WASHINGTON — The Bush administration Wednesday again declined to charge China with currency manipulation as lawmakers called for aggressive action following a mounting trade deficit with the world’s most-populous nation and industry job losses.
Opponents of China’s fixed currency maintain it artificially lowers the price of Chinese goods by 15 to 40 percent and subsidizes exports, putting U.S. companies at a disadvantage. They also argue that a lack of currency flexibility has been a major factor in a trade deficit with China that hit $202 billion last year.
In a statement attached to a semiannual report to Congress, Treasury Secretary John Snow said U.S. officials are “extremely dissatisfied with the slow and disappointing pace of reform of the Chinese exchange rate regime.” But the report, which assesses exchange-rate policies and determines whether they create unfair trading practices, didn’t designate China a country that “manipulates” its currency to promote exports, which could ultimately result in sanctions within the World Trade Organization.
During a news conference, Snow emphasized China’s progress and President Hu Jintao’s recent commitments to trade reform. China raised the value of its currency by 2.1 percent in July in a move to change the peg of the yuan to a basket of currencies. It raised the value of the yuan another 1 percent this year and the currency has appreciated by only 3.2 percent, a change many critics claim is inadequate.
“By embracing a comprehensive approach, as we’ve suggested, China has committed to putting itself on the right path,” Snow said. “That’s good. Now we need to see concrete action on each of these points.”
Asked why Treasury is not pressuring China in a more confrontational way, which many in Congress have urged, and the timetable for labeling China a “manipulator,” Snow said: “There is no precise answer. It is a qualitative judgment. We have given the statute our best interpretation and that is influenced by these commitments made within the month by the president of China … So we have to take those commitments at face value.”
Snow said China indicated an intent to address global imbalances in statements made by President Hu during his meeting with President Bush here last month, and in its five-year plan, which is called for in the U.S. statute.
“We are not satisfied,” Snow said. “We think China right now can do more and the President is committed to do more … We are going to monitor it closely.”
U.S. business groups, which allege China manipulates its currency to gain unfair advantage in trading and investments, and lawmakers were critical of the Treasury Department’s decision.
“By failing to designate China as a manipulator in this report, although its currency is artificially undervalued by as much as 40 percent, the United States comes off as a paper tiger unwilling to stand up for its domestic industrial sector,” Auggie Tantillo, executive director of the American Manufacturing Trade Action Coalition, said in a statement. “The U.S. government needs to put its foot down with China by using access to the U.S. market as leverage to persuade China to stop engaging in predatory trade.”
The Bush administration has continued to use diplomacy to convince China to adopt a new exchange rate system that makes more periodic adjustments to its currency and eventually lets it float freely on world markets like the dollar or the euro.
“The administration has now made it a habit of walking up to the line and not crossing it, even in the face of overwhelming evidence,” Sen. Charles Schumer (D., N.Y) said in a statement. “We hope the Chinese will show greater movement than they have in the last few months, but it is looking more and more likely that, given the administration’s failure to act, our legislation may be the only way to get China to play fair in the global marketplace.”
Schumer and Sen. Lindsey Graham (R., N.C.) have held off on a bill that would impose a 27.5 percent tariff on all Chinese imports to pressure China to make stronger reforms. The senators have reached an agreement with Republican leaders to delay a vote on their bill until the end of September, contingent upon whether China makes further currency reforms.
Sen. Chuck Grassley, (R., Iowa), chairman of the Senate Finance Committee, said in a statement: “Everyone knows China isn’t allowing market forces to influence the value of its currency … The country has made some reforms, but it isn’t even letting those reforms work freely. Today’s report from Treasury shows our current law isn’t working.”