Treasury Secretary Geithner said Thursday the United States and China will not end up in a trade war over Beijing's failure to let its currency rise to where U.S. lawmakers would like.
"It's important to recognize: We're not going to have a trade war. We're not going to have currency wars," Geithner said at the latest Washington Ideas Forum sponsored by The Atlantic. He was responding to legislation passed by the House Wednesday on a lopsided 348-79 vote that would let the Commerce Department designate currency manipulation as an export subsidy subject to countervailing duties, providing affected domestic firms relief from what they say is unfair competition.
Chinese officials oppose the bill, arguing it amounts to "protectionism." The White House has been cagey about the bill, which some have interpreted as a de facto endorsement of it because of the pressure it puts on Beijing.
Geithner again dodged questions about his position on the House bill but noted that since the beginning of September, the yuan's value has risen and will continue to do so through multilateral engagement. "I think they understand it's very important to them economically to let this exchange rate move," Geithner said. "We're going to keep trying to make good decisions together."
Geithner stressed that he "didn't mean to imply" the administration is opposed to the House bill, which Democrats on the Ways and Means Committee drafted in a way designed to comply with World Trade Organization rules. "Ultimately, what matters to us is: Is it consistent with our international obligations, and is it going to provide an effective way of advancing our interests?" Geithner said.
There is broad support in the Senate for a similar measure, but Democratic leaders in that chamber are deferring decisions until a lame-duck session after the election. Senate Finance Chairman Max Baucus announced Thursday he would travel to Beijing Oct. 10 for talks with government and business officials, coinciding with the next meeting of the International Monetary Fund. The G-20 meets in mid-November, and President Obama is again expected to raise the issue.
The expiring tax cuts enacted in 2001 and 2003 under President George W. Bush will also be a major lame-duck topic. Despite broad Democratic defections, Geithner on Thursday continued to defend the administration's approach of letting the cuts expire for households earning more than $250,000.
"The essential thing [in the lame-duck] is to give the American people clarity that their taxes are going to be where they are today, at least for the middle class," Geithner said. "What [Republicans] are proposing is that we go and make permanent these tax cuts that go to the highest earning 2 percent of Americans, and it's worth recognizing that would require us to go out and borrow $700 billion at a time when Americans are deeply concerned about our fiscal situation."
Geithner also called on Congress to take up a $180 billion package of additional economic-support measures -- which he initially called "stimulus," before correcting himself by saying, "We're not supposed to use that word." Obama has called for making the research and development tax credit permanent, letting companies write off the full cost of buying equipment through 2011, and an infrastructure investment program. "There's no reason why that package of economic measures can't be enacted by this Congress," said Geithner, noting it draws from GOP ideas. He did not mention, however, the corporate tax increases necessary to pay for the programs under Democrats' pay-as-you-go budget rules, which are opposed by most Republicans. Many Democrats have little appetite for that tax hike.
Looking back on the White House's decision-making in the face of economic calamity, Geithner mounted an aggressive defense of the $814 billion stimulus package, the $700 billion bank bailout, and the financial regulatory overhaul. He said the Troubled Asset Relief Program is only going to end up costing taxpayers $50 billion, calling it the "most effective program of financial management in the history of financial crises."
When asked about the House Republicans "Pledge to America," he said he hadn't read the document but that it appeared to be "just a press release, not an economic proposal for the country."
In terms of working with a more-divided Congress next year, Geithner said that "ultimately, economic and financial reality" will force a recognition that the deficit must be forced down. "Some politicians said, 'deficits don't matter, this stuff pays for itself'...that's changed fundamentally," he said. "It's just important to recognize that you've got to worry about growth now too, and without that you'll do greater damage to long-term fiscal sustainability."