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Democracy & Technology Blog Paulson’s New Policy?

For the last week, every newspaper and television show here has been speculating about Treasury Secretary Hank Paulson’s upcoming visit to Singapore and China. What will he say, especially on the yuan-dollar exchange rate issue, every commentator wonders.
This morning we got a preview in The Wall Street Journal, and I am mildly relieved. It looks like Paulson is emphasizing free trade, protection of intellectual property rights, and the long-term strategic relationship — and somewhat de-emphasizing the dollar-yuan issue. He still errs in pushing for a stronger yuan, but at least right now it does not seem the major focus of his visit.

Treasury Secretary Hank Paulson

Paulson instead appears to be taking a more “Asian” philosophical view. “Both in China and in the United States we must not allow ourselves to be captured by harmful political rhetoric or those who engage in demagoguery,” he will say in a speech in Washington today. “Instead we must realize that the U.S.-Chinese relationship is truly generational and demands a long-term strategic economic engagement.” Bingo.
Most important of all, Paulson in the Journal article explicitly scolds Sens. Lindsey Graham and Chuck Schumer for their stupendously stupid protectionist tariff legislation, which they are threatening to revive yet again.

“I would discourage…Sen. Schumer or Sen. Graham from believing that I can go and make one trip to China and bring anything back that, in and of itself, is perceived to be significant, because most things worthwhile take a longer term.” He added that he would give no ground to such protectionist instincts. “You will never get me or this administration supporting protectionist legislation,” Mr. Paulson said. “So I will do everything I can to talk them out of proceeding with their bill.”

This Administration’s view that free-floating exchange rates in general and a stronger yuan in particular would be good for either the U.S. or China is still perplexing and worrisome. A big yuan appreciation could destabilize China, and Asia, and possibly disrupt trade across the globe. This could set back important and ongoing market-based reforms here in China, exactly the opposite of the effect the Administration says it wants.
Is it too much to hope the Administration’s public words are meant mostly for domestic consumption and that it won’t push for a forced revaluation?
-Bret Swanson

Bret Swanson

Bret Swanson is a Senior Fellow at Seattle's Discovery Institute, where he researches technology and economics and contributes to the Disco-Tech blog. He is currently writing a book on the abundance of the world economy, focusing on the Chinese boom and developing a new concept linking economics and information theory. Swanson writes frequently for the editorial page of The Wall Street Journal on topics ranging from broadband communications to monetary policy.