Administration signals tougher approach to China

WASHINGTON (AP) - September 15, 2010

Treasury Secretary Timothy Geithner, in prepared testimony, said the administration is considering what tools it might use to push China to move more quickly to allow its currency to appreciate in value against the dollar.

Separately, U.S. Trade Representative Ron Kirk announced that the administration was filing two new trade cases against China before the Geneva-based WTO, which oversees the rules of global trade.

"We are concerned that China is breaking its trade commitments to the United States and other WTO partners," Kirk said in a statement.

In one of the WTO cases, the administration said China is discriminating against U.S. credit and debt card companies in favor of a state-owned financial services firm. The other case contended that China has improperly imposed trade sanctions on a type of U.S.-made flat-rolled steel used in electric transformers, reactors and other types of power-generating equipment.

The two trade cases filed by Kirk's office could lead to retaliatory U.S. sanctions against Chinese products if the WTO rules in favor of the U.S. complaints. The two countries will have 60 days of consultations to try to resolve the disputes before the WTO sets up hearing panels.

Geithner's comments on China's currency practices were the toughest he has made. Both the WTO cases and Geithner's remarks underscore the frustration the administration feels about a sensitive trade issue less than two months before congressional elections.

"We are concerned, as are many of China's trading partners, that the pace of appreciation has been too slow and the extent of appreciation too limited," Geithner said in testimony he was to deliver before the Senate Banking Committee and the House Ways and Means Committee on Thursday.

In Beijing, Chinese government officials said there would be no immediate reaction to the new trade cases or to Geithner's comments. Earlier Wednesday, Yao Jian, a spokesman for China's commerce ministry said that any effort to use China's trade surplus with the United States to bring pressure over Beijing's currency system would be unreasonable.

American manufacturers contend that China's currency is undervalued by as much as 40 percent, making Chinese goods cheaper in the U.S. market and American products more expensive in China.

U.S. manufacturers contend that by manipulating its currency, Beijing is giving its companies a significant trade advantage that has led to a soaring U.S. trade deficit with China and the loss of millions of U.S. manufacturing jobs.

The Obama administration, like the previous Bush administration, has preferred to pursue a course of quiet diplomacy with China, believing that would produce greater results that direct confrontation with the Chinese on the currency issue.

However, Geithner's remarks indicate that policy may be changing.

Geithner said that the administration would take China's action into account when it releases its next report on the Chinese currency, which is due on Oct. 15.

Up until now, the administration has declined to label China a currency manipulator, a designation that would trigger talks between the two nations and could lead to trade sanctions if the United States won a case against China's currency policies before the World Trade Organization.

"We will take China's actions into account as we prepare the next Foreign Exchange Report and we are examining the important questions of what mix of tools ... might help the Chinese authorities to move more quickly," Geithner said.

Starting late last week, China's central bank has allowed the currency, the yuan, to rise more in value against the dollar. The yuan's trading range is controlled by the Chinese government.

Even with the gains in recent days, the yuan has strengthened by only a little more than 1 percent against the dollar since June 19. It was on that date that the central bank said it would drop a tight peg it had maintained between the yuan and the dollar for the past 23 months.

The June announcement came right before China was to attend a summit of the Group of 20 major industrial and developing countries in Toronto. The United States had indicated it would make China's currency system a key topic at that meeting unless the Chinese showed greater flexibility.


AP reporter Cara Anna in Beijing contributed to this report.

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