US President Barack Obama’s administration announced on Friday it will delay a scheduled report on whether China is manipulating its currency to gain trade advantages until after upcoming meetings with world leaders next month.
Instead of putting out a report, the US Treasury Department issued a statement praising China for letting the yuan appreciate by roughly 3 percent since June 19. The administration also announced an investigation into unrelated trade policies that union leaders complain have allowed Chinese businesses to gain advantages in the clean energy market.
The dual effort suggests careful diplomacy. It gives China more time to show it’s serious about responding to critics who say it has undervalued its currency to gain a step up in a weak global economy.
It also allows Obama to show US manufacturers, labor unions and lawmakers that he is getting tough with China ahead of the Nov. 2 midterm elections — without labeling Beijing a currency manipulator.
Chinese Vice Premier Wang -Qishan (王岐山) spoke by phone with US Treasury Secretar Timothy Geithner on Friday “to exchange opinions on issues concerning China-US economic relations,” the state-run Xinhua news agency said late on Friday in a one-sentence report with no details of their conversation.
There was no immediate official response from China to the delay of the currency report.
The yuan has been rising by about 1 percent per month since the start of last month, a pace that the Treasury statement endorsed.
“If sustained over time, this would help correct what the IMF has concluded is a significantly undervalued currency,” the Treasury statement said.
US manufacturers believe China’s currency is undervalued by as much as 40 percent, making US goods more expensive in China and Chinese goods cheaper and thus more competitive in the US market.
Frank Vargo, vice president for international affairs at the National Association of Manufacturers, said his group would like to see a much more rapid appreciation of China’s currency than 1 percent per month. He said one of the dangers is that after the upcoming meetings, China could revert to little or no further currency appreciation.
“The heat is on until the meetings, but the question is what will China do after the meetings,” Vargo said.
The administration announced the delay hours after saying it was launching an investigation into Chinese trade practices that could keep US workers from gaining high-paying green jobs.
US Trade Representative Ron Kirk announced that the government would look into the United Steelworkers complaint that Chinese businesses are able to sell wind and solar equipment on the international market at a cheaper price because they receive subsidies from the Chinese government. The union said the subsidies are prohibited by global trade rules.
US Senator Charles Schumer, a vocal critic of China’s trade practices, welcomed the trade case, but said he was disappointed the administration did not issue a report citing China as a currency manipulator.
“An investigation into China’s illegal subsidies for clean energy industry is overdue, but it’s no substitute for dealing with China’s currency manipulation,” Schumer said in a statement.
Gary Hufbauer, a trade expert at the Institute for International Economics, said that the administration is hoping that deciding to launch an investigation on China’s subsidies for environmental technologies would provide the “red meat” that Democratic candidates can take to the voters in coming weeks.
“It might have been better politically to do both the currency and the trade case, but this is probably enough for right now,” Hufbauer said.
The administration could bring a case against China before the WTO, if it finds the allegations by the Steelworkers to be true. If the WTO found in the US’ favor, it would clear the way for the US to impose penalty sanctions on Chinese imports unless the Chinese government halted the practices.
Schumer is not waiting for that ruling. He vowed to push ahead with his legislation that would impose sanctions on Chinese products unless China moves more quickly to let its currency rise in value against the dollar. The House by an overwhelming margin passed similar legislation last month.
Lawmakers and the Obama administration have taken a tougher approach to China on the currency issue in recent weeks in advance of elections with high US unemployment and the weak economic recovery expected to be big issues on the minds of voters.
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