WASHINGTON – The Bush administration determined Monday that China was not manipulating its currency to gain economic advantages, but it still pressed the Chinese to move more quickly to allow the yuan's value to be set by market forces.
The administration's determination, made in a currency report it is required to give Congress every six months, disappointed critics who contend that Chinese currency practices play a large role in America's soaring trade deficit.
"The administration's lack of action today hurts all Americans by refusing to acknowledge the obvious — that China manipulates its currency," said Sen. Chuck Schumer, D-N.Y.
Schumer and Sen. Lindsey Graham, R-S.C., are leading sponsors of legislation that would impose 27.5 percent tariffs on all imports from China unless China does more to allow its currency to rise in value against the dollar.
While both lawmakers agreed earlier this month to refrain from bringing up their legislation while Bush was in China, Graham said Monday, "I expect in the near future, unless some dramatic change occurs, the Congress will speak loudly and forcefully on China's continuing currency manipulation."
Treasury Secretary John Snow said China's decision to allow a small revaluation of its currency last July had been a factor in deciding not to brand China a currency manipulator, but he said more must be done.
The United States had a trade deficit of $162 billion with China last year, the largest ever recorded with a single country, and this year's deficit is expected to approach $200 billion.
American manufacturers believe China has purposely kept its currency undervalued by as much as 40 percent, making Chinese goods cheaper for U.S. consumers and making American products more expensive in China.
China in July announced it was letting its currency, which had been pegged tightly to the U.S. dollar, to rise in value by 2.1 percent. The Chinese said they would let the currency fluctuate by as much as 0.3 percent on a daily basis. However, over the past four months, the Chinese yuan has risen by only an additional 0.3 percent.
Manufacturing groups expressed disappointment with the administration's lack of action as did members of Congress.
John Engler, president of the National Association of Manufacturers, said China now holds $700 billion in foreign exchange reserves, most in dollars, in clear violation of International Monetary Fund rules that ban such holdings if they are used to influence trade flows unfairly.
Rep. Sander Levin, D-Mich., said the "administration's persistent failure to act on China's currency manipulation" had contributed to record deficits with China.
Alan Tonelson with the U.S. Business and Industry Council, another manufacturing group, said, "It is clearer than ever that America's domestic manufacturers cannot count on any help from the White House to remedy this totally unacceptable situation."
In October, Snow led a U.S. group, including Federal Reserve Chairman Alan Greenspan, to China to urge the country's government to allow a greater revaluation of the yuan. President Bush made a similar appeal to Chinese leaders this month when he visited China.
"It is imperative that China move toward greater flexibility as quickly as possible," Snow said in a statement accompanying Monday's report.
He said the administration would focus on China's actions in preparing the next currency report to Congress, due in April. Snow said China's leaders have "committed repeatedly" to introduce more flexibility.
If the administration had found China was manipulating its currency to gain trade advantages, that finding would have triggered consultations between the two countries. It could have led eventually to the U.S. government imposing trade sanctions against Chinese goods if the United States won a case on the issue before the IMF.
Briefing reporters on Monday's finding, Treasury Undersecretary Timothy Adams said it was "absolutely critical" before the April report comes out that Chinese authorities establish the flexible type of currency system they have promised.
He refused to say specifically what China would need to do to avoid being designated a currency manipulator in the April report, saying, "I don't have a particular standard in mind. It is kind of like obscenity. We will know it when we see it."
But Adams said the administration remained opposed to the Schumer-Graham bill with across-the-board tariffs. He called that approach protectionist and isolationist and said it would probably prompt the Chinese to impose retaliatory tariffs on American goods.