How much will taxpayers shoulder?

[Jester]

There was a colossal post here, but I figured a more elegant way to put it would be to just link to the summary of what Paulson presented to congress earlier in the year.

Specifically on China:

China’s economic imbalances — domestic and external — continue to increase. Inflation has risen above 8 percent, which may be in part due to excessive creation of liquidity in view of China’s rigid management of the renminbi (RMB). China’s current account surplus increased by an estimated $111 billion in 2007 and is now roughly 11 percent of GDP. Official reserves increased by $462 billion in 2007 and by an additional $154 billion in the first quarter of 2008.

To address these challenges, China needs to intensify its efforts to rebalance its economy: boosting domestic demand and consumption-led growth; reforming its financial system; and achieving greater monetary policy autonomy through rapid RMB appreciation and greater flexibility of the foreign exchange regime.

Hence, Chinese exchange rate practices justifiably remain a focal point for the international community. The appreciation of the RMB increased against the U.S. dollar in the latter half of 2007 and early months of 2008. By mid-April 2008, the RMB had appreciated by 18.4 percent since the change in exchange rate policy on July 21, 2005. But the RMB’s appreciation against the yen has been more modest and the RMB has depreciated against the euro. China’s exchange rate practices constrain greater currency flexibility elsewhere in emerging Asia.

On balance, while the recent accelerated appreciation of the RMB against the dollar is welcome, the pace of appreciation needs to continue in order to address the continuing substantial undervaluation of the RMB and the risks China is creating for itself, the Asian region, and the world economy in which China is playing a greater role. Treasury has been reinforcing that message to Chinese authorities on a frequent basis both bilaterally and multilaterally and will continue to do so.

Now read that, and tell me that Paulson isn't saying that China's currency is undervalued because of government control. He *always* stops short of officially defining it as "manipulation", but that's a technical dodge for diplomatic reasons, not something we ought to be taking seriously as objective analysis. The US accuses *no* countries of manipulation, even ones (like China) where it is constantly insisting that they stop doing whatever it is (surely not manipulating!) to their currencies.

Or, if you'd rather a vociferous condemnation, you could always go to the US-China Economic and Security Review Commission, who just straight up accuse China of currency manipulation.

-Jester