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US-China

January 10, 2012

Timothy Geithner is looking for support from Beijing for tougher sanctions on Iran, but experts doubt his chances of success. The undervalued yuan and the massive US-China trade deficit are also high on the agenda.

Timothy Geithner
Timothy Geithner is due to meet Wen Jiabao and other Chinese officialsImage: picture-alliance/dpa

It could be one of the last chances to talk calmly about the economic disputes that the two biggest economies in the world have with each other. US Treasury Secretary Timothy Geithner is visiting Beijing this week and is due to meet Chinese Prime Minister Wen Jiabao before flying on to Japan.

Once again, he will want to talk about China's currency, which the US thinks is undervalued, and China's trade surplus with the US. But Tehran's nuclear program and China's rejection of tougher sanctions are likely to overshadow the economic issues.

China is the biggest taker of Iran’s oil exports, with the EU and Japan close behind. Whereas Europe has already announced it will stop buying oil from Tehran and Japan has signaled similar intentions, China so far refuses to comply.

"As everyone knows, pressure and sanctions are not the fundamental way forward to resolving the Iran nuclear issue, and cannot fundamentally solve this issue," Foreign Minister Yang Jiechi recently said.

This is an oft repeated position but little has been said about the fact that China has reduced its oil imports from Iran by over 50 percent for January, and last week sources told Reuters that this would continue for a second month in February, as the two remain divided over payment terms.

Official or not?

Washington is aware that this silent cooperation can also work in its favor. Last month, the Treasury shied away from officially labeling China a "currency manipulator" in its bi-annual report on the international currency market.

Even though the report notes that the yuan has risen in recent months, many US experts still think that it lies under its market value. The Washington-based Peterson Institute for International Economics estimates that it is undervalued by 24 percent against the US dollar.

The US and China are mutually dependent on one anotherImage: AP

Beijing was last officially accused of manipulation in 1994. If China were to be officially accused of manipulating its currency again, the US government would have to open official negotiations with Beijing and impose punitive tariffs. This might be a risky move considering Beijing is Washington’s biggest creditor and has invested some $1.1 billion in American bonds.

Nonetheless, the election campaign in the US could bring an end to Washington’s silent diplomacy. Mitt Romney - the Republican with the best chance of challenging Barack Obama for the presidency right now - has repeatedly accused China of "cheating" and said he will "designate it as the currency manipulator it is" if he is elected.

Last autumn, the US Senate approved a bill to introduce tougher tariffs against China but it still needs the consent of Congress and is therefore unlikely to come into effect. However, the Obama administration will have to refrain from making gestures towards China that are too friendly during the election campaign.

The race is on for it to persuade Beijing to cooperate on Iran.

Author: Mathias Bölinger / act
Editor: Darren Mara

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