports.

They need to leave no doubt in Beijing’s mind, that its global standing will suffer if it does not listen. Few countries have benefited as much as China from the open trading system. Under sufficient pressure from its trading partners, Beijing would be likely to relent.

It’s still not clear how hard they will have to push.

At Monday’s White House meeting, Mr. Hu reportedly told Mr. Obama that China planned to move away from its fixed currency peg to the dollar. He didn’t say when. And according to remarks released by the Foreign Ministry, he also stated that the objective of changing China’s currency strategy “won’t be advanced by any foreign pressure.” Mr. Hu’s next stop is Brazil. Finance Minister Guido Mantega said last week that China’s exchange rate peg is hurting Brazil’s manufacturing. We hope that Brazilian officials are just as direct in their meetings with the Chinese president.

This is a global problem. The renminbi’s fixed and artificially cheap exchange rate is undercutting exporters throughout the developing world. It also is seriously complicating economic policy-making among China’s neighbors. So long as the Chinese currency remains so cheap, they cannot afford to combat burgeoning inflation by allowing their own currencies to rise because it could further undercut their exports.

China would also benefit from shifting from exports to internal consumption as a source for growth. It would improve the living standards of its citizens. It would ease the job of its central bank in trying to keep inflation at bay. And it would establish China as a more responsible player on the global economic stage.

The Chinese bureaucracy is clearly split. Central bank officials have been arguing for some time that a stronger currency would help them combat rising inflation. The Commerce Ministry is adamantly opposed. Ministry officials latched on to the fact that China recorded its first monthly trade deficit in six years in March — a one-time blip because of fast imports of raw materials for China’s export industry — to argue that their cheap currency is not the cause of global trade and financial imbalances.

It is. China should not be allowed to forget it. Barring a change of exchange rate policy, China’s trade surpluses are going to bloat again in the months to come.

This is not a problem just between the United States and China. It is a problem between China and most of the world. The challenge for President Obama now is to get the rest of the world’s leaders to deliver that message as clearly and urgently as they can.

Next Article in Opinion (1 of 22) » A version of this article appeared in print on April 14, 2010, on page A26 of the New York edition.

via nytimes.com

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