Congress: Obama must get tough on China's currency policy

McClatchy NewspapersSeptember 16, 2010 

WASHINGTON — Congressional pressure built Thursday for tougher action against China over its trade and exchange rate policies that hurt American workers, as lawmakers from both parties angrily accused the Obama administration of failing to represent U.S. interests.

"This administration, in my view, must be the one to take a stand . . . we clearly need concrete action," said Senate Banking Committee Chairman Christopher Dodd, D-Conn., at the start of a hearing on China's currency policies, with Treasury Secretary Timothy Geithner as its lead witness.

The lopsided exchange rate affects American companies several ways. It makes Chinese products cheaper when imported into the U.S. — something American consumers seem not to mind. However, it also makes U.S. exports more expensive when sold in China, or in other countries in competition against Chinese products.

Alabama Republican Sen. Richard Shelby noted that President Barack Obama, as a candidate, had no qualms about saying that China manipulates its currency, the yuan, to benefit its products against those of its foreign competitors, including the U.S.

Shelby even read confirmation-hearing testimony from Geithner saying that Obama thinks China unfairly manipulates its exchange rate.

"Unfortunately, once in office, the administration showed it was all bark and no bite," Shelby said. "It's time, I believe, that the administration re-order its priorities."

The administration also took friendly fire.

"At a time when the U.S. economy is trying to pick itself off the ground, China's currency manipulation is like a boot to the throat of recovery . . . and this administration refuses to take this boot off our neck," said Sen. Charles Schumer, D-N.Y.

Schumer co-authored legislation in 2005 with South Carolina Republican Lindsey Graham to impose a 27.5 percent tariff on imports from China if it didn't realign the yuan's peg against the U.S. dollar. The legislation was withdrawn, but Schumer threatens to reintroduce it, and Dodd said he's open to moving a bill through his committee before a November meeting of global finance chiefs.

"What is the administration afraid of when every month we lose jobs and wealth . . . for a reason that just about everybody admits is wrong?" Schumer asked heatedly.

Shelby tried to get Geithner to say that he still thinks that China manipulates its currency — something the administration recently chose not to do in a required report to Congress.

The yuan is "significantly undervalued," Geithner acknowledged, pointing out that the International Monetary Fund also recently concluded that. However, the Treasury chief wouldn't say what most economists now say, that China actively manipulates its currency for home-field advantage.

Geithner repeatedly told lawmakers that if he'd formally concluded that China is manipulating its currency value, the law would order him to negotiate with China, which he's already doing.

However, Schumer reminded Geithner that such a designation would allow numerous U.S. industries to move forward on complaints seeking unfair trade remedies.

In prepared remarks and under questioning, Geithner stressed that China is a great opportunity for U.S. companies. Thus a cautious, structured approach is needed to resolve conflicts, he said.

"It's important to look at both sides of it," Geithner said.

Earlier, he spelled out that U.S. exports of goods and services to China this year exceed $53 billion. That's up 36 percent over last year and 16 percent above 2008, before the financial crisis took hold globally.

"I am very confident that is going to get substantially better for us over time," Geithner said. He cited soybeans, aircraft and a wide range of manufactured goods among the growing U.S. exports to China.

Anti-China sentiment has persisted for years in regions such as the Rust Belt and the Carolinas, where manufacturers and garment makers have been shuttered, unable to compete against cheap Chinese products.

Increasingly, however, concern about China's exchange-rate policy has spread to unexpected places, such as the Peterson Institute for International Economics, an influential pro-trade policy organization.

"Elimination of the Chinese misalignment would create about half a million U.S. jobs, mainly in manufacturing and with above-average wages, over the next couple of years. The budget cost of this effective stimulus effort would be zero," said C. Fred Bergsten, the institute's director, in prepared remarks to Congress.

By Bergsten's best guess, getting China to revalue its currency by 20 percent or 25 percent would shrink its global trade surplus by $350 billion to $500 billion. The U.S. trade deficit would fall by between $50 billion and $120 billion, he calculates.

"There's been a clear shift and a real sense of momentum for those who want to tackle this issue head on. The arguments and excuses have completely run out. The Chinese government has shown that it will be unwilling to substantially revalue the yuan unless faced with some consequences," said Scott Paul, executive director of the Alliance for American Manufacturing, a trade group for small manufacturers, in an interview.

Nobel Prize-winning economist Paul Krugman has urged action against China, saying that it's so heavily invested in U.S. debt that retaliatory action by China would hurt it as much as it would the U.S.

Frustrated by a range of alleged anti-competition moves by China, the United Steel Workers union on Sept. 9 brought a detailed 5,800 page complaint to the Office of the U.S. Trade Representative. The union alleges that domestic subsidies, protectionism and export subsidies have harmed U.S. manufacturers of so-called "green technology." The administration must decide whether to take up the complaint by Oct. 24.

"I rarely, if ever agree with positions taken by the (steelworkers) and Krugman. However, the Chinese aren't playing fair. I think that they will be forced to allow their currency to appreciate more rapidly," wrote Ed Yardeni, a well-regarded conservative financial analyst, in a Sept. 13 research note.

Economic needs rather than global political pressure might force China into a currency revaluation to cool its sizzling growth rate, he wrote.

"Mounting inflationary pressure within China could do the trick," Yardeni wrote. "A stronger yuan would lower import costs and reduce trade tensions."

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