Geithner of China: between the short and the long term

Timothy F. Geithner, United States Secretary of the Treasury, It has the challenge of directing a major uncertainty in the North American economy: China will continue to finance the US trade deficit, buying their foreign debt securities? The topic is so delicate that will Geinthner, in person, talk about this issue with senior Chinese government, which includes the president of China.

The conversation will not be quiet, especially because Geithner declared, during his confirmation hearings in the US Senate, President Obama than or, advised by notable economists, He believes that China has manipulated its currency in order to make them more competitive Chinese products. If this is true, US law makes room for the imposition of trade barriers, looking away with distortion in exchange function artificially sustained.

In this function, some productive sectors of the US already articulated and press the Obama administration to effectively impose barriers to China. Like this, a new challenge arises for President, that will have to take care of conflicting interests: meet internal demands and put up barriers to Chinese products or not create problems with China and try them to continue to buy US bonds, financing the deficit.

Sustainable US trade deficits are shown as a potential threat to Chinese, who have most of their dollar reserves. When threatened is support dollar, the greater the risk of the Chinese reserves lose value if there is the expected depreciation of the dollar. This would form a vicious cycle that certainly would have very negative impacts not only for China and the United States, but for the world economy as a whole.

This, in theory, force a greater US commitment towards China, seeking to stabilize the relationship and ensure that the Chinese government to continue investing in US securities. On the other hand, the decision may come in a very negative moment in political terms, so that the position defended by Geithner may be another. Next week Obama will have to decide the closure of the case or not GM, leaving US workers even more wary and mindful of the steps the President.

Like this, the Obama administration should show if it is focused in the short or long term. Whether or not, much will still remain to be done.

Originally published in FinancialWeb

http://www.financialweb.com.br/blogs/blog.asp?cod=98