WASHINGTON — China's rebuff this week of President Barack Obama's call to stop controlling the price of its currency sparked renewed calls for legislation to allow U.S. retaliation against Chinese-made goods.
During Obama's bridge-building trip this week to Shanghai and Beijing, Chinese and American leaders diplomatically disagreed over China's policy of fixing the value of its currency against the dollar. The practice results in low prices for Chinese-made exports, and U.S. critics say it penalizes U.S. exports and feeds America's giant trade deficit.
President Hu Jintao made no reference to the dispute Tuesday in a joint appearance with Obama. Obama simply reminded China of its repeated promises to loosen government control of China's currency value so that market dynamics gradually would push it higher.
"I was pleased to note the Chinese commitment made in past statements to move toward a more market-oriented exchange rate over time," Obama said.
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Obama also took care to note that the U.S.-China relationship is "far beyond any single issue."
He was less diplomatic and pressed harder in private meetings with Chinese leaders, Mike Froman, the deputy national security adviser, said in a news briefing Tuesday in Beijing. "It was very much on the agenda," Froman said.
Asked how the Chinese responded, Froman said: "I'm not going to characterize the nature of the discussion."
To critics back home, it all sounded like pronouncements made during the George W. Bush and Clinton administrations. Trade groups that feel harmed by China's fixed-exchange rate wanted action. Instead, they got reassurance that China eventually will let markets set the yuan's value.
"I think the one thing that's come out of this trip is that if reaffirms that the United States is going to have to take action to make that happen," said Lloyd Wood, a spokesman for the American Manufacturing Trade Action Coalition, which represents small U.S. manufacturers.
China critics want Obama to make good on a campaign promise to support legislation that would allow aggrieved industries to seek retaliatory penalties against China.
"During the presidential campaign, Barack Obama and Hillary Clinton signed on to the Senate version of a currency manipulation bill. ... They've done nothing to advance that legislation" in office, complained Kevin Kearns, the president of U.S. Business and Industry Council, which also represent small manufacturers.
Kearns suggested taxing China's currency transactions when the Chinese buy dollars with yuan, or imposing a border tax on Chinese goods. A third option is allowing currency manipulation to be considered a violation punishable under trade laws.
One sponsor of such legislation, Rep. Tim Ryan, D-Ohio, told McClatchy in a statement: "Economists have made clear that America's economic situation will continue to grow worse without a revaluation of China's currency. Yet our last administration and the current administration got nowhere in trying to shame China into doing the right thing. For the sake of American jobs, it's time for Congress to take action and give President Obama the tools he needs to stand up to China's unfair trade practices."
One big obstacle in the way of taking such action is that China is America's biggest foreign creditor, holding more than $800 billion of U.S. government debt. Taking retaliatory action could risk a counter-reaction, with Beijing refusing to buy more American debt or selling off the Treasury securities it owns. That could cause a crisis in the value of the dollar, forcing up U.S. interest rates and menacing the American and global economies.
It also could spiral into a protectionist-driven trade war that could endanger the economies of both nations and the world.
The Obama team has maintained a strategic dialogue between high-level officials from both countries that started under the Bush administration. Treasury Secretary Timothy Geithner and other key players think that China eventually will see that it's in its own interest to let the markets value its currency.
China has said repeatedly that its economy is in transition and not ready for a free-floating currency whose value is set by global markets.
The currency issue isn't black and white. Many Chinese manufacturers joint-venture with U.S. companies or work under contract for them, while American consumers have enjoyed more than a decade of falling prices on Chinese-made goods ranging from shoes and clothing to appliances and electronics.
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