Wu Yi in America

I’m not surprised, but the most detailed coverage of Vice-Premier Wu Yi’s trade mission seems to have been in the Asian press, and to a lesser extent in the US financial press. Not surprised, but disappointed. Wu Yi, like most Chinese high government officials, reclusive and difficult to cover beyond her official statements. Thus, it would have nice, if not interesting, if a media outlet with a Washington bureau had been willing to devote some time to covering her.

Anyway, as Jim Fallows points out in his blog, the US and Chinese press had very different perceptions of this summit. To an extent, this is a function of the fact that every foreign trip by a Chinese leader is, by necessity, a massive, historic success worthy of writing in stone. But, more subtly, I think it is also a function of the fact that the US reporters have the opportunity to interface with Paulson and his staff away from the microphone. Whatever the case, I think the most interesting facet of these meetings is what was not said. The South China Morning Post describes this non-news this way:

Mr Paulson made no mention of progress on achieving a stronger exchange rate for the yuan, the main bone of contention among US lawmakers, but he emphasised that the “real test of flexibility on the yuan is whether it moves on a daily basis and over time”.

Why did Paulson avoid discussing the issue that has been the focus of US-China trade disputes for the better part of two years? Mostly, I think, it’s because the 10% drop in the value of the dollar against the yuan over the last year is starting to have a tangible effect on Chinese manufacturers. Just yesterday, I spoke to a sourcing agent working with a US sports equipment manufacturer who baldly stated that the exchange rate is directly impacting the quality of goods he sources, with manufacturers using shortcuts to make up for the lost value of goods. I couldn’t help but think of the recent cases of anti-freeze being used in Chinese medicines shipped to Panama, or the cheap filler used in pet food shipped to the United States. Quite likely, we’ll see more of this kind of thing as the exchange rate declines, and quite likely we’ll see more calls for restricting Chinese imports into the US.

One thing I don’t think we’ll see is a growth in the number of low-skilled US manufacturing jobs. Instead, those Chinese jobs, which were once Korean jobs, which were once Japanese jobs, which were once American jobs, will continue migrating south, probably ending up in Vietnam (where I’ll be in a couple of weeks). Still, Paulson has to be thrilled at anything which reduces the US trade deficit with China … even if it eventually, quietly, means an increasing deficit somewhere else.