* * *
Geithner Stuck in the Middle on China By BOB DAVIS and ANDREW BATSON Wall Street Journal September 16, 2010
On Capitol Hill, Treasury Secretary Presses Beijing to Boost Value of Its Currency but Pushes Back on Punitive Legislation
WASHINGTON—Treasury Secretary Timothy Geithner, facing hostile congressional questioning, staked out a middle ground by pressing China to significantly boost the value of its currency while trying to fend off lawmakers who want the administration to take harsher action.
The U.S. Treasury secretary said China's move toward a flexible exchange rate was "too slow," but was reluctant to formally label Beijing a currency manipulator.
Twin hearings on Capitol Hill come at a politically sensitive moment. Chinese trade policies have become an issue in the November elections and the administration is on the defensive because the Chinese currency has barely appreciated since June.
At the hearings, lawmakers from both parties complained that Chinese policies amounted to an unfair trade subsidy that hurt American companies. In the House, about 100 lawmakers, including 30 Republicans, sent a letter recently to the House leadership asking for a vote on a bill that would allow the U.S. to impose tariffs and other penalties on countries that undervalue their currency.
In the Senate, lawmakers berated Mr. Geithner. "China's currency manipulation is like a boot on the throat of our recovery and this administration refuses to try to get China to remove that boot," Sen. Charles Schumer of New York told Mr. Geithner. Kentucky Republican Jim Bunning accused the secretary of having "violated the law" by releasing a report on currency manipulation several months late and having "ignored reality" by not finding that China had been a currency manipulator.
Mr. Geithner responded forcefully to the complaints that the administration decided not to brand China a currency manipulator in a semiannual report this spring of foreign-currency practices. "Wishing something doesn't make it so," Mr. Geithner said, after Sen. Schumer's tongue lashing. "Issuing a report that requires us to consult accomplishes nothing."
Over the past week, the yuan has risen about 1%, which Mr. Geithner said was "encouraging," but wasn't enough to convince him the yuan was on a lasting upward course. On Thursday, the currency hit a new high against the dollar for the fifth straight trading session, and is up about 1.5% since China said in June that it would allow greater flexibility in its exchange-rate policy.
China is becoming an election-year issue with anger high among voters over continued economic weakness and unemployment, with many lawmakers blaming Beijing's unfair trade practices.
"We'd like to see a sustained period of appreciation at a pace" that would largely erase the yuan's undervaluation, Mr. Geithner told the Senate Banking Committee. While he didn't name a specific target, he several times referred to the 20% appreciation of the yuan against the dollar from 2006 to 2008.
What action Congress might take against China remains unclear. Senate Banking Committee Chairman Chris Dodd said there wasn't sufficient time on the legislative calendar to pass punitive legislation. A bill merely backed by the Obama administration and many in Congress would nonetheless send a powerful signal to Beijing.
Mr. Geithner said the administration hadn't decided whether to back the pending House measure. He told lawmakers that new legislation must be "consistent with international obligations"—meaning it can't violate rules of the World Trade Organization and other international bodies—and "has to be effective in terms of producing more benefits than it does risks."
He also made clear he didn't want to wreck business opportunities for U.S. companies, noting that U.S. exports to China are climbing.
"The U.S. has more jobs today ... including in the manufacturing and high-tech sectors, in part because our exports to China are growing so rapidly and our market share in China is so substantial," Mr. Geithner told senators.
In the House, the tone was more subdued; several lawmakers tried, without success, to get Mr. Geithner to make specific commitment on legislation. "Would you possibly tell us what the president would support?" asked Democratic New York Rep. Charles Rangel.
For more than a decade lawmakers have excoriated Democratic and Republican administrations for being too soft on Beijing. Congressional tongue-lashing can have an effect—largely through signaling to Beijing that punitive legislation is possible if it doesn't adjust its policies. Indeed, Mr. Geithner tried to use the congressional ire to ramp up pressure on Beijing to act.
"It's very important for people to know how strong the sentiment is," he said, and that it is bipartisan.
China's Foreign Ministry Thursday rejected Washington's criticism, reiterating Beijing's position that appreciation of the yuan won't resolve America's trade deficit with China or high unemployment in the U.S.
Adding pressure won't ease U.S.-China trade issues and "rather may have the opposite effect," ministry spokeswoman Jiang Yu said at a regular briefing.
The yuan ended Shanghai trading Thursday at 6.7248 per dollar, its strongest close since the currency began trading 1994.
Many market watchers don't think it a coincidence that the yuan gains began ahead of the hearings. That fits a past pattern of China making gestures to U.S. concerns at politically sensitive times—while at the same time denying that outside factors influence its currency policy.