‘Enough’s Enough’ on Undervalued Yuan: Obama

By Julianna Goldman and Margaret Talev - Nov 14, 2011 2:55 PM GMT+0700

President Barack Obama kept up his pressure on China's foreign-exhange policy and trade practices, saying “enough’s enough” on what the U.S. views as a too-slow appreciation of the yuan.

While there's been a “slight improvement,” China’s exporters “like the system the way it is” and are resistant to any moves to loosen the reins on the yuan, Obama said.

“Changes are difficult for them politically, I get it,” Obama said at a news conference concluding a summit with Asia- Pacific leaders in Hawaii yesterday. “But the United States and other countries, I think understandably, feel that enough’s enough.”

As he seeks to reassert U.S. interests in Asia, Obama is using increasingly strong language on China’s trade, currency and intellectual property policies. The U.S. contends China’s currency is kept artificially low, putting American businesses at a disadvantage and driving up Chinese trade surpluses.

Obama, who met Nov. 12 with China’s President Hu Jintao in Honolulu, said that as China’s influence rises, leaders of the world’s second-largest economy must take more responsibility for making sure trade is fair and that intellectual property rights are respected. Hu and Obama were in the Hawaiian capital to attend the annual Asia Pacific Economic Cooperation summit.

China’s Response

China has pushed back against the pressure. After Obama told Hu that the U.S. public and businesses were losing patience with China’s policies, the Chinese Foreign Ministry released a statement saying the U.S. trade deficit and unemployment are not caused by the yuan exchange rate and a large appreciation in the currency won’t solve U.S. problems.

“China’s foreign exchange policy is a responsible one,” Hu told Obama, according to the statement. The country will “continue reforming its exchange rate mechanism.”

The yuan has gained about 8 percent against the dollar in nominal terms since the country ended a two-year peg to the U.S. currency in June 2010, and 30 percent since July 2005. In real, or inflation-adjusted, terms the gain has been more than 10 percent, because consumer prices have risen faster in China than in the U.S.

The yuan rose 0.04 percent to 6.3400 per dollar as of 10:30 a.m. in Shanghai, according to the China Foreign Exchange Trade System.

“We recognize they may not be able to do it overnight,” Obama said about the currency valuation, “but they can do it much more quickly than they’ve done it so far.”

Companies ‘Wary’

Obama said that he’s consistently raising concerns with the Chinese about currency, intellectual property and market access because U.S. companies “are wary” that they will be restricted in doing business in China if they raise complaints.

Two-way trade between the U.S. and China was $457 billion last year and the U.S. deficit was $273 billion. Still Obama and U.S. businesses regard China as a growing market for American goods; of the 2.3 million vehicles General Motors Co. (GM) delivered in the second quarter, 588,000 were sold in China, where the Detroit-based company is No. 1 in market share.

A March survey by the American Chamber of Commerce in China found 78 percent of member companies in the country said their China operations in 2010 were very profitable or profitable. At the same time, 24 percent of respondents said China’s economic reforms had done nothing to improve the environment for U.S. businesses in the country, up from 9 percent who said the same an earlier poll.

Iran Sanctions

During the news conference, Obama also said the U.S. is examining stronger sanctions on Iran over its nuclear program. He said U.S. Russia and China “agree on the objective” that Iran must not be allowed to develop a nuclear weapon. He declined to say whether Hu and Russian President Dmitry Medvedev indicated they would support a new round of penalties.

Russia and China have resisted efforts to impose tighter sanctions on Iran at the United Nations. The International Atomic Energy Agency has concluded that Iran, the second-largest oil producer in the Organization of Petroleum Exporting Countries after Saudi Arabia, has continued working on nuclear weapons capability until at least last year.

Obama said the sanctions that have already been imposed have “enormous bite.”

While Obama’s focus during the 55-minute press conference was on Asia, he couldn’t escape domestic politics. He was asked at several points to respond to criticisms raised by Republican presidential candidates at a Nov. 12 debate.

Republican Criticism

Former Massachusetts governor Mitt Romney said Obama’s “greatest failing” as president was not preventing Iran from making progress toward a nuclear weapon and that “if we reelect Barack Obama, Iran will have a nuclear weapon.”

Obama said he’s “going to make a practice of not commenting on whatever is said in Republican debates until they’ve got an actual nominee.” Still, he defended his administration’s efforts to hold Iran accountable and indirectly hit back at Romney.

“Now, is this an easy issue? No,” he said. “Anybody who claims it is, is either politicking or doesn’t know what they’re talking about.”

On domestic issues, Obama said the bipartisan congressional supercommittee working to narrow the U.S. budget deficit must “bite the bullet” and come up with a plan that includes both cutting spending and increasing revenue.

“Prudent cuts need to be matched with prudent revenue,” Obama said. “There are no magic beans that you can toss in the ground and suddenly a bunch of money grows on trees.”

To contact the reporters on this story: Julianna Goldman in Honolulu at jgoldman6@bloomberg.net; Margaret Talev in Honolulu at mtalev@bloomberg.net;

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net