U.S. and China — some economic agreement, still some thorny issues

The U.S. and China completed their economic talks today, with both sides calling the dialogue successful in reaching agreement on several strategic issues. U.S. Treasury Secretary Henry Paulson and a high-level delegation of several Cabinet secretaries met over the past two days with Chinese President Hu Jintao, Premier Wen Jiabao, and Vice Premier Wu Yi, a tough negotiator.

One of the most important issues was exchange rate reform by China, which would help in withstanding anti-China assaults in Congress. While the U.S. pushed for more flexibility in its exchange rate, with the yuan strongly undervalued, the two sides didn’t reach substantive agreement on that point.

Besides the thorny issue of the exchange rate, it sounds like the agreement means that Chinese consumers should spend more and American consumers should spend less. According to the fact sheet released, “China will carry out the exchange rate regime reform and the United States will increase saving rates so as to promote balanced and strong growth and prosperity in two nations.” Also, China will “increase consumption.”

At the conclusion of the meetings, Paulson was quoted as saying: “We each will take measures to address global imbalances through greater national savings in the United States and to increase consumption and exchange rate flexibility in China.”