Update on an old theme

If you've been reading me for a while, you might remember my long-running diatribe against the various calls from Washington to brand China as a currency manipulator and to impose trade sanctions as punishment. That line of news went quiet for a while, in large part because the Treasury Department delayed its expected announcement on the matter indefinitely.

This past Friday, quietly, the Treasury finally made its long-awaited (long-forgotten?) statement, as Bloomberg notes.

The U.S. declined to brand China a currency manipulator while saying its No. 2 trading partner has made “insufficient” progress on allowing the yuan to rise.

China should follow through on President Hu Jintao’s commitments to allow more exchange-rate flexibility and boost domestic demand, the Treasury Department said in a report to Congress yesterday on foreign-exchange markets.

The yuan “remains substantially undervalued,” according to the report, which was originally due in October and says no major trading partner meets the legal standard of improperly manipulating its currency. “It is in China’s interest to allow the nominal exchange rate to appreciate more rapidly.”

Not surprisingly, some of the windbags in Washington still weren't convinced or satisfied.

Senator Charles Schumer, Democrat from New York, said Congress needs to take bolder action. “It’s as plain as the nose on your face that China manipulates its currency,” he said after the report was released. “It’s just as plain that the only way to address this problem is for Congress to act....

Senator Sherrod Brown, an Ohio Democrat who has been among the lawmakers pushing for a tougher U.S. stance on the yuan, said the currency’s progress is “inadequate.” Senator Max Baucus criticized the “failure” of Treasury to label China a manipulator. Both senators called for Congress to act this year.

Of course, someone should probably remind Sen. Schumer that it's also as plain as the nose on his face that the House and the Senate are not, in fact, their own branches of the federal government--but I digress.

Treasury Secretary Timothy Geithner has certainly had his failings--on this issue and others--and I don't typically approve of much that he has done since taking his current position in January 2009. But on this topic, he certainly understands the dynamics at play much better than our cantankerous friends in the Senate, and he therefore recognizes the need to tread lightly. He has taken a measured approach with regard to China and its currency, which is the only rational course. Acting brashly and pounding our chest will only end in economic pain for our country one way or another, something that our Senators are still devastatingly slow to realize. Hopefully they will come around.

[Bloomberg]