W3ASHINGTON – Treasury Secretary Henry Paulson told Congress on Wednesday that the Bush administration was doing all it could to get China to move more quickly on currency reform in the face of a soaring U.S. trade deficit.
"China does not yet have the currency policy that we want it to have and that it needs," Paulson said in his prepared remarks to the Senate Banking Committee. "The international community will run out of patience with China unless the pace of its reform accelerates."
Paulson's comments came as the U.S. trade deficit with China has hit an all-time high and members of the committee told Paulson they consider China's approach to its currency unacceptable in light of U.S. trade deficits they said have been a major contributing factor to a severe loss in American manufacturing jobs.
"More than 3 million manufacturing jobs have been lost since 2001, the steepest and most prolonged loss since the Great Depression," said Senate Banking Committee Chairman Christopher Dodd, D-Conn.
Senators on the panel pressed Paulson to outline exactly how the administration planned to get China to move more quickly.
Paulson did not say whether the administration would support economic sanctions against China, but said that China should allow the value of the yuan to rise by larger amounts on a daily basis.
He said China's central bank should progressively lower the level of intervention in private currency markets so that the yuan's value will be determined more by market forces than government intervention.
The Bush administration is coming under heavy pressure to do something in the face of five consecutive years of soaring trade deficits, led by the yawning imbalances with China.
A group of lawmakers led by Sen. Charles Schumer, D-N.Y., got widespread support last year for imposing penalty tariffs of 27.5 percent on all Chinese imports coming into the United States if China did not go further to revalue its currency.
The administration opposes this approach, arguing that it would penalize American consumers who depend on low-cost clothing and electronic products from China.
American manufacturers contend that China is manipulating its currency to keep it undervalued against the U.S. dollar by 20 percent or more. Such an action makes Chinese goods cheaper for American consumers and American products more expensive in China.
Paulson was testifying on the administration's latest currency report to Congress released last month. In that report, the administration refused to cite China for manipulating its currency to gain trade advantages, saying the country did not meet the technical definitions of a currency manipulator.
Many in Congress have been pressing for just such a designation, which could lead to possible U.S. trade sanctions.
The United States and China in December held the first of what will be twice-a-year meetings to discuss economic problems between the two nations. At the first Strategic Economic Dialogue held in Beijing, Paulson and six other members of Bush's Cabinet received no timetable from the Chinese on the pace of its currency reforms.
China in the summer of 2005 announced that it was removing the Chinese yuan from a fixed value against the dollar.
Since that time, it has risen in value against the dollar by 6.5 percent, but critics charge that increase is far too slow and far below what is needed to make a dent in the huge trade gap between the two nations.
"We are actively pressing the Chinese to introduce greater currency flexibility and undertake wider market reform," Paulson said.