WASHINGTON – Despite pressure from Congress, the Bush administration on Wednesday refused to cite China as a country that manipulates its currency to gain unfair trade advantages.
That finding was quickly challenged by a group of senators who said they would introduce legislation to make it easier for the United States to pursue economic sanctions against China if the country does not allow its currency to rise in value more quickly against the dollar.
American manufacturers contend that China is undervaluing its currency by as much as 40 percent. That has been a boon for American consumers, providing them with cheaper-priced Chinese imports, but it has driven the U.S.-China trade gap to an all-time high of $232.6 billion, one-third of America's record deficit of $758.5 billion last year.
But the administration, in its semi-annual currency report, said that China did not meet the technical requirements of a country that is manipulating its currency to gain trade advantages.
The Treasury Department said while it was obvious that the Chinese government was controlling the value of its currency against the dollar, it could not determine that this action was being done for the purpose of "gaining unfair competitive advantage in international trade." That is the standard set in the law.
The finding had been expected. Treasury Secretary Henry Paulson has launched a series of twice-a-year, high-level meetings with top Chinese officials.
The hope is that this new Strategic Economic Dialogue will bring pressure on China to allow the yuan to rise more quickly in value and also deal with a host of other trade tensions including rampant piracy of American copyrighted material in China.
But Congress, under pressure from voters upset with soaring U.S. trade deficits and the loss of more than 3 million manufacturing jobs since 2000, is pushing for the administration to take a tougher approach.
Various senators announced Thursday that they planned to introduce legislation to toughen the U.S. response to China's currency policies.
Senate Banking Committee Chairman Chris Dodd and Sen. Richard Shelby, the top Republican on the panel, said they were sponsoring a bill that would tighten the definition of currency manipulation and require Treasury to consult with the International Monetary Fund on the issue and also bring a case before the World Trade Organization if China does not allow its currency to rise more quickly in value.
"A change in our currency manipulation policy is long overdue," Dodd, a candidate for the Democratic presidential nomination, said in a statement.
Shelby said the legislation was needed because despite the evidence, "Treasury has regrettably declined to label China a currency manipulator."
Another group of lawmakers, including Democrats Charles Schumer and Senate Finance Committee Chairman Max Baucus and Republicans Lindsey Graham and Charles Grassley, were scheduled to introduce their own legislation aimed at Chinese practices later Thursday.
The bill would replace a measure Schumer and Graham sponsored last year that would have imposed 27.5 percent penalty tariffs on all Chinese imports as punishment for China's currency regime.