WASHINGTON - The November 28
decision by the Bush administration not to name
China as a "currency manipulator" has disappointed
industry and labor groups here, which say they
will resort to international institutions and the
US Congress for tougher action. The groups have been seeking an end to
China's alleged manipulation of its currency,
which they argue makes Chinese exports
artificially cheap and puts US jobs and products
at risk.
In his report released November
28, US Treasury Secretary John Snow threatened a
finding of currency manipulation next year if
China does not allow market forces free influence
on the value of
the
yuan. He complimented China for moving away in
July from an eight-year peg of its currency to the
dollar.
"China's adoption of a new
exchange rate mechanism was an important step
towards exchange rate flexibility," Snow said in a
statement that accompanied the report, required by
Congress since 1988. The US has not designated any
country a currency manipulator since 1994; doing
so would not require the administration to take
any action except negotiating with China.
"[The situation] is incredibly
frustrating, given that it appears the
administration recognizes China does in fact
manipulate its currency, but continues to issue
warnings rather than take action," said David A
Hartquist, a spokesman for the China Currency
Coalition. The coalition is co-chaired by the
AFL-CIO, a major US labor confederation, and
Bartlett Manufacturing Company, Inc, a member of
the United States Business Industry Council.
A number of US groups and lawmakers have
blamed China's exchange rate system for the
ballooning trade deficit. They routinely cite the
country's large foreign exchange reserves as proof
of currency manipulation. "As evidence of the
effort China has made to suppress the value of its
yuan, it now holds more than US$700 billion in
foreign exchange reserves, mostly [in US]
dollars," said John Engler, president of the
National Association of Manufacturers (NAM), an
industry group. "This is a 50% increase over last
year, and if the current trend continues, China
will hold $1 trillion next year."
In 2004,
the US posted another record trade deficit of
$665.9 billion, or 5.7% of gross domestic product
(GDP), following a deficit of $530.7 billion the
previous year. China alone had a bilateral trade
surplus with the US of $165 billion in 2004, and
current estimates put the figure for this year at
$200 billion.
A move by China in July to
partially float its currency has been widely seen
in Washington as inadequate. Earlier this month,
the US-China Economic and Security Review
Commission (USCC), a powerful congressional
advisory group, downplayed China's currency reform
measures and said they included a modest
revaluation of the yuan against the US dollar,
amounting to only a 2.1% change in value. The
commission also labeled China's decision to link
the yuan's value to a basket of international
currencies as a limited step.
Now, labor
unions and manufacturers are calling for immediate
action against China. NAM urged the Bush
administration to "begin an aggressive process"
within the International Monetary Fund (IMF) to
address China's currency manipulation. The IMF's
global responsibilities include monitoring global
exchange rate manipulation. Interest groups also
say that a meeting of finance ministers of the
Group of Seven (G7) countries in London in early
December should be used as a venue to deal with
the Chinese currency issue on a global scale.
Others are turning to Congress to get
tough on China. "Congress should take action
immediately," said AFL-CIO secretary-treasurer
Richard Trumka. "It's time they slapped back.
There is a solution in Congress." Labor groups say
that Congress should use the Hunter-Ryan bill,
which is World Trade Organization compliance
legislation that defines currency manipulation,
declares it an illegal subsidy and empowers other
agencies of government to act against it.
"I expect in the near future, unless some
dramatic change occurs, the Congress will speak
loudly and forcefully on China's continuing
currency manipulation," said US Senator Lindsey
Graham in a statement shortly after Snow's
announcement. US Senator Charles E Schumer
(Democrat-New York), a leading critic of the
Chinese currency policy and author of the China
Free Trade Act, a bill that would impose 27.5%
tariffs on Chinese imports if China fails to
revalue its currency, said that Beijing's "refusal to
acknowledge reality and take the necessary
corrective actions hurts every American".
Chinese officials have countered that a
rise in the price of Chinese exports could hurt
millions of people at home who depend on the
country's exports boom, not to mention harming the
interests of US consumers, who have become
accustomed to inexpensive Chinese-made clothing
and household goods.
A recent study by the
Asian Development Bank backed this argument and
said that a revaluation of the Chinese currency
would not redress the US trade deficit, but would
instead negatively impact China and other Asian
nations. According to the bank's analysis, Chinese
exports account for a relatively small share of US
imports (about 13.4% in 2004) while US exports to
China constitute an even smaller share of about
4.3% of total US exports.
Even if the
revaluation were to shrink imports from China by
half and double US exports to Beijing, it would
cut the US trade deficit by only about $29
billion, or 0.24% of GDP, the ADB said. The ADB
further argued that a reduction in imports from
China would likely be offset by increased imports
from other Asian countries, unless other Asian
currencies appreciate significantly as well.
And an appreciation of the Chinese
currency will not translate into greater US
exports either, because of the negative income
effect of the revaluation on the Chinese economy,
which will tend to curb its import demand, the ADB
said.
