US President Barack Obama’s administration declined to name China a currency manipulator on Friday, even though it said the yuan was “substantially undervalued,” sparking fresh calls for legislative retaliation to try to reduce a swelling US trade deficit.
The US Treasury said China’s yuan should rise more quickly, but said it lacked evidence to label Beijing a manipulator, a designation that could trigger trade action.
“Treasury’s view ... is that progress thus far is insufficient and that more rapid progress is needed,” the report said. “Treasury will continue to closely monitor the pace of appreciation of the [yuan] by China.”
The finding was no surprise and came in a long-delayed report to Congress that Treasury kept under wraps until after a state visit by Chinese President Hu Jintao (胡錦濤) last month.
One lawmaker said on Friday he would propose legislation next week aimed at forcing China to revalue its currency.
US Treasury Secretary Timothy Geithner is visiting Brazil tomorrow and will have a chance to seek an ally for making the case at the G20 meeting in Paris later this month that China should speed up yuan appreciation.
The decision in the semi-annual report, which was due on Oct. 15, disappointed and angered lawmakers.
“China has been given a free pass on its currency practices for far too long,” said Senator Max Baucus, chairman of the Senate Finance Committee, which has jurisdiction over trade issues. “We need to hold China and our other trading partners accountable for their actions.”
Democratic Representative San-der Levin said that he would reintroduce legislation next week proposing to let the US Commerce Department treat an undervalued currency as a subsidy under US trade law. Companies could, on a case-by-case basis, seek countervailing duties against competing Chinese imports.
China contends the yuan’s value is not the main cause of the US’ mounting trade deficits and that if the currency did appreciate swiftly the effect would only be to shift production from China to other lower-cost countries.
The US had a trade deficit of US$252 billion with China during the first 11 months of last year. Some of the largest US retail chains source the vast majority of their products from Chinese factories.
The US also relies on China to buy the bulk of the weekly flood of debt securities that Treasury sells.
Beijing announced last June that it would permit more flexibility in setting currency values but the Treasury report said that appreciation since has been inadequate.
The yuan now risen 3.53 percent against the US dollar since it was depegged from the greenback in June. Spot yuan ended at 6.5938 against the US dollar on Tuesday compared with 6.6030 at Monday’s close.
The report urged Beijing to let its currency rise both against the US dollar and currencies of other major trading partners.
“If it does not, China will face the risk of more rapid inflation, excessively rapid expansion of domestic credit, and upward pressure on property and equity prices, all of which could threaten future economic growth,” the Treasury said.
The usual tool for controlling inflation is higher interest rates, but higher rates attract more capital inflows that in turn require more foreign exchange purchases to keep a stable yuan.
The Treasury report also said that a lower-valued yuan was causing other emerging-market nations to hold off on allowing more flexibility.