Chinese President Hu Jintao is so hard to read that one former U.S. official has likened him to the Cheshire cat in Alice's Adventures in Wonderland. So it would be difficult to tell if President Hu's latest adventures in Washington did much to narrow differences on such thorny issues as the seriously undervalued Chinese currency and the widening trade gap, which have increasingly clouded relations between the world's two economic superpowers.
But based on past experience, anyone expecting some sort of major breakthrough from the four-day state visit this week is bound to be disappointed. That's simply not the way these diplomatic dances work. Behind the pomp and circumstance - complete with a 21-gun salute on the White House lawn - little of substance gets resolved.
"This is predominantly window dressing," said Dennis Gartman, an independent currency and commodities analyst and publisher of the influential Gartman Letter in Suffolk, Va. "However, that's not such a bad thing."
Simply put, the more dinner conversations that President Hu and U.S. President Barack Obama have about their countries' ever-evolving relationship since China's emergence as the key engine of the global economic recovery, the better. It's essential that they keep talking, and that the Chinese are reminded regularly that with global power comes global responsibility. The Americans also need reminding that while publicly attacking China's currency and trade practices makes for good domestic politics, even a doubling of the yuan's value would do next to nothing for the U.S. recovery, while triggering enormous risks for the Chinese at home. Is that really the direction the world's leading debtor country wants to go in relations with the biggest lender?
The first Chinese state visit since 2006 did provide a platform to announce some $45-billion (U.S.) worth of export deals for the U.S, including $19-billion for 200 new Boeing aircraft. But the purchases and promises of further investment were all worked out well in advance, which is typical in such cases. President Hu brought similar goodies with him on a recent swing through Europe.
It was also no coincidence that the Chinese yuan happened to reach a 17-year high against the U.S. dollar before the Hu-Obama meeting. Or that Beijing recently allowed its currency to be used by Chinese firms for foreign investments for the first time and that Americans can now hold yuan accounts, available from the Bank of China at its New York and Los Angeles branches. All of this is designed to show that China fully realizes the yuan has come of age and that the government-imposed shackles keeping it from rising to its true value as a leading global currency will eventually have to go.
What is at issue is the pace of that change and the unfair trading advantage a deliberately undervalued currency continues to afford the Chinese.
The U.S. trade deficit with China hit a record $271-billion at the end of November, triggering even more strident calls from protectionist voices in Congress for retaliation if the Chinese fail to let their currency appreciate dramatically. The Chinese argue, with some justification, that any drastic change could choke off their own growth without helping the struggling U.S. or European economies. Indeed, it could make matters worse.
The trade imbalance with China is small potatoes when viewed in light of the nearly $15-trillion U.S. economy, which depends mainly on domestic consumption - not exports - for growth. The fact is that no matter what China does on the currency front, the millions of lost U.S. manufacturing jobs aren't coming back and U.S. exports aren't going to suddenly take off. And more expensive Chinese imports could actually hurt American consumers, who remain the key drivers in the postindustrial economy the Americans have engineered for themselves.
This much is certain: After the last toasts have been drunk and the Chinese entourage departs, China's currency will still be artificially low, the U.S. trade deficit will be as high as ever and critics will be screaming for sanctions to put more heat on the Chinese.