Obama-Hu Meeting May Overshadow Summit Bringing Them Together
By Nicholas Johnston
April 12 (Bloomberg) -- U.S. President Barack Obama and Chinese President Hu Jintao will seek to narrow differences over currency, trade and Iran in a meeting that may overshadow the event that brings Hu to Washington: a summit of world leaders on containing the spread of nuclear material.
Obama’s session with Hu today may be the most important among the individual meetings the U.S. president holds before the official opening of the two-day international gathering.
China and the U.S. “are the two superpowers in the world, geopolitically and economically,” said Jing Ulrich, the Hong Kong-based chairwoman for China equities and commodities at JPMorgan Chase & Co. “When people talk about G-2, they say that for a reason.”
On one of the main issues on today’s agenda, China’s policy of pegging the value of its currency at about 6.8 yuan to the dollar, Obama and Treasury Secretary Timothy Geithner calculate that diplomacy will work better than overt pressure to get China to let the yuan strengthen.
The U.S. strategy is “designed to increase the odds that China does decide to do what’s in their interest, which is to let their currency start to move up again,” Geithner said in an April 2 Bloomberg Television interview.
Geithner has delayed delivery of a report to Congress on exchange-rate policies. New York Senator Charles Schumer wants to pass legislation that would push China to raise the value of the yuan and make it easier for companies to seek import duties to compensate for an undervalued currency. The move came amid speculation that Chinese officials may let the currency rise, with non-deliverable yuan forwards contracts suggesting a 3 percent gain over the next 12 months.
Giving Space
The administration’s strategy is designed to give China space to relax currency controls “without looking like they’re kowtowing to U.S. pressure,” said David Gilmore, a partner at Foreign Exchange Analytics in Essex, Connecticut.
Geithner made an unscheduled stop in China’s capital of Beijing for talks April 8 with Vice Premier Wang Qishan. U.S. Undersecretary of State Robert Hormats, whose portfolio includes economic affairs, met privately with Chinese Vice President Xi Jinping the next day.
“There is a spirit of positive cooperation” on the yuan issue between the U.S. and China, Hormats said. Speculation about specific actions or timing of any move “doesn’t serve anyone’s interest and tends to be counterproductive.”
Trade Deficit
The U.S. trade deficit with China last year was $227 billion, wider than any other nation and almost five times the next biggest gap of $48 billion with Mexico, according to Commerce Department data.
“When the Chinese become more confident that we’re getting past the crisis,” they will be likely to relax the yuan-dollar peg, said Nicholas Lardy, a senior fellow in Washington at the Peterson Institute for International Economics.
Another key issue on the Hu-Obama agenda is more in line with the summit’s main topic. The Chinese are important players in attempts to thwart the nuclear ambitions of Iran and North Korea.
Obama, 48, is asking the representatives of 46 nations attending the summit -- the largest gathering of nations hosted by a U.S. president since the signing of the United Nations charter in San Francisco in 1945, according to the White House -- to agree on steps to secure separated plutonium and highly enriched uranium to keep such material from falling into the hands of terrorists.
Arms Treaty
The summit follows the signing of a new nuclear arms reduction treaty by Obama and Russian President Dmitry Medvedev, and the release of the administration’s Nuclear Posture Review, which shifted U.S. doctrine to focus more on the threat from extremist groups and nations such as Iran and North Korea.
As he steps up pressure on those countries to curtail their nuclear programs, Obama will need the help of China, one of the world’s declared nuclear powers and a permanent member of the UN Security Council with veto power over any resolution.
Administration officials play down the impact on U.S.-China cooperation of friction over trade and currency valuations, Obama’s meeting with the Dalai Lama in February and the decision in March by Mountain View, California-based Google Inc. to stop censoring Chinese content.
“They, too, have an interest in preventing a nuclear-arms race in the Middle East,” Deputy National Security Adviser Ben Rhodes told reporters last week as Obama returned from the treaty signing in Prague.
Signal on Relationship
The acceptance by Hu, 67, of Obama’s invitation to Washington this week is a sign of warming relations between the two countries, according to Douglas Paal, vice president for studies at the Washington-based Carnegie Endowment for International Peace, who was at the White House National Security Council from 1989 to 1993.
“It’s really a reaffirmation of the relationship, which was under stress,” Paal said. “The most important bilateral held in this session is this one.”
Madeleine Albright, secretary of state under President Bill Clinton, said the U.S. must carefully manage its increasingly complicated relationship with China.
“We don’t get anywhere by saying ‘My way or the highway,’” Albright, 72, said in an April 9 interview on Bloomberg Television’s “Political Capital With Al Hunt.”
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