US President Barack Obama’s new administration said on Monday it would determine in the coming months whether China is manipulating its currency, setting the stage for a new burst of trade friction.
White House spokesman Robert Gibbs said the administration had not decided its policy on the perennial controversy of the yuan’s value, despite a stir caused by Treasury Secretary Timothy Geithner last week.
According to Gibbs, Geithner “was restating what the president had said during the [election] campaign,” when he observed in congressional testimony that Obama believes China is manipulating its currency.
“I think it’s safe to say this administration will determine in the spring what that means,” Gibbs said.
The US Treasury Department issues twice-yearly reports on global currency policies.
The next report is due in April, and a finding that China is “manipulating” its currency to gain a trade edge could trigger US sanctions.
Under the administration of former US president George W. Bush, the Treasury stopped short of that designation despite furious complaints in Congress that China does indeed artificially weaken the yuan’s value to boost its exports.
Depreciation talk flared up on Dec. 1 when the yuan posted its biggest one-day fall against the dollar since Chinese authorities instituted a narrow trading band for the currency in July 2005.
China on Friday denied that it was manipulating the yuan, responding to Geithner’s statements made to US senators as part of his nomination process.
“The Chinese government has never used so-called currency manipulation to gain benefits in its international trade,” China’s Commerce Ministry said in a statement faxed to reporters in Beijing.
“Directing unsubstantiated criticism at China on the exchange rate issue will only help US protectionism and will not help toward a real solution to the issue,” the statement said.
On Saturday, People’s Bank of China Vice Governor Su Ning (蘇寧) called Geithner’s allegation “untrue and misleading,” as analysts warned of a potential trade war between the US and the fast-rising Asian power.
Blaming the Chinese currency for the sky-high US trade deficit with China, lawmakers in the last Congress had crafted legislation aimed at imposing steep tariffs on Chinese imports if Beijing refused to make its currency more flexible.
Obama became a co-sponsor of one such bill, called the “Fair Currency Act,” at the height of his battle against former senator Hillary Clinton for the Democratic presidential nomination in April last year.
Now that Obama is president, China is a key test of whether the Democrat intends to execute some of his more protectionist campaign rhetoric as the US fights a debilitating recession.
Gibbs said the Obama administration intended to formulate a “vibrant policy” on US economic relations with China.
“We have to take a comprehensive approach to enhancing our economic relationship with China, including the currency issue,” he said.
In written answers to senators’ questions released last Thursday, Geithner said: “President Obama — backed by the conclusions of a broad range of economists — believes that China is manipulating its currency.”
Obama intends to “use aggressively all the diplomatic avenues open to him to seek change in China’s currency practices,” he said, while vowing a “deep engagement” with Beijing.