Accusing China of stealing U.S. jobs through “egregious” trade practices, legislators demanded action from the Obama administration Thursday and called for bipartisan legislation giving the Treasury ammunition to penalize China for using an artificially low exchange rate to gain an advantage in trade.
Top House Democrats said they would like to pass such an anti-China trade bill in coming weeks, prompting China to warn that the strategy would not work and might backfire. But the Asian giant also recently accelerated the rate of appreciation of its currency, the yuan or renimbi, in response to growing pressure from Congress.
“Appreciation of the renimbi will not solve the U.S. [trade] deficit and employment problems,” a Chinese Foreign Ministry spokesman said in response to a chorus of charges from both parties in Congress. “On the contrary, it could have the opposite effect.”
While taking his toughest stance to date on China’s need to speed up the pace of currency reform, Treasury Secretary Timothy F. Geithner echoed China’s point that doing that by itself will not eliminate the gigantic $230 billion trade deficit with China or restore millions of manufacturing jobs lost in the recession.
Americans also must save more and invest more while consuming less of the world’s bounty, he said, to bring a better balance to trade.
Mr. Geithner also pointed out that the U.S. is enjoying “huge gains” from exporting to China, the fastest growing U.S. export market, and needs to weigh that against worries about jobs. China already has purchased $53 billion in U.S. goods made by American workers so far this year, he said.
“We share your frustration” in wanting a less glacial pace of reform in China, Mr. Geithner told the Senate banking committee, pledging to use “all the tools available” to the administration to pursue unfair trade practices.
But he emphasized that any legislation must be designed to be effective in prodding China forward rather than raising the “risk” of retaliatory action against the U.S. and its businesses. It also must comply with all international trade treaties, he said.
In light of those requirements, Mr. Geithner gave a cool reception to the leading House bill, which would empower the administration to levy tariffs on Chinese goods in retaliation for keeping its currency artificially low.
Many businesses have warned that the measure might start a trade war with China. Mr. Geithner said the administration is still studying the measure, which is pending before the House Ways and Means Committee.
Mr. Geithner’s cautious stance and China’s prickly reaction appeared to give legislators pause in their drive to enact the bill before congressional elections. They plied Mr. Geithner to detail changes that would make the bill more effective and less risky.
“We don’t want to be a bull in the china closet,” said Rep. Charles B. Rangel, New York Democrat and former committee chairman.
Mr. Geithner said he’ll work with legislators to come up with a better bill, but added that it would be a difficult balancing act and might be hard to accomplish. He said any legislation is sure to be challenged before the World Trade Organization and could get thrown out.
“I’m not arguing for patience” and diplomacy rather than congressional action, he said, but “we need to have confidence it will work.”
The Treasury secretary noted that most other nations agree with the U.S. that China needs to reform, and are also pressing China to rely more on domestic consumption rather than exports for growth, while allowing its currency to rise against the dollar.
He pledged to make China’s exchange rate a “significant focus” of the next Group of 20 economic powers meeting in Seoul in November.
Members of the Senate committee also pledged to draft legislation giving the administration more “leverage” to force changes in Chinese policies.
Chairman Christopher J. Dodd, Connecticut Democrat, said he wants to work with the Treasury to put teeth into a law that currently requires Treasury only to try to negotiate changes with China and other countries that manipulate their currencies. Treasury has been doing so for years, with little to show for it.
Legislators appear to be hoping for a repeat of their experience in 2005, when the threat of passing punitive legislation prompted China to speed the rise of the yuan.
Between 2005 and 2008, it gained 21 percent in value. But China stopped allowing appreciation for nearly two years during the global financial crisis to protect its export industries.
Already in the 10 days leading up to this week’s hearings, China allowed a rapid appreciation of 1 percent, bringing the total gain to 1.5 percent since China reinstituted its more flexible currency regime in June.
“This currency manipulation is like a boot on the throat of our economy,” he said.
The condemnation of Chinese trade practices went across party lines, though Republicans were more apt to warn of the risks of setting off a trade war. Mr. Dodd called China’s currency policies “egregious.”
“There’s no question that the economic and trade policies of China represent clear roadblocks to our recovery,” he said. “China does basically whatever it wants, while we grow weaker and they grow stronger.”
China maintained strong growth even while the United States and other developed countries were in recession in the past three years, enabling the Asian giant to become the second largest economy in the world this spring. That spot had been long held by Japan.
Sen. Richard C. Shelby, Alabama Republican, questioned why the Obama administration, like the Bush administration before it, has refused to label China as a currency “manipulator” and take action against it.
“There is no question that China manipulates its currency to subsidize its exports,” Mr. Shelby said. But Mr. Geithner said the current law requiring consultations with China is toothless and has the power to “change nothing.”
“It may be time for new legislation to ensure that Treasury looks out for American workers, not Chinese creditors,” Mr. Shelby said, referring to China’s role as the largest buyer of U.S. Treasury bonds.
Even as they spoke, the government reported that the broadest measure of the U.S. trade deficit with the rest of the world surged by 13 percent in the spring quarter as a result of a jump in Chinese imports that pushed up overall imports by the highest amount in nearly 30 years.
At the same time, the Treasury reported that demand for U.S. securities from foreign investors remains strong, enabling the U.S. to easily finance its huge trade deficits. Purchases of long-term U.S. securities by foreigners rose by $61.2 billion in July.