Donald Trump and Chinese president Xi Jinping have now completed their first summit. Observers on both sides seem to be relieved. If no diplomatic breakthroughs on major issues were achieved, it is also the case that there were no outward displays of truculence from either side. Neither high hopes nor great fears have been realised.
This leaves the question of where economic relations between the United States and China are going and where the US should want to take them. As important as the resolution of any specific issue is the definition of the challenges, which will be the focus of economic diplomacy henceforth. Having recently returned from China, where I had a chance to participate in a major economic forum and meet a number of senior officials, I have become convinced that the issues that preoccupy many Americans are either invalid or of secondary importance and the most important economic challenge posed by China is receiving far less attention than it deserves.
Discussions by the US of alleged currency manipulation by China are in the economic realm what discussions of changing the “One China” policy are in the geopolitical realm — unconstructive at best and possibly dangerous. While there is a case for the proposition that China manipulated its currency in an unreasonable way during the decade after 2005, by no stretch of any imagination is China today manipulating the renminbi downward for competitive advantage. In terms of the volumes of reserves expended and the extent of capital controls imposed, few countries in recent years have done as much to try to prop up their currency as has China.