For all the US fulmination about China's exchange rate trickery, it is likely to be a long time before any US reprisals come about.
Last Tuesday, the US Treasury issued a twice-yearly report on exchange rate policies in which it took China to task for a "highly distortionary" currency system that depressed US trade.
But it said the Chinese policies did not yet meet the standards required to designate the country a currency "manipulator" under the terms of US trade legislation.
It did warn, however: "If current trends continue without substantial alteration, China's policies will likely meet the statute's technical requirements for designation."
That would imply a deadline for China to relax its currency, the yuan, before the publication of the next Treasury report, due on October 15.
The US argues that the Chinese yuan's decade-old fixed peg to the dollar, which stands at 8.28, is encouraging a flood of Chinese imports at the expense of US industry.
US lawmakers are clamoring for action, angry at what they say is the loss of tens of thousands of US jobs to China.
The US Senate is due to vote in July on a bipartisan bill that would slap a 27.5 percent tariff on all Chinese imports if Beijing does not scrap the yuan-dollar peg within six months.
The US administration is hardly keen to see that measure come about, which might suggest its own veiled indication of a six-month deadline for China to act.
To list China as a currency manipulator, the Treasury must satisfy itself that the country is distorting the yuan-dollar exchange rate "for purposes of preventing effective balance of payments adjustments or gaining unfair competitive advantage in international trade."
If currency manipulation is established, the 1988 Omnibus Trade and Competitiveness Act would require the US Treasury secretary, John Snow, to initiate negotiations with China.
The negotiations could be conducted via the International Monetary Fund or bilaterally. The aim would be to ensure that countries concerned "regularly and promptly adjust" the exchange rate "to eliminate the unfair advantage."
But what if the negotiations should fail? The commonly understood implication is that sanctions would ensue, but the US trade act fails to spell out the next stage.
Currency manipulation as such is not one of the illegal trade measures listed in Section 301 of the act, which spells out a raft of reprisals the US can take against a trade adversary.
Democratic Senator Joe Lieberman wants to fill in the gap. He is sponsoring legislation that would outlaw the deliberate distortion of an exchange rate under Section 301.
This portion of the 1988 act has sometimes been dubbed the "crowbar approach" to trade disputes. It allows the US to withdraw trade concessions, to impose tariffs and quotas, and to suspend preferential customs arrangements accorded to a country.
But before entering into uncharted territory in October, the US will be hoping that China heeds its demands for a revaluation of the yuan to help rectify a US$162 billion trade imbalance between the two countries.
Were Section 301 to come into play, it could kick off the biggest trade war in history. China has already warned that it will retaliate against any US action.
In any case, the 1988 trade act gives Snow a major get-out clause. He would not have to open currency manipulation talks, "where such negotiations would have a serious detrimental impact on vital national economic and security interests."
There are plenty in US officialdom and industry who would argue that the US trade relationship with China amounts to a vital interest.
ISSUES: Gogoro has been struggling with ballooning losses and was recently embroiled in alleged subsidy fraud, using Chinese-made components instead of locally made parts Gogoro Inc (睿能創意), the nation’s biggest electric scooter maker, yesterday said that its chairman and CEO Horace Luke (陸學森) has resigned amid chronic losses and probes into the company’s alleged involvement in subsidy fraud. The board of directors nominated Reuntex Group (潤泰集團) general counsel Tamon Tseng (曾夢達) as the company’s new chairman, Gogoro said in a statement. Ruentex is Gogoro’s biggest stakeholder. Gogoro Taiwan general manager Henry Chiang (姜家煒) is to serve as acting CEO during the interim period, the statement said. Luke’s departure came as a bombshell yesterday. As a company founder, he has played a key role in pushing for the
China has claimed a breakthrough in developing homegrown chipmaking equipment, an important step in overcoming US sanctions designed to thwart Beijing’s semiconductor goals. State-linked organizations are advised to use a new laser-based immersion lithography machine with a resolution of 65 nanometers or better, the Chinese Ministry of Industry and Information Technology (MIIT) said in an announcement this month. Although the note does not specify the supplier, the spec marks a significant step up from the previous most advanced indigenous equipment — developed by Shanghai Micro Electronics Equipment Group Co (SMEE, 上海微電子) — which stood at about 90 nanometers. MIIT’s claimed advances last
EUROPE ON HOLD: Among a flurry of announcements, Intel said it would postpone new factories in Germany and Poland, but remains committed to its US expansion Intel Corp chief executive officer Pat Gelsinger has landed Amazon.com Inc’s Amazon Web Services (AWS) as a customer for the company’s manufacturing business, potentially bringing work to new plants under construction in the US and boosting his efforts to turn around the embattled chipmaker. Intel and AWS are to coinvest in a custom semiconductor for artificial intelligence computing — what is known as a fabric chip — in a “multiyear, multibillion-dollar framework,” Intel said in a statement on Monday. The work would rely on Intel’s 18A process, an advanced chipmaking technology. Intel shares rose more than 8 percent in late trading after the
GLOBAL ECONOMY: Policymakers have a choice of a small 25 basis-point cut or a bold cut of 50 basis points, which would help the labor market, but might reignite inflation The US Federal Reserve is gearing up to announce its first interest rate cut in more than four years on Wednesday, with policymakers expected to debate how big a move to make less than two months before the US presidential election. Senior officials at the US central bank including Fed Chairman Jerome Powell have in recent weeks indicated that a rate cut is coming this month, as inflation eases toward the bank’s long-term target of two percent, and the labor market continues to cool. The Fed, which has a dual mandate from the US Congress to act independently to ensure