China not cited as currency manipulator

Other News Materials 20 December 2007 04:52 (UTC +04:00)

( AP ) - The U.S. declined on Wednesday to cite China for manipulating its currency for unfair trade advantages.

That finding came despite pressure in Congress for penalties because of the growing U.S. trade deficit with China. The trade gap is expected to hit an all-time high above $250 billion this year. The imbalance has been blamed as contributing to loss of 3 million manufacturing jobs in the United States since 2000.

The Bush administration told Congress the recent "moderate acceleration" in the rise of the value of China's currency, the yuan, versus the dollar was welcome but "still insufficient." But the administration's report, required twice a year, said China did not meet the requirements in U.S. law to be designated a currency manipulator.

Members of Congress who support legislation that would penalize Chinese imports were not happy. They said it has been clear for years that China is manipulating its currency to gain a trade advantage.

By refusing the cite China, "the administration gives Congress no choice but to act on its own. This report is the strongest case possible for our legislation," said Sen. Charles Schumer, D-N.Y.

To Sen. Debbie Stabenow, D-Mich., " China is cheating and our companies and middle-class workers continue to suffer."

The Treasury Department said the yuan's recent movement was "too limited and modest" to make a significant contribution to the problems facing the global economy from an undervalued currency. They include the huge trade imbalance with the U.S. and other nations and inflationary troubles in China.

The report said China should "significantly accelerate" the yuan's appreciation to "minimize the risks that are being created for China itself as well as the world economy."

The report noted that Treasury Secretary Henry Paulson has enlisted the support of other leading industrial countries to urge China to move more quickly and allow its currency to rise in value.

American manufacturers contend that the yuan is undervalued by as much as 40 percent against the dollar, making Chinese products cheaper in this country and U.S. goods costlier in China.

China modified its currency system in July 2005. Since then, the yuan has risen in value by 12.1 percent. That, however, is far less than what U.S. manufacturers say is needed to address the trade gap.

Frank Vargo, the vice president for international affairs at the National Association of Manufacturers, said the administration's failure to act would increase pressure in Congress to pass legislation that would allow the United States to penalize China for its currency policies.

"The fact that next year is an election year increases the likelihood for legislation," he said. Vargo said a designation by the U.S. that China is manipulating its currency is necessary for the International Monetary Fund to press China to move faster in allowing its currency to appreciate.

The U.S. deficit with China was $233 billion last year, America's largest ever with a single country. It is on track to surpass that amount this year, perhaps topping $250 billion even though some Chinese products have been the subject of high-profile recalls. That included unsafe tires and toys with lead paint.

The expanding trade deficit with China has led to dozens of bills in Congress that would punish China for what critics see as unfair trade practices.

Paulson led a group of administration officials to China last week for the third round of talks intended to deal with China's currency and other sources of trade friction.

The U.S. side achieved only modest agreements. The Chinese complained that continued threats of penalties by Congress could cause Beijing to retaliate against U.S. companies.

Chinese officials said a slow revaluation of the yuan was the best way to keep from destabilizing the Chinese economy. Vice Premier Wu Yi, who lead the Chinese delegation, said the Chinese cannot be blamed for America's appetite for inexpensive Chinese goods and that deficit could drop if the U.S. would lift restrictions on various high-tech exports to China.