Sun, May 31, 2009 page11

• US bill to punish China faces an uncertain future

  • AP
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  As the US economy slumps, lawmakers have renewed a push to punish China for what they see as currency manipulation that costs US jobs. Their prospects appear bleak at a time when the US is seeking Chinese help in confronting crises around the world.

  In the aftermath of North Korean nuclear and missile tests, the administration of US President Barack Obama wants China, a veto-holding permanent member of the UN Security Council, to use its leverage as North Korea’s only major ally to push Pyongyang to return to nuclear disarmament negotiations.

  During US Treasury Secretary Timothy Geithner’s first official trip to China this week, he will be looking for ways that China, with the world’s third -largest economy, and the US can work together to deal with a global economy in turmoil.

  “Right now, the administration’s desire to partner with China on a variety of issues carries the day,” said Derek Scissors, a fellow at the Heritage Foundation specializing in Asia’s economy. “So that would bode pretty poorly for the chances of passage” of the currency legislation.

  That could change, Scissors said, if high unemployment leads to anger at China among US voters or if US lawmakers begin to question whether China is as important to US interests as the Obama administration says it is.

  Another reason the Obama administration probably will oppose currency legislation is China’s role as the biggest holder of US government debt, Republican Representative Ed Royce said.

  China holds an estimated US$1 trillion in Treasuries and other US liabilities.

  US manufacturers contend that an undervalued Chinese currency is the biggest cause for the huge trade deficit the US runs with China. They argue that the yuan is undervalued by between 20 percent and 40 percent against the dollar.

  The congressional legislation, called the Currency Reform for Fair Trade Act of 2009, aims to punish China for claims that its artificially lowered currency value provides a subsidy to domestic businesses that makes it harder for US companies to compete.

  It would define clearly what should be considered currency manipulation and punish countries found to be in violation by putting up trade barriers against their goods.

  Republican Senator Jim Bunning, one of the bill’s co-sponsors, said China’s currency manipulation “hurts American goods in every market as we compete against artificially cheap Chinese exports.”

  “It is clearly an illegal trade subsidy,” Bunning said. “But neither the [George W.] Bush administration nor the Obama administration has had the courage to do anything about it.”

  Obama was tough on China as a presidential candidate looking to win votes. But as president, he has followed the Bush administration’s strategy of pushing for diplomatic and economic cooperation from China, not sponsoring punishing legislation.

  Last month, the Obama administration did not cite China as a country that is manipulating its currency to gain unfair trade advantages. That appeared at odds with Geithner’s comments during his Senate confirmation hearings that Obama believed China was manipulating its currency.

  The US has praised China’s role in the current global economic downturn.
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