By  on April 17, 2009

WASHINGTON — The domestic textile industry was up in arms Thursday over the Obama administration’s decision not to declare China a currency manipulator, ending hopes at least for the near future of any punitive action against the country’s exports.

Congressional leaders said they would not immediately be introducing any legislation against China’s currency policies, either. Critics argue that China undervalues its currency by as much as 40 percent, which lowers the cost of Chinese imports and puts goods from the U.S. at a competitive disadvantage. A nonmarket economy, China pegs the yuan against a basket of currencies, including the dollar.

“We are disappointed that the administration did not send a strong signal…that this model is unsustainable by labeling China as a currency manipulator,” said National Council of Textile Organization chairman Andy Warlick.

In a report on exchange rate policies issued Wednesday, the Treasury Department backed off previous statements made by Treasury Secretary Tim Geithner during his confirmation hearing that China manipulated its currency. The biannual report instead outlined steps it said China had taken to enhance exchange rate flexibility and appreciate its currency. China holds a major portion of U.S. foreign debt and has threatened counteractions if the U.S. took measures against its currency policy.

Chinese government officials said Thursday they had “taken note” of the Treasury report and will continue to reform the country’s exchange rate mechanism and keep it stable at a “reasonable and balanced level,” according to the state-sponsored media outlet Xinhua.

Geithner did say in a statement accompanying the report that China’s currency was undervalued, but stopped short of saying the country’s government manipulated it. The administration will release a second currency report in October.

Domestic textile groups would like to see Congress take up the issue again, arguing the imbalance is further hurting the U.S. economy. China shipped $32.7 billion worth of apparel and textiles to the U.S. last year.

“Currency manipulation and these trade imbalances have a far wider and more damaging impact on our economy than a lot of people realized six months ago,” said NCTO president Cass Johnson.

The Treasury report cited a range of external reasons for not labeling China a currency manipulator, like the failing economy, which implied the administration felt it was the wrong time to take action, he said.

“Why Treasury refused to cite China is highly perplexing,” said a spokesman for the American Manufacturing Trade Action Coalition. “They are ignoring the facts. It’s going to be like waving a red flag in front of a bull in Congress.”

Sen. Debbie Stabenow (D., Mich.) said Thursday she would introduce the Currency Manipulation Act, which would define currency manipulation and establish mechanisms to address it. Stabenow did not indicate when she would take that action, but sources said it could be in the next few weeks.

Other Congressional leaders who supported currency legislation in the past — including Sens. Max Baucus, Lindsey Graham and Charles Schumer — indicated they would not push forward immediately, but they left the door open.

“I don’t sense a lot of enthusiasm in Congress for really being out there on the whole currency issue,” said Erik Autor, vice president and international trade counsel at National Retail Federation. “I don’t see the level of agitation in Congress on the currency manipulation issue that there was in the past. That said, there is still interest from powerful quarters on Capitol Hill and it’s something we’re watching very closely as a result.”

Importers said they would continue to monitor the issue.

“Given this determination on China’s currency, we expect Congress will likely wait and see what objectives President Obama and Secretary Geithner have set for this summer’s Strategic Economic Dialogue with China before rushing to impose any retaliatory or punitive tariffs,” said Kevin Burke, president and chief executive officer of the American Apparel & Footwear Association.

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