A US Currency Battle With China Is Heating Up

(Sept. 24) -- Congress is moving to give President Barack Obama new ammunition in a long-running feud with China over currency policies that cost American jobs, but the White House may not want to use it.

The House Ways and Means Committee today passed a measure that would declare currency manipulation -- like China's habitual efforts to keep the yuan from rising against the dollar -- a trade subsidy open to retaliation that includes tariffs on Chinese imports.

American textile makers, unions and lawmakers from both parties have long complained the artificially low yuan makes U.S. goods more expensive and less competitive than their Chinese counterparts. One study cited by the committee estimates that 500,000 manufacturing jobs could be created if the yuan were allowed to appreciate to its real value, though it's uncertain whether blue-collar work now done in China would shift back to the U.S.

"By taking a stand today, this committee takes the lead in standing up for American workers and businesses, and holding China accountable for the manipulation of its currency," Chairman Sander Levin, D-Mich., said after the vote. "The measures included in this bill provide the administration with additional tools for enforcing the rules of trade and ... will also bolster the administration's efforts to bring about a multilateral framework for addressing this global issue."

Whether the administration would use such tools is another story.

White House officials said Obama used most of a two-hour meeting with Chinese Premier Wen Jiabao on Thursday to discuss the currency issue. Though neither leader mentioned currency matters in the brief remarks they made afterward, Obama described their economic discussions as "frank" and Wen called them "candid" -- diplomatic codes for when leaders can't reach agreement.

Jeff Bader, the top Asia official on the National Security Council, told reporters that Obama pressed the "need for China to do more than it has done to date" on the imbalance between the yuan and dollar, while Wen reiterated the "Chinese intention to proceed to continue with reform of their exchange-rate mechanism."

That's hardly enough to satisfy the Americans, since more than half a decade of Chinese efforts along those lines has led to only incremental increases in the yuan's value against the dollar -- an imbalance many economists consider off by as much as 25 percent.

With unemployment among the top concerns of voters ahead of the midterm elections and the president promoting greater exports as an economic salve, the White House suggested Obama was playing tough.

"If the Chinese don't take actions, we have other means of protecting U.S. interests," Bader said.

And the issue did overshadow U.S.-Chinese disputes over policies on Iran, North Korea and even a bitter stand-off between Japan and China that prompted Defense Secretary Robert Gates to note Thursday that if the two neighbors went to war the U.S. would have to side with ally Japan.

But the Obama White House is taking no position on the Ways and Means bill, and it's not the first White House to hedge on the currency fight.

Congress gave the Clinton and George W. Bush administrations new tools to retaliate against China for currency manipulation, and neither used the tools for anything more than threats, repeatedly shying away from a fight.

Though the U.S. has been willing to challenge China on other trade policies -- including copyright violations, subsidies for clothing and aid to the steel industry -- the currency question is regarded by the Chinese as a challenge to its sovereignty and a threat to economic growth that still relies on plying the factory floor for the likes of Wal-Mart.

While the Obama administration has been publicly touting the issue, with two appearances on Capitol Hill last week by Treasury Secretary Timothy Geithner as well as the Obama-Wen meeting on the sidelines of a United Nations summit, the true test of its commitment to pushing China may be if the push continues after the Nov. 2 election.