September bet

As I write this column, the bill introduced into the US Senate by Charles Schumer threatening to slap a 27.5% tariff on Chinese imports unless Beijing revalued its currency has just been postponed.

Senator Schumer agreed to put it aside after a chat with Alan Greenspan and John Snow, the top two US economic officials, who assured him that a change in Chinese policy was imminent.

Such a backdown by Mr. Schumer has, at first glance, all the hallmarks of the opening move in an elaborate chess game, a kind of grand bargain, if you like, that would culminate with China introducing a more flexible currency regime sometime before September.

Why September? Because that is when Hu Jintao, China's president, will be going to the US to see George Bush in the White House.

China, and its many sympathizers, has often complained that bellicose US demands for a change in the currency have ensured Washington has received exactly the opposite result. China may have been ready to move, but could not while its leaders were being loudly told that they had to.

China has repeatedly said as much as well, with Wen Jiabao stating on a number of occasions that China will make the decision on its own terms, independently of what any outsiders might say.

Of course, you would expect him to say as much. And by the same token, it is not realistic to expect foreigners to shut their mouths about China's currency when its trade surplus is swelling so rapidly and its economy growing so powerfully.

But to set a deadline, as the Schumer bill did, is asking for trouble. So what does his dropping of it mean? Does it provide China with the wiggle room it needs to grit its teeth and proceed with renminbi reform?

There are lots of reasons to refute this argument. The first is that the real reason for the dropping of the Schumer bill may have little to do with any kind of grand bargain. Rather, the bill's success has killed it. So many congressmen and women had threatened to vote for it that powerful forces had lined up to remind Schumer of what might happen if it passed.

US consumers would be paying 27.5% more for everything they bought at Wal-Mart. Schumer would not have wanted to be responsible for that, so has taken the Greenspan/Snow meeting as a face-saving way out.

But even if the Schumer bill goes away, the China problem in Washington will not.

And with the atmosphere in Washington about China so toxic at the moment, what better time for Hu Jintao to defuse, for the moment, the pressure by announcing an end to the US dollar peg in September, just before he arrives in the White House.

It's a plausible scenario, especially as the renminbi's gatekeeper, the People's Bank of China, says it is ready to make the change.

So if the renminbi is revalued before September, remember where you read it first. If not, then forget I ever raised it.