At his confirmation hearings last week, Tim Geithner branded China a currency manipulator. This is a designation that the Bush Treasury Department never formally affixed to the Chinese. It may signal a nerve-racking shift in how the United States manages its most pivotal relationship.
Geithner is correct that China manipulates its currency. What's more, this manipulation is arguably the most important cause of the financial crisis. Starting around the middle of this decade, China's cheap currency led it to run a massive trade surplus. The earnings from that surplus poured into the United States. The result was the mortgage bubble.
China's leaders protest that they are being unfairly scapegoated. Yet while there are rival accounts of the origins of the crisis, neither has the explanatory force of the blame-China narrative.
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