Recently, US Treasury Secretary Henry Paulson warned that the increasing benefit costs could threaten the growth of the national economy. According to him, the high cost of benefit programs such as Medicare could restrict the economic flexibility of the US, as well as its competitiveness. During his first public speech after assuming the office, he also said that he would continue with the strong dollar policy that was initiated by John Snow. Moreover, Mr. Paulson has echoed his predecessor’s criticism against the monetary policy of China, a major exporter to the US. The United States has long criticized the Chinese government regarding the inflexibility of its currency. The US has partly blamed China for its huge trade deficit this year. The US, then, has urged China to practice fair and equal trade with its partners considering its role as a major exporter in the global market.
According to Mr. Paulson, China needs to adjust its yuan in order to prevent trade imbalances with its partners. As an exporter, the Asian nation has been accused not only by the US, but also by other countries of having an unfair advantage over its trade partners due to the low value of its yuan and consequently the low prices of its export products. As a result, the demands for Chinese goods in the US have soared during the recent years. The treasury secretary, then, suggested that China needed to improve and open its capital markets.
In his speech before the students of the Columbia University, Mr. Paulson said that although the American economy continued to grow, it no longer experienced the same growth pace it had during the past years of rapid economic development. According to him, the US economy seems to be moving toward a more sustainable growth rate, which is very similar to the trend during the mid 1990’s. The comments of Mr. Paulson came a few days after an official report indicated that the economic growth of the US has slowed during the 2nd quarter of 2006 amidst the increasing rate of interests and the rising costs of energy. The Commerce Department reported that the gross domestic product (GDP) recorded an annual growth rate of 2.5% during the 2nd quarter compared to the 5.6% rate during the previous quarter. Aside from the increasing energy prices and interest rates, the inflexibility of China as an exporter has also been blamed for the decline of the US economic growth.
During the past months, the US government has complained against the inflexibility of China’s yuan. In fact, American officials who visited China found out that its currency was undervalued thus giving the exporter nation an unfair advantage in global trade. With its growing trade gap, the US, then, has constantly reminded China to fulfill its responsibility as a major exporter worldwide. The American government has urged China to practice fair trade relationship and to comply with the rules of global trade. Recently, the Chinese government has already made the initial steps by adjusting the value of the yuan. Yet analysts said that the nation still needed to do more in order to become a more flexible trading partner.