WASHINGTON — U.S. Treasury Undersecretary Timothy Adams sent a strong warning to China Wednesday that it has not done enough to allow its currency to appreciate against the dollar.
Adams said China’s progress, which is being closely scrutinized by Congress and the Bush administration, has been “far too cautious.” He told a Senate Finance Committee hearing that, “The obstacles are no longer technical. China could easily move more rapidly towards greater flexibility” and “should do so now.”
Adams’ remarks came a day after Sens. Charles Schumer (D., N.Y.) and Lindsey Graham (R., S.C.), delayed a vote until Sept. 29 on a punitive bill that would impose a 27.5 percent tariff on all Chinese imports because they said the Chinese have made some progress.
Adams’ warning also came as the Treasury Department prepares a closely watched report, due in mid-April, that gives an assessment of China’s currency reforms and provides an opportunity to designate China a “currency manipulator,” which leads to discussions and could ultimately mean sanctions within the World Trade Organization.
In addition, high-level Chinese economic and trade officials are scheduled to meet with their U.S. counterparts on April 11 in Washington under the auspices of the Joint Commission on Commerce & Trade and Chinese President Hu Jintao plans to make his first presidential visit to Washington on April 20.
Critics of China’s currency policy, who include lawmakers on Capitol Hill, administration officials and business leaders, maintain it artificially lowers the price of Chinese goods by 15 to 40 percent, contributes to the $202 billion trade deficit with China, puts U.S. companies at a disadvantage and leads to job losses for Americans.
China raised the value of its currency by 2.1 percent last July in a move to change the peg of the yuan to a basket of currencies, but many critics claimed the change was inadequate.
“Since China began changing its exchange rate last July, the currency has appreciated by only 3.2 percent and the day-to-day fluctuation has been severely constrained,” Adams said. “It has also failed to test the limits of the current, narrow, intraday trading bands.”
Sen. Jeff Bingaman (D., N.M.) asked: “What leverage do we have to bring about a change in policy in regard to currency? Is this something we are just going to jawbone about indefinitely?”
Adams said administration officials have been “very active” in multilateral circles.
“The idea is to bring about a global consensus,” he said. “The sheer weight of global opinion should bring to bear some change.”
Sen. Olympia Snowe (R., Maine) asked Adams if the Treasury report will label China a “currency manipulator.” Adams said the agency had not yet made a determination and said the report could be delayed due to Hu’s visit.
Snowe responded: “Given the significant undervaluation of this currency, we cannot afford to miss many opportunities because so many people are losing their jobs.”
Sen. Max Baucus (D., Mont.), who introduced legislation Tuesday addressing currency imbalances with committee chairman Chuck Grassley (R., Iowa), said: “We changed the term of currency manipulation to fundamental currency misalignment. Our concern was ‘manipulation’ is a pejorative term and ‘misalignment’ is a more neutral word. Will this legislation help you?”
Adams said the Grassley-Baucus bill is “an innovative and novel approach,” because “we don’t want to disgrace anyone, we want to solve the problem.”