Treasury's Foreign-Exchange Report

Today's Wall Street Journal (page A4) has a nice article on the debate among economists over the valuation of the Chinese currency. It includes a preview of upcoming events:

Tomorrow, the Treasury Department is scheduled to release its semiannual foreign-exchange report, in which it could formally accuse Beijing of manipulating the yuan's value to gain an edge in global trade.

I have previously posted on the topic of the Chinese currency (here and here), but the Journal article has a summary of all you need to know:

Administration economists don't buy industry's argument that U.S. manufacturing woes are caused by the yuan. But they know they have to cool the political heat.

Update: Wednesday's NY Times describes the tough situation John Snow is in.

Treasury Secretary John W. Snow has resisted demands to threaten Beijing...

C. Fred Bergsten, president of the Institute for International Economics, warned that Mr. Snow would lose credibility and cede control over the issue to members of Congress who support punitive measures against China.

"If they don't label the Chinese," Mr. Bergsten said, "they lose complete control of the issue to Congress, at which point you give Congress almost a free license to do what it wants."

John Snow is on the right side of this issue. A PhD economist, he understands the economics of the situation completely. But he also understands that some of the more xenophobic, less economically literate segments of the Congress are poised to do something crazy, such as large tariffs on Chinese goods.

During my two years in Washington, I saw this kind of thing often. For many issues, the economics is easy, and the politics is hard.

Update 2: Later on Wednesday, the Wall Street Journal reports online:

The Bush administration turned aside demands from Congress and industry that it formally accuse Beijing of "manipulating" its currency in order to give Chinese firms an unfair edge over American competitors.

Treasury Secretary John Snow chose the gentler tactic of announcing yesterday that it is "a matter of extreme urgency" that Beijing allow the yuan to rise faster and further against the dollar.

The decision to avoid labeling Beijing a currency manipulator means that while the U.S. is on record formally criticizing Chinese policy, Congress is deprived of a weapon it could use to justify legislation imposing economic retaliation.

Well done. Now let's seen how the xenophobe caucus reacts.