WASHINGTON — Senators sharply questioned Treasury Secretary John Snow on Thursday and criticized the Bush administration’s refusal to charge China with currency manipulation.
Snow appeared before the Senate Banking, Housing and Urban Affairs Committee. Several members expressed frustration with the continuing diplomatic attempts to convince China to adopt a new exchange rate system, arguing such an approach has failed.
“Something is wrong here,” said Sen. Richard Shelby (R., Ala.), panel chairman. “I think what is wrong is the administration is not looking and finding what everybody else in the world found long ago. To say that China is not manipulating its currency defies all logic, all common sense and all evidence.”
A Treasury Department report that assesses exchange-rate policies and determines whether they create unfair trading practices did not designate China a country that “manipulates” its currency to promote exports, which could result in sanctions by the World Trade Organization. Critics 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 American job losses and a trade deficit with China that hit $202 billion last year.
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 from just the dollar. It raised the yuan another 1 percent this year, and the currency has appreciated by only 3.4 percent, a change many critics claim is inadequate.
Snow reiterated the administration’s position — that China has indicated an intent to address global imbalances.
“Your report stopped short of calling China a currency manipulator,” said Sen. Jim Bunning (R., Ky.). “What further evidence do you need to make such a finding? We all seem to have made up our minds here, but the administration has not.”
Snow responded, “We have a heated agreement among ourselves that we are very disappointed and unhappy with China’s behavior on currency. We didn’t make the specific designation here this time because in the end, we concluded, given all of the facts and all of the circumstances, the statutory test — which is a test that includes intent — wasn’t met.”
The statute requires an intent to manipulate currency for the purposes of “frustrating global adjustment process,” he said.
Bunning threatened to seek passage of punitive legislation in the Senate, saying diplomacy has yielded few substantive changes.
“You can veto the bill, but we can sure as heck pass one and require China to get in line,” Bunning said. “Enough of us are frustrated up here to the point that we are willing to say, ‘Sorry administration, you are not doing enough, and when you have an opportunity to do something, you back off.’”
Sens. Charles Schumer (D., N.Y.) and Lindsey Graham (R., S.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 reached an agreement with Republican leaders to delay a vote — for a third time — on their bill until the end of September, contingent upon whether China makes further currency reforms.
Both senators met with Snow before his committee appearance and said they were still willing to wait until the end of September for a vote.