- The Washington Times - Sunday, July 26, 2009

With the global economy mired in recession, the United States and China begin talks Monday to seek a solution together despite tensions over currencies, the U.S. budget deficit and the huge U.S. trade gap with China.

Ultimately, how well the U.S. efforts succeed could help determine how fast the economy recovers and how many U.S. jobs might be created once it does.

Other issues, such as climate control and North Korean nuclear ambitions, also will command attention. Few expect the talks to bridge the sharp differences between Beijing and Washington, but both governments want to use the occasion to help build a less confrontational relationship.

Three years ago, Henry M. Paulson Jr., then Treasury secretary, used the talks to press Beijing to let its currency, the yuan, rise in value against the dollar, to make it cheaper for Chinese to buy U.S. goods. U.S. manufacturers blame an undervalued yuan for record U.S. trade deficits with China — and, in part, for a decline in U.S. jobs.

The U.S. efforts have yielded only mixed results. The yuan, after rising in value about 22 percent since 2005, has scarcely budged in the past year. Beijing began to fear that a stronger yuan could threaten its exports, which already were under pressure from the global recession.

But the Obama administration intends to remain focused on the trade gap. It plans to stress at the talks Monday and Tuesday that China can’t rely on U.S. consumers to pull the global economy out of recession this time. In part, that’s because U.S. household savings rates are rising, shrinking consumer spending in this country.

“Perhaps the most important message we are going to have for the Chinese is that there has been a fundamental change in the U.S. economy,” said a senior administration official who briefed reporters on the meetings under rules that did not permit use of his name. “The U.S. economy is going to recover, but it is going to be a different type of recovery than what the Chinese have seen in the past.”

That change will mean that the Chinese won’t be able to rely on booming U.S. demand for Chinese goods to lift their economy. Instead, they will have to shift from an export-led economy to growth that’s fueled in large part by rising Chinese spending.

For the United States, suffering from a 9.5 percent unemployment rate, the ultimate goal is to help put more Americans to work.

“All of this ultimately gets back to jobs in the United States,” the U.S. official said. “If the Chinese can increase their domestic consumption and reduce their trade surplus, that will mean more U.S. jobs.”

The official said the United States also will seek assurances that Beijing won’t resort to what Washington considers protectionist trade steps. Some in Congress want to punish China for what they see as unfair trade practices that have cost Americans manufacturing jobs.

The Obama administration has filed its first unfair-trade case against China over its restrictions on exports that U.S. manufacturers need to produce steel and other products. U.S. officials said they also will raise complaints about how China handles its government contracts, a process that U.S. manufacturers say discriminates against them.

The U.S. trade deficit with China has narrowed slightly this year. The main reason is thought to be the weak U.S. economy, which has cut consumers’ demand for Chinese goods.

The United States wants to reduce the gap further, with fewer Chinese trade restrictions on U.S.-made imports. Some lawmakers are pressing for a law to impose sanctions on China unless it does more to let its currency rise.

The latest round of talks will have a different look. The Obama administration has decided to expand the focus this time beyond economics. It will include foreign policy issues, including the need for China’s cooperation in imposing sanctions on North Korea over its nuclear program.

Treasury Secretary Timothy F. Geithner and Secretary of State Hillary Rodham Clinton will be co-leaders of the U.S. delegation, joined by their Chinese counterparts, Vice Premier Wang Qishan and State Councilor Dai Bingguo.

The meeting will include officials from various departments. On the U.S. side, Energy Secretary Steven Chu will be part of a team of officials from the Environmental Protection Agency, the White House and the State Department involved in the global climate discussions.

The Chinese are bringing a delegation of 150 officials, one of the largest ever to visit the United States. Highlighting the importance of the meetings, President Obama will address the opening session.

Chinese officials are making clear they want further explanations of what the administration plans to do about the soaring U.S. budget deficits. China, the largest foreign holder of U.S. Treasury debt — $801.5 billion — wants to know that those holdings are safe and won’t be jeopardized in case of future inflation.

“The Chinese delegation, especially Vice Premier Wang, will make the request that the U.S. side should adopt responsible policies to ensure the basic stability of the exchange rate of the U.S. dollar and protect the safety of Chinese assets in the United States,” Zhu Guangyao, an assistant Chinese finance minister, told reporters in Beijing.

The Chinese are likely to hear a repeat of the assurances Mr. Geithner gave them when he visited China last month. He said then that the administration is committed to cutting the U.S. budget deficit — expected to hit $1.84 trillion this year — in half once the emergency spending to ease the recession and the financial crisis no longer is needed.

So what’s likely to emerge from two days of talks?

Both the U.S. and Chinese sides are playing down expectations for any major breakthroughs, but outside observers say that doesn’t mean the meetings won’t serve a useful purpose.

“Our economies are very intertwined, and we both have a huge impact on the global economy,” said Frank Vargo, vice president for international affairs at the National Association of Manufacturers.

Associated Press writer Joe McDonald in Beijing contributed to this report.

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