China currency row heats up in US

Paulson said China could not technically be labelled a currency manipulator [Reuters]

The White House has rejected moves to cite China as a currency manipulator in the face of growing pressure from the US congress to file a trade case against Beijing on the issue. The refusal has sparked an angry backlash from members of congress, announcing they would introduce retaliatory legislation against China. Senators from both the Replican and Democrat parties, as well as several US business groups have accused China of keeping its currency, the yuan, artificially undervalued to make its exports unfairly cheap. US businesses say this means they cannot compete, wiping out American jobs. The White House has rejected moves to cite China as a currency manipulator in the face of growing pressure from the US congress to file a trade case against Beijing on the issue. The refusal has sparked an angry backlash from members of congress, announcing they would introduce retaliatory legislation against China. Senators from both the Replican and Democrat parties, as well as several US business groups have accused China of keeping its currency, the yuan, artificially undervalued to make its exports unfairly cheap. US businesses say this means they cannot compete, wiping out American jobs
Issuing the US treasury's biannual report on the subject, Henry Paulson, the treasury secretary, said the yuan was "undervalued" but that China did not meet the technical requirements to be labelled a currency manipulator. Nonetheless the report repeated accusations that China was moving too slowly to implement economic reforms to deal with the trade gap with the US and Paulson pledged to keep pushing Beijing on the issue.

Growing anger

Anger in congress has been growing as the US trade deficit with China has soared to an all-time high of $232.6bn. Some legislators say China undervalues the yuan by as much as 40 per cent to gain unfair trade advantages, costing thousands of American manufacturing jobs. Minutes after a Paulson's report, Democrats and Republicans alike announced they would introduce retaliatory legislation against China. One group of senators led by Democrat Charles Schumer and Republican Lindsey Graham unveiled a bill aimed at forcing China to speed up its yuan appreciation by giving the treasury department new tools to put pressure on Beijing. The bill, which does not mention China by name, would set up a schedule of escalating punitive measures leading to legal action at the World Trade Organisation and co-ordinated currency intervention by the US Federal Reserve and other central banks. It also changes the description of the infraction from currency manipulation to "fundamentally misaligned currency for priority action". Schumer said "the purpose of this legislation is to force change". Christopher Dodd, a Democrat and Senate Banking Committee chairman, and Richard Shelby, the top Republican on the panel, said on Wednesday they were introducing their own proposal that would direct the administration to pursue currency cases against countries before the IMF and the WTO.

Petition rejected

Meanwhile, US trade representative Susan Schwab announced on Wednesday that she was rejecting a bipartisan petition from members of the US House of Representatives asking the administration to bring a trade case against China before the WTO. Schwab noted that the Bush administration had brought four WTO cases against China in the past 15 months but did not feel a case on the currency issue would be appropriate. It marked the third time the administration had turned down requests for a currency case.