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Administration Launches China Trade Investigation

MARTIN CRUTSINGER   10/15/10 11:07 PM ET   AP

China Markets

WASHINGTON — The Obama administration announced Friday it will delay a scheduled report on whether China is manipulating its currency to gain trade advantages until after upcoming meetings with world leaders next month.

Instead of putting out a report, the Treasury Department issued a statement praising China for letting the yuan appreciate by roughly 3 percent since June 19. The administration also announced an investigation into unrelated trade policies that union leaders complain have allowed Chinese businesses to gain advantages in the clean energy market.

The dual effort suggests careful diplomacy. It gives China more time to show it's serious about responding to critics who say it has undervalued its currency to gain a step up in a weak global economy. And it allows President Barack Obama to show U.S. manufacturers, labor unions and lawmakers that he is getting tough with China ahead of the Nov. 2 midterm elections – without labeling Beijing a currency manipulator.

Chinese Vice Premier Wang Qishan spoke by phone with Geithner on Friday "to exchange opinions on issues concerning China-U. S economic relations," the state-run Xinhua News Agency said late Friday in a one-sentence report with no details of their conversation.

There was no immediate official response from China to the delay of the currency report.

The yuan has been rising by about 1 percent per month since the start of September, a pace that the Treasury statement endorsed.

"If sustained over time, this would help correct what the IMF has concluded is a significantly undervalued currency," Treasury's statement said.

U.S. manufacturers believe China's currency is undervalued by as much as 40 percent, making U.S. goods more expensive in China and Chinese goods cheaper and thus more competitive in the U.S. market.

Frank Vargo, vice president for international affairs at the National Association of Manufacturers, said his group would like to see a much more rapid appreciation of China's currency than 1 percent per month. He said one of the dangers is that after the upcoming meetings, China could revert to little or no further currency appreciation.

"The heat is on until the meetings, but the question is what will China do after the meetings," Vargo said.

The report surveying currency practices of other nations is by law required to be submitted to Congress on Oct. 15 and April 15. However this administration and others have often missed that deadline.

The administration announced the delay hours after saying it was launching an investigation into Chinese trade practices that could keep American workers from gaining high-paying green jobs.

U.S. Trade Representative Ron Kirk announced that the government would look into the United Steelworkers complaint that Chinese businesses are able to sell wind and solar equipment on the international market at a cheaper price because they receive subsidies from the Chinese government. The union said the subsidies are prohibited by global trade rules.

Sen. Charles Schumer, a vocal critic of China's trade practices, welcomed the trade case but said he was disappointed the administration did not issue a report citing China as a currency manipulator.

"An investigation into China's illegal subsidies for clean energy industry is overdue, but it's no substitute for dealing with China's currency manipulation," Schumer, D-N.Y., said in a statement.

Gary Hufbauer, a trade expert at the Institute for International Economics, said that the administration is hoping that deciding to launch an investigation on China's subsidies for environmental technologies would provide the "red meat" that Democratic candidates can take to the voters in coming weeks.

"It might have been better politically to do both the currency and the trade case, but this is probably enough for right now," Hufbauer said.

The administration could bring a case against China before the World Trade Organization, if it finds the allegations by the Steelworkers to be true. If the WTO found in America's favor, it would clear the way for the United States to impose penalty sanctions on Chinese imports unless the Chinese government halted the practices.

Schumer is not waiting for that ruling. He vowed to push ahead with his legislation that would impose sanctions on Chinese products unless China moves more quickly to let its currency rise in value against the dollar. The House by an overwhelming margin passed similar legislation last month.

Lawmakers and the Obama administration have taken a tougher approach to China on the currency issue in recent weeks in advance of elections with high U.S. unemployment and the weak economic recovery are expected to be big issues on the minds' of voters.

In announcing the delay of the currency report, Treasury noted the meetings on Oct. 22-23 in South Korea that will be attended by Geithner and finance ministers from the other G-20 countries. That group, which represents 85 percent of the global economy, includes traditional economic powers such as the United States and Germany and fast-growing developing countries such as China, Brazil and India.

The G-20 meeting of finance officials will be followed on Nov. 11-12 with meetings of the leaders including Obama and Chinese President Hu Jintao in Seoul. Then, from Nov. 13-14, Obama will attend meetings of Asia-Pacific nations in Japan.

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Filed by Nicole Hardesty  |