Sunday, January 31, 2010

U.S. Starts to Push Back Against China -- NYT

U.S. Starts to Push Back Against China in Growing Rift

WASHINGTON — For the past year, China has adopted an increasingly muscular position toward the United States, berating American officials for the global economic crisis, stage-managing President Obama’s visit to China in November, refusing to back a tougher climate change agreement in Copenhagen and standing fast against American demands for tough new Security Council sanctions against Iran.

Now, the Obama administration has started to push back. In announcing an arms sales package to Taiwan worth $6 billion on Friday, the United States leveled a direct strike at the heart of the most sensitive diplomatic issue between the two countries since America affirmed the “one China” policy in 1972.

So pro-dollar forces are on the offensive, finally. I do take some issue with the last two paragraphs of the Times article:
But the tougher American positions do not change the fact that Mr. Obama needs Chinese cooperation on a host of issues. Beyond his efforts to rein in Iran’s nuclear ambitions, the president is also working with Beijing on similar ambitions in North Korea.

And Mr. Obama announced in his State of the Union address last week that he planned to double American exports in the next five years, an ambitious goal that cannot be met unless he somehow persuades China to let its currency appreciate, making Chinese products more expensive in the United States and American products more affordable in China.

I just don't see Iran or North Korea as pressing issues at the moment (the two countries may only exist as topics of the New York Times 'News & Analysis' section for all I know) and I'm not sure if the CNY/USD exchange rate has much to do with US exports. It doesn't seem to have deterred Taiwan (for instance) from placing an order.

And while I am thinking about it, I am not sure how vital China's place in the Treasury market is anymore. With the new term deposit facility, the Fed should be able to control dollar liquidity and absorb longer dated assets at the same time. For a while at least.