When domestic politics gets rough, go for the foreigners.

That was Henry IV’s final advice to his son in a memorable scene. And that may be what’s playing out now as Treasury evaluates whether China is a currency manipulator. Yesterday Treasury announced that they would postpone this evaluation until after several multilateral trade meetings at which China would be present.

This is important, because it allows the Chinese to save face. The legislation that requires public humiliation of our trade partners is a Catch-22: label them as currency-cheaters and create a diplomatic mess; or fail to notice that the RMB is spurring Chinese exports and facilitating a potential bubble.

So the law requires that we either act like bullies or live in denial. But finessing this dilemma is what Secretary Geithner was put into office for. He understands this culture. By working with the Chinese rather than trying to shame them, he may be able to tease out some concessions and satisfy Congress.

Prince Hal did follow his father’s advice, and later won the battle of Agincourt. Let’s hope that our own foreign trials don’t come to such a pass.

Douglas R. Tengdin, CFA
Chief Investment Officer
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