As it was with Japan and the Yen throughout the 1980’s, the RMB exchange rate is going to be a persistent foreign policy priority for the next decade. If history is a guide, it would be an issue even if China floated the RMB.
There is no magic bullet to solve the problem. Instead, the United States needs to be prepared to place constant pressure on The Chinese central government to adjust its currency in order to offset (at least partially) the unrelenting domestic pushback to hold down the value of the RMB.
In order to do this, the United States needs to expand the range of tools it can use to apply that pressure. The hammer of Congressional backlash and the sword of putative tariffs have their place, but they are insufficient.
To compliment those cherished approaches, the United States needs to be actively influencing the domestic debate surrounding currency and economic policy within China. It needs to find local, not just international, allies to help make the case that despite the record of the past three decades, dependence on exports as the primary economic engine is unsustainable.
A long-term, multi-level and multifaceted public diplomacy campaign will be a core part of that effort. Unfortunately, it is unclear whether any part of the US government is capable of planning, coordinating, leading, or executing such a campaign.
It is not too late, but it is now urgent. Secetaries Geithner and Clinton need to pool resources and, working with the President get a plan together on this issue. Failure to do so will leave the US once again unable to employ its vaunted soft power on the nation’s – and the world’s – behalf.