US Treasury Secretary vows to take China currency issue to G20

Timothy Geithner - US Treasury Secretary

Treasury Secretary Timothy Geithner vowed on Thursday to rally other world powers to push China for trade and currency reforms as he was grilled by lawmakers demanding a crackdown on Beijing’s policies.

China warned that pressure from Washington could backfire.

Raising the stakes as part of a tougher line on China’s policies, Geithner said the United States would use a Group of 20 summit in Seoul in November to try to mobilize trading partners to get Beijing to let the yuan strengthen faster.

U.S. lawmakers are weighing a new law to punish China for currency practices that they say keep the yuan artificially low as they grow impatient with Washington’s reliance on diplomatic efforts that have yielded little so far.

Geithner’s testimony before the Senate Banking Committee could be critical to whether lawmakers decide to push ahead on legislation before the November 2 congressional election that will hinge on voter concerns about the struggling economy.

Geithner’s threat to make China’s currency system a focal point of the G20 summit could buy time to show that President Barack Obama’s administration is serious about his pledge to use “all tools available” to remedy the situation.

But it is also sure to stoke tensions before the gathering of leaders of the top industrial and developing economies, including Obama and Chinese President Hu Jintao.

“We expect there to be a significant focus of attention … on China’s exchange rate policy,” Geithner told the Senate Banking Committee. “It’s about the broad interests of all of China’s trading partners in a level playing field.”

Complicating the situation was Japan’s first intervention in six years on Wednesday to push its own currency down from 15-year highs against the dollar as Japan struggles to support its export-led economy.

Analysts said allowing Japan a free pass to intervene would make it harder to persuade China to curtail such activity.


Striking his sharpest tone yet in what has long been a flashpoint in U.S.-China relations, Geithner said the yuan was strengthening too slowly and the Obama administration was looking for ways to get Beijing to move faster.

Insisting that China’s currency practices were hindering the U.S. economic recovery, lawmakers pressed Geithner to declare China a “currency manipulator” when the Treasury Department’s next foreign exchange report is due on October 15.

But Geithner cast doubt on the effectiveness of such a move, saying it would not guarantee concrete results.

“We share your frustration,” he said in the first of two Capitol Hill appearances, although he tempered his remarks by saying China’s exchange rate policy does not pose a systemic risk. He did not elaborate on specific measures under consideration.

China’s Foreign Ministry, signaling a reluctance to give in, said pressure over the yuan exchange rate “not only would fail to solve the problems; on the contrary, it could have the opposite effect.”

With the U.S. jobless rate stuck near 10 percent while China is again running up big trade surpluses, some analysts see chances for legislation as more likely now than at any time in the recent past.

But the prospects for bringing the issue to a vote before the November 2 election are dimmed by the tight legislative timetable, with both chambers due to recess by mid-October to allow lawmakers to return home to campaign.

“Congress might push a bill but my sense is this is largely rhetoric and political posturing designed primarily for a domestic audience,” said Marc Chandler, global head of currency strategy at Brown Brothers Harriman in New York.


Geithner said China, whose yuan has risen only slightly against the dollar since Beijing announced the end to its currency peg in June, needs to do more.

“China needs to allow significant, sustained appreciation over time to correct this undervaluation and allow the exchange rate to fully reflect market forces,” he said.

But it was unclear whether Geithner’s get-tough talk would be enough to overcome skepticism in Congress over the administration’s approach and head off a bill that would slap punitive duties on Chinese goods.

Senate Banking Committee Chairman Christopher Dodd told Geithner the time for action was “long overdue.”

“China does basically whatever it wants while we grow weaker and they grow stronger. We clearly need concrete action here,” he said.

Senator Richard Shelby, the committee’s most senior Republican, said: “There is no question that China manipulates its currency in order to subsidize its exports. The only question is: Why is the administration protecting China by refusing to designate it as a currency manipulator?”

Geithner made clear that U.S. patience on China’s currency policy was wearing thin but said only that the valuation of the yuan would be taken into account when the Treasury Department issues its report in mid-October.

The administration has so far refrained from officially accusing China of manipulating its currency for unfair advantage, which would open the door to U.S. trade sanctions.

Geithner also appeared to be looking for breathing room for the administration to try to squeeze concessions from the Chinese before frustrated lawmakers press ahead with a bill that would force its hand.

China’s move to free the yuan from a nearly two-year-old peg to the dollar in June came a week ahead of a meeting of Group of 20 leaders in Canada.


China could retaliate if Congress actually passes legislation. A trade war between the world’s two largest economies would be a serious blow to Obama’s effort to ease strains on a range of economic and foreign policy disputes.

The yuan has risen only about 1.25 percent against the dollar since ended the currency peg in June. In the past six days, however, the yuan has scored its fastest rise since February 2008 — a move that some analysts view as a response to growing U.S. rhetoric.

The Obama administration faces a delicate balancing act. It wants to pay homage to American resentment over Chinese trade practices but must avoid alienating Beijing, whose diplomatic support is needed to tackle nuclear standoffs with Iran and North Korea.

Washington is also mindful that Beijing holds massive amounts of U.S. debt.
Source: Reuters

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