Emad Mekay

WASHINGTON, Nov 29 2005 (IPS) — The decision by the George W. Bush administration Monday not to name China as a “currency manipulator” has disappointed industry and labour groups here, which say they will resort to international institutions and the U.S. Congress for tougher action.

The groups have been seeking an end to China’s alleged manipulation of its currency, which they argue makes Chinese exports artificially cheap and puts U.S. jobs and products at risk.

In his report on Monday, U.S. Treasury Secretary John Snow threatened a finding of currency manipulation next year if China does not allow market forces free influence on the value of the yuan. He complimented China for moving away in July from an eight-year peg of its currency to the dollar.

“China’s adoption of a new exchange rate mechanism was an important step towards exchange rate flexibility,” Snow said in a statement that accompanied the report, required by Congress since 1988.

“It is incredibly frustrating, given that it appears the administration recognises China does in fact manipulate its currency, but continues to issue warnings rather than take action,” said David A. Hartquist, a spokesman for the China Currency Coalition.

The coalition is co-chaired by the AFL-CIO, a major U.S. labour confederation, and Bartlett Manufacturing Company, Inc., a member of the United States Business Industry Council.

A number of U.S. groups and lawmakers have blamed China’s exchange rate system for the ballooning trade deficit. They routinely cite the country’s large foreign reserves as proof of currency manipulation.

“As evidence of the effort China has made to suppress the value of its yuan, it now holds more than 700 billion dollars in foreign exchange reserves, mostly dollars,” said John Engler, president of the National Association of Manufacturers (NAM), an industry group. “This is a 50 percent increase over last year and, if the current trend continues, China will hold one trillion next year.”

In 2004, the U.S. posted another record trade deficit of 665.9 billion dollars, or 5.7 percent of gross domestic product (GDP), following a deficit of 530.7 billion dollars the previous year.

China alone had a bilateral trade surplus with the U.S. of 165 billion dollars in 2004, and current estimates put the figure for this year at 200 billion dollars.

A move by China in July to partially float its currency has been widely seen in Washington as inadequate. Earlier this month, the U.S.-China Economic and Security Review Commission (USCC), a powerful congressional advisory group, downplayed China’s currency reform measures and said they included a modest revaluation of the yuan against the U.S. dollar.

The commission also labeled China’s decision to link the yuan’s value to a basket of international currencies as a limited step, amounting to only a 2.1 percent change in value.

Now, labour unions and manufacturers are calling for immediate action against China.

NAM urged the Bush administration to “begin an aggressive process” within the International Monetary Fund (IMF) to address China’s currency manipulation. The IMF’s global responsibilities include monitoring global exchange rate manipulation.

Interest groups also say that a meeting of finance ministers of the Group of Seven (G7) most industrialised countries in London this weekend should be used a venue to deal with the Chinese currency issue on a global scale.

Others are turning to Congress to get tough on China. “Congress should take action immediately,” said AFL-CIO Secretary-Treasurer Richard Trumka. “It’s time they slapped back. There is a solution in Congress.”

Labour groups say that Congress should use the Hunter-Ryan bill, World Trade Organisation compliance legislation that defines currency manipulation, declares it an illegal subsidy and empowers other agencies of government to act.

“I expect in the near future, unless some dramatic change occurs, the Congress will speak loudly and forcefully on China’s continuing currency manipulation,” said U.S. Senator Lindsey Graham in a statement on Monday.

U.S. Senator Charles E. Schumer, a leading critic of the Chinese currency policy and author of the China Free Trade Act, a bill that would impose 27.5 percent tariffs on Chinese imports, said that Beijing’s “refusal to acknowledge reality and take the necessary corrective actions hurts every American”.

Chinese officials have countered that a rise in the price of Chinese exports could hurt millions of people at home who depend on the country’s exports boom.

A recent study by the Asian Development Bank backed this argument and said that a revaluation of the Chinese currency would not redress the U.S. trade deficit, but would instead negatively impact China and other Asian nations.

According to the bank’s analysis, Chinese exports account for a relatively small share of U.S. imports (about 13.4 percent in 2004) while U.S. exports to China constitute an even smaller share of about 4.3 percent of total U.S. exports.

Even if the revaluation were to shrink imports from China by half and double U.S. exports to Beijing, it would cut the U.S. trade deficit by only about 29 billion dollars, or 0.24 percent of GDP, the ADB said.

The ADB further argued that a reduction in imports from China would likely be offset by increased imports from other Asian countries, unless other Asian currencies appreciate significantly as well.

And an appreciation of the Chinese currency will not translate into greater U.S. exports either, because of the negative income effect of the revaluation on the Chinese economy curbing its import demand, the ADB said.