Indeed, Tim Geithner's allusions to a more hard-nosed policy toward China's currency policies by the Obama administration will make waves.
I think it's important for our Executive to demonstrate a more clear-eyed, undistracted approach to our overall national stance on China than was displayed by the Bush administration. We simply need to let the Chinese leadership know that we are paying attention, that we're not stupid or naive about the bilateral relationship, and that we will match Chinese moves on any front. I think a more realpolitik approach will keep a better, more repsectful balance between the two powers. However, it is important to balance that steeliness with recognition of the unique circumstances of the global financial crisis.
Floating the yuan and making Chinese exports more expensive, and therefore less attractive to U.S. customers, would seem to further the Obama interest in rebuilding U.S. industry, retaining or creating U.S. jobs, etc. It would also work toward reversing the enormous trade deficit imbalance between the U.S. and China that has developed over decades.
But can it be done overnight? How much destabilization will result internally in China and how much can it handle? And in the meantime, how much will the price of various consumer goods increase here in the U.S. (and is that permissible without an inflation problem at present)? And will it upset the applecart with China - a key debt holder and rising power.
In some respects, in the short term, I think it might be wiser to signal our "waking up" to China via military - or even space race - symbolism and trade/development overtures to Third World intermediary nations rather than through direct, immediate, punitive actions in the finance, trade, and economic arenas. The latter problems should be dealt with - but I think the current world economic crisis requires tact in addressing them. And by pursuing the alternatives I mentioned, I think we gain a stronger place from which to push for direct currency and trade changes with China.