Inside U.S. Trade, through its China Trade Extra, is doing some blogging from China (I don't know if this is a permanent feature, or just something temporary they are doing in relation to the Strategic Economic Dialogue), and they recount the following story:
Reporters here received an advance copy of Federal Reserve Chairman Ben Bernanke's speech on Dec. 15, which we were not to release until after he delivered his remarks at 2 pm Beijing time.
His speech had an interesting section in which he said China's currency peg is an "effective subsidy." His remarks are explained in our story from today.
This seemed pretty big, since various U.S. industry groups and members of Congress have been calling on the Bush Administration to find that China's currency peg is a subsidy for Chinese exports, and the administration has largely tried to ignore those pleas. If Bernanke says it, it would likely stoke this request once again.
Just before Bernanke's 2 pm speech, I decided I'd ask a Treasury official for a reaction. The official declined to say anything, since Bernanke hadn't delivered his remarks yet and also said he was not familiar with Bernanke's remarks.
But, word was now out about the speech, and when we filed in to hear him at the Chinese Academy of Social Sciences, Bernanke delivered his speech without using the word "subsidy" at all. Without giving away ways and means, it seems pretty clear that Treasury raised the issue with Bernanke's staff, which reminded the Fed chairman to avoid the "s" word.
Of course, Bernanke's written comments, with references to "subsidy" and all, still exist on our website, and you can see on page 12 what he would have said but for the intervention.
So it would seem we've learned three things.
First, while the Fed is an independent agency, it is capable of taking advice. The instant wisdom here was that Bernanke would probably want to avoid any political controversy, and when he heard that the word "subsidy" would likely be controversial, he killed it.
Second, Treasury is truly interested in not giving anyone who believes China needs to be cited or retaliated against any ammunition.
Third, Bernanke may indeed believe China currency peg is an “effective subsidy”.
