US Secretary of the Treasury John Snow on Wednesday said he expects China will make some changes to its currency peg against the US dollar over the next few months, a move he said is essential to warding off protectionist trade legislation in the US Congress.
"We think they should have done this last year," Snow told members of the American Iron and Steel Institute. "I fully expect in the coming of the next few months you are going to see something."
The Chinese government tightly manages its currency via intervention and a system of capital controls, effectively pegging it at 8.28 yuan to the greenback. For almost two years, the Bush administration has publicly urged China to allow foreign-exchange markets to have more influence on the value of the yuan.
On Tuesday, the Treasury Department, in its semiannual foreign exchange report to Congress, declined to designate China as a country which manipulates currency markets to boost exports. Snow said Treasury made the decision in part because they felt China should be given time to make the move, and in part because such a designation would unleash protectionist trade measures in Congress.
"The sentiment in Congress is decidedly anti-China," Snow said.
He cited a wide margin of bipartisan support for a bill sponsored by Democratic Senator Charles Schumer and Republican Senator Lindsey Graham, which would place a 27.5 percent tariff on all US imports from China.
Even the bill's supporters said they were surprised last month when the Senate voted 67 to 33 to attach the measure to legislation re-authorizing State Department programs. The sponsors agreed to withdraw the measure after Senate leaders promised a vote on the bill in stand-alone form later this summer.
Officially branding China a currency manipulator would assure passage of the Schumer-Graham legislation, Snow said.
"Once you do that, the furies of Congress would be visited upon them," Snow said, adding that financial markets would surely suffer if investors perceived the US as turning protectionist.
Snow said it was only recently that the Treasury Department concluded that China's financial system was ready to handle the adjustment to a more flexible currency.
"We want to give them some time, but not an awful lot of time," he said.
RSS