- The Washington Times - Tuesday, October 14, 2003

President Bush said yesterday that he will urge the leaders of China and Japan during a visit to Asia in the next week to stop depressing their currencies artificially to gain an unfair advantage over U.S. competitors. His remarks set off an immediate plunge in the dollar.

Even as he spoke, Democratic leaders in Congress seized on the dollar issue, a hot topic on the presidential campaign trail, and called on Mr. Bush to confront China and other Asian countries that manipulate their currencies to cultivate export markets in the United States. American manufacturers have complained for years that the practices are costing them business and jobs.

“We’ll talk about the currency with the Chinese and with my friend Prime Minister [Junichiro] Koizumi” of Japan, Mr. Bush said in an interview with Asian and Australian reporters, in one of his most extensive statements to date on the dollar. The president’s trip, which begins today, takes him to Japan, the Philippines, Thailand, Singapore, Indonesia and Australia.

“I’ll remind them that this nation has a strong-dollar policy, and we expect the markets to reflect the true value of the currency,” he said. “Countries need to be mindful that we expect there to be fair trade. … Currencies ought to be valued based upon the respective strengths of the economies, based upon the policies of the governments,” including their budget and monetary policies.

Mr. Bush said he has put in place sweeping pro-growth policies through a series of tax cuts that are starting to promote more robust growth and a revival of job creation after a long slump. His policies, however, also have ushered in massive budget deficits, which have been a factor weighing against the dollar.

“I’m for a strong policy,” Mr. Bush said. “It’s beginning to pay off. The economy is improving. And markets ought to be evaluating our respective currencies.”

While the dollar had been gaining in value yesterday owing to more rapid economic growth and a revival in the stock market, Mr. Bush’s remarks triggered a sudden drop in the currency as traders concluded that he favors a weaker dollar to improve his re-election prospects.

The dollar fell to 108.90 yen from 108.93 on Monday in New York trading, erasing gains that had sent the currency as high as 110.24 yen. The dollar weakened to $1.1732 per euro from $1.1705 on Monday.

Already, a more than 20 percent decline of the dollar against most major currencies since the beginning of 2002 has helped produce a budding recovery in manufacturing exports, though it has not stopped a hemorrhaging of manufacturing employment. The sector lost 2.8 million jobs in the past three years.

The only major currency against which the dollar has not lost value is the yuan, because of China’s policy of fixing it at about 8.3 to the dollar.

Mr. Bush upstaged Democrats in Congress, who lined up yesterday to denounce China and other Asian countries that they say use unfair currency and trade policies to gain entry into U.S. markets, fueling the loss of manufacturing businesses and jobs.

“We have a $109 billion trade deficit with China today,” the largest with any country, said Senate Minority Leader Tom Daschle, South Dakota Democrat. “We are losing hundreds of thousands, in fact, now millions of manufacturing jobs, many of them going to China, as a direct result of this currency manipulation.”

Mr. Daschle and other Senate Democratic leaders said the Bush administration should issue a finding in a report scheduled for release today that China is unfairly fixing its exchange rate, and use that finding to force negotiations for change. The Democrats also urged the administration to investigate whether China is violating U.S. and international trade laws.

However, the administration said yesterday that the Treasury Department is delaying the release of the report until later this month, apparently to prevent a flap or openly break with Asian nations right before the president’s trip. The Treasury has not accused any country of manipulating its currency since ruling in 1994 that China was doing so when it originally fixed the yuan’s rate against the dollar.

Mr. Bush is scheduled to meet with Mr. Koizumi and Chinese President Hu Jintao on the trip. He will meet with Chinese leaders in Bangkok on the sidelines of the Asia-Pacific Economic Cooperation forum, to be held Monday through Thursday.

While China has been the target of the most outrage in the United States, the Japanese, South Koreans and Taiwanese also regularly intervene in the markets and buy dollars whenever their currencies threaten to gain too much strength and make their cars, TVs and other exports less attractive to American consumers.

Despite Japan’s massive intervention, which has cost it an unprecedented $120 billion this year, the dollar has dropped precipitously against the yen in the past month. Analysts say the 105-yen threshold could be particularly critical and painful for Japanese exporters and political leaders who fear the strengthening yen will cut short Japan’s economic recovery.

Economists say the Chinese currency is undervalued as much as 40 percent, giving the emerging Asian giant a substantial competitive edge. But China also has a weak financial system that most analysts say prevents it from immediately unleashing its currency. China says its goal is to float the yuan eventually.

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