Administration signals a tougher approach on China trade issues as elections approach

The Obama administration is signaling it plans to take a tougher stance with China on trade issues, including demanding that Beijing move more quickly to reform its currency system.

As part of that new approach, the administration filed two new trade cases against China before the World Trade Organization and Treasury Secretary Timothy Geithner said China must move faster to allow its currency to rise in value against the dollar.

In testimony prepared for two congressional hearings on Thursday, Geithner criticized a variety of Chinese economic policies from Beijing's currency system to what he said was rampant piracy of U.S. products and the erection of numerous barriers that prevent U.S. companies from operating in China.

"We are very concerned about the negative impact of these policies on our economic interests," Geithner said in testimony prepared for hearings of the Senate Banking Committee and the House Ways and Means Committee.

His comments come at a time of growing U.S. unhappiness with Chinese economic practices, which critics contend have led to huge U.S. trade deficits with China and the loss of millions of American manufacturing jobs over the past decade.

Chinese Foreign Ministry spokeswoman Jiang Yu on Thursday rejected Geithner's criticism, saying appreciation of the yuan "can't solve the trade deficit with China."

She added: "Pressure cannot solve the issue. Rather, it may lead to the contrary."

Lawmakers in both the Senate and House, responding to voters unhappy with painfully high unemployment in the United States following a deep recession, are pushing legislation that would expand the government's power to impose trade sanctions on China.

Geithner, while not endorsing the new legislation, said that the administration was committed to "using all tools available to ensure that American firms and workers can trade and compete fairly with China."

On Wednesday, U.S. Trade Representative Ron Kirk announced that the administration was filing two new trade cases against China before the Geneva-based WTO, which oversees the rules of global trade.

In one of the WTO cases, the administration said China was discriminating against U.S. credit and debt card companies in favor of a state-owned financial services firm. The other case contended that China had improperly imposed trade sanctions on a type of U.S.-made flat-rolled steel used in electric transformers, reactors and other types of power-generating equipment.

The two trade cases filed by Kirk's office could lead to retaliatory U.S. sanctions against Chinese products if the WTO rules in favor of the U.S. complaints.

In Beijing, Chinese government officials said there would be no immediate reaction to the new trade cases or to Geithner's comments.

American manufacturers contend that China's currency is undervalued by as much as 40 percent, making Chinese goods cheaper in the U.S. market and American products more expensive in China.

In his prepared testimony, Geithner said the administration is considering what tools it might use to push China to move more quickly to allow its currency to appreciate in value against the dollar.

"We are concerned, as are many of China's trading partners, that the pace of appreciation has been too slow and the extent of appreciation too limited," he said

The Obama administration, like the previous Bush administration, has preferred to pursue a course of quiet diplomacy with China, believing that would produce greater results that direct confrontation with the Chinese on the currency issue.

However, Geithner's remarks indicate that policy may be changing. He said the administration would take China's action into account when it releases its next report on the Chinese currency, which is due on Oct. 15.

Up until now, the administration has declined to label China a currency manipulator, a designation that would trigger talks between the two nations and could lead to trade sanctions if the United States won a case against China's currency policies before the World Trade Organization.

"We will take China's actions into account as we prepare the next Foreign Exchange Report and we are examining the important questions of what mix of tools ... might help the Chinese authorities to move more quickly," Geithner said.

Starting late last week, China's central bank has allowed the currency, the yuan, to rise more in value against the dollar. The yuan's trading range is controlled by the Chinese government. But even with the gains in recent days, the yuan has strengthened by only a little more than 1 percent against the dollar since June 19. It was on that date that the central bank said it would drop a tight peg it had maintained between the yuan and the dollar for the past 23 months.

The June announcement came right before China was to attend a summit of the Group of 20 major industrial and developing countries in Toronto. The United States had indicated it would make China's currency system a key topic at that meeting unless the Chinese showed greater flexibility.


AP reporter Cara Anna in Beijing contributed to this report.