- The Washington Times - Thursday, March 25, 2010

With U.S. unemployment stubbornly hovering near double-digit levels and November elections fast approaching, lawmakers from both parties are pressuring the Obama administration to label China a “currency manipulator” when the Treasury Department releases its next semiannual report on April 15.

“China has a persistent economic strategy, a policy, key to which is the pegging of its currency to the dollar at an undervalued rate,” said Rep. Sander M. Levin, the newly installed chairman of the House Ways and Means Committee, at a hearing Wednesday to “consider possible solutions.”

China is pursuing an export-led growth strategy by “keeping its currency substantially undervalued,” charged the Michigan Democrat. In recent days, Chinese leaders, including Premier Wen Jiabao, heatedly have denied that China’s currency is undervalued.

Last week, a bipartisan group of 14 senators, led by Charles E. Schumer, New York Democrat, and Lindsey Graham, South Carolina Republican, introduced the Currency Exchange Rate Oversight Act, which would pressure the administration to act and pave the way for retaliatory measures, including, perhaps, unilateral tariffs. A letter signed by 130 House members last week demanded that the forthcoming Treasury report label China a currency manipulator.

China’s actions, including the purchase of $1 billion a day on the foreign-exchange market, have caused its currency, the renminbi, to be undervalued by about 25 percent on a trade-weighted average basis and by about 40 percent against the dollar, said C. Fred Bergsten, director of the Peterson Institute for International Economics.

“This competitive undervaluation of the renminbi is a blatant form of protectionism,” Mr. Bergsten told the committee. “China is thus exporting very large doses of unemployment to the rest of the world, including the United States,” which has lost 8.5 million private-sector jobs, including more than 2 million in its manufacturing sector, since the recession began in December 2007.

Mr. Bergsten estimates a “trade correction” brought about by China’s allowing its currency to appreciate by 25 percent to 40 percent would generate an additional 600,000 to 1.2 million U.S. jobs.

Mr. Bergsten recommended the U.S. pursue a three-pronged initiative: label China as a currency manipulator and begin bilateral negotiations to resolve the problem; with the support of European countries and developing economies, enlist the help of the International Monetary Fund to pursue Chinese agreement to promptly remedy the problem; and work through the World Trade Organization to obtain relief.

Rep. Dave Camp, the Michigan Republican who is the ranking member of the committee, also recommended a multilateral approach to the Chinese currency problem. The administration should “devote time and resources toward attempting to establish a robust, multilateral process - either in the G-20, IMF or elsewhere - so that other countries, particularly some of China’s neighbors in Asia, can bring new points of pressure to bear.”

Dominique Strauss-Kahn, managing director of the IMF, said last week that “the renminbi is very much undervalued.”

While acknowledging that “China’s currency undervaluation is both real and problematic,” Philip Levy, a resident scholar at the American Enterprise Institute, argued that “neither U.S. actions nor any ensuing Chinese reforms are likely to improve U.S. unemployment significantly,” especially in the short run.

Because the U.S. does not produce many of the products it imports from China, Mr. Levy explained, a jump in the price of Chinese imports caused by renminbi appreciation or the U.S. imposition of unilateral tariffs would merely shift U.S. demand to other countries that produced the goods.

For each of the past five years, America’s trade deficit with China has exceeded $200 billion.

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