WASHINGTON - A new bill introduced in the United States Senate is adding to
tensions between Washington and Beijing. It attacks China's trade practices and
proposes legislation that would push the Barack Obama administration to charge
China with currency manipulation and could lead to unilateral action against
Chinese imports.
The bipartisan group of senators emphasized what they considered to be unfair
trade practices by China, and also the domestic economic conditions that
created incentives for protectionist trade policies by the US
"We are sending a message to the Chinese government: if you
refuse to play by the same rules as everyone else, we will force you to.
China's currency manipulation would be unacceptable even in good economic
times,'' said Senator Charles E Schumer, when announcing the legislation on
Tuesday.
"At a time of 10% unemployment, we simply will not stand for it. There is no
bigger step we can take to promote US job creation, particularly in the
manufacturing sector, than to confront China's currency manipulation," Schumer
said.
On Monday, more than 100 members of congress signed a letter calling on the
Obama administration to label China a currency manipulator.
Twice a year, the Treasury Department issues a report listing countries that
"manipulate the rate of exchange between their currency and the United States
dollar for purposes of preventing effective balance of payments adjustments or
gaining unfair competitive advantage in international trade". China has
historically been left off the list of countries highlighted in the report.
Nobel Prize-winning economist Paul Krugman argued in an op-ed in the New York
Times on Sunday that now is the time for the US to deal with China's
undervalued currency - reports place it as undervalued by between 20% and 40% -
by imposing a 25% tariff on Chinese imports.
The calls for action against China's currency peg have not gone unnoticed by
Beijing, but the increasing urgency and volume of the demands from Washington
appear to be prompting equally belligerent responses from Beijing.
Chinese Premier Wen Jiabao had sharp words for Washington on Sunday during his
once yearly news conference, in which he blamed the downturn on Sino-US
relations on the fact that the Obama administration had "violated Chinese
territorial sovereignty" by moving forward with arms sales to Taiwan and
Obama's meeting with the Dalai Lama.
"First of all, I do not think the renminbi is undervalued," Wen said, referring
to the currency, also termed the yuan, according to the Wall Street Journal.
"We are opposed to countries pointing fingers at each other or taking strong
measures to force other countries to appreciate their currencies. To do this is
not beneficial to reform of the renminbi exchange-rate regime."
Many in Washington took issue with Wen's assertion that the yuan wasn't
undervalued but the rest of his answer did not preclude the possibility of an
adjustment.
Earlier this month, China's central bank governor, Zhou Xiaochuan, stated that
the yuan's unofficial peg to the US dollar is a "special" measure that will
eventually end.
The problem "is that as [US] senior officials speak out on this issue and
demand that China appreciate their currency, the less likely it makes it that
an adjustment will take place in the near term,'' Bonnie Glaser, senior fellow
in China studies at the Center for Strategic and International Studies in
Washington, told Inter Press Service.
The Chinese leadership is very leery of doing anything under pressure from
abroad, and doesn't want to be seen in the face of its public as weak or
succumbing to outside pressure. "Even if there is recognition that they should
adjust their currency, timing is in part going to be determined by what serves
their interests. They will factor in the rhetoric from abroad,'' Glaser said.
China ramped up a full-court-press this week, enlisting US multi-nationals to
help battle the rising calls of what Beijing terms "protectionism" emerging
from Washington.
On March 16, a spokesman at the Chinese commerce ministry told reporters, "We
hope that US companies in China will express their demands and points of view
in the US , in order to promote the development of global trade and jointly
oppose trade protectionism."
In 2005, the yuan was adjusted from 8.27 to 8.11 per US dollar and the dollar
peg was lifted. The yuan now moves in relation to a basket of currencies
dominated by the dollar, the euro, the Japanese yen, and the South Korean won.
The yuan appreciated by 20% from 2005 to 2008 but critics of China's currency
policy, such as Schumer and Senator Lindsey Graham, who led the legislation
announced on Tuesday, are increasingly frustrated with the lack of another
major adjustment.
"I think that when we look at what Wen Jiabao said at the press conference, and
read between the lines, then nothing is ruled out, but at the same time the
heightened rhetoric here and the letter from congress makes it exceedingly
difficult for the Chinese to say, 'okay in the face of pressure from the US
we'll do [an adjustment] now'," said Glaser.
Tensions over the yuan's valuation are only the most recent of a long list of
disagreements to have shaken Washington's relationship with Beijing in recent
months.
In September, Obama authorized a 35% emergency tariff on Chinese tire imports
in order to curb a "surge" of Chinese tires which, according to US trade
unions, have cost 7,000 US factory workers their jobs. Beijing responded
quickly to condemn the US tariffs and threatened to levy its own tariffs
against US products.
In January, US-based Internet search company Google announced that e-mail
accounts owned by diplomats, human-rights activists and journalists had been
infiltrated by Chinese hackers, leading Secretary of State Hillary Clinton to
deliver a speech outlining the administration's position on intellectual
property theft, cyber-security and Chinese Internet censorship.
China responded by accusing the US of "information imperialism" and denied
charges that the government participated in cyber attacks.
In February, the Beijing-Washington relationship hit another rough patch when
China threatened to impose sanctions on US companies participating in an
upcoming US$6.4 billion arms deal with Taiwan.
Since the global economic crisis put the economies of both China and the US
under stress, Beijing has sought to shift the investments from its balance of
payments surplus away from US dollars and into equities and commodities, while
Obama has been under pressure to address the growing trade deficit with China
and apply more pressure to China to revalue its currency.
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