The Bush administration welcomed China's move toward a more
flexible currency on Thursday, but the cautious shift may not be enough to cool
the anti-China sentiments boiling up in Congress.
Treasury Secretary John W. Snow called it "the start of an
awfully important process" that might resolve one of the biggest economic
disputes between the United States and China.
"It is very positive," Mr. Snow told reporters on Thursday
morning. "I am particularly struck by the commitment of the Chinese government
to get their currency into alignment with market forces."
But the ambiguity of the Chinese announcement, in which it
said it would uncouple the value of the yuan and the dollar, made it impossible
for administration officials to say whether it amounted to a real change or a
token gesture.
One senior administration official noted that Chinese leaders
continued to describe their currency policy as "managed."
China's currency policy is merely one element of a much
broader anxiety. With the United States building up a trade deficit with China
that could exceed $180 billion this year, anti-China sentiment in both parties
is so high that even ardent free-trade advocates are prepared to vote for new
restrictions.
Indeed, lawmakers in both parties warned on Thursday that
China could inflame resentments if its first initial step - a 2.1 percent upward
revaluation of the yuan - did not lead to much broader revaluation. Critics have
charged for years that China was giving itself an unfair trading advantage by
keeping its currency at an artificially low value against the dollar, which made
its exports to the United States cheaper than they would otherwise be.
"It is a good first step, albeit a baby step," said Senator
Charles E. Schumer, Democrat of New York and co-sponsor of a bill that would
threaten China with steep tariffs on its exports if it did not significantly
change its currency policy. "If there are not larger steps in the future, we
will not have accomplished much."
House Republican leaders, meanwhile, were still hoping to pass
a bill as early as next week that would make it easier for the United States to
retaliate against Chinese exports that are subsidized by the government.
Many economists estimate that the yuan is at least 15 percent
undervalued.
But analysts also agree that China would still have
extraordinary cost advantages even if the yuan were allowed to float
freely.
As a result, the political tensions are likely to remain high
as American officials grapple with complaints about piracy of American
technology and entertainment, restrictions on American investment and a host of
other issues.
"The overwhelming sentiment of the nation, which is reflected
in Congress, is that we should be taking a more aggressive stance and holding
China accountable to world trading standards," said Representative Benjamin L.
Cardin, Democrat of Maryland and a leading point man for House Democrats on
trade issues.
Mr. Cardin dismissed China's announcement on Thursday as
"inadequate" and predicted that it would have little impact on political
sentiment in Congress.
For the last two years, Mr. Snow has been trying to persuade
China through polite diplomacy that a more flexible currency would be in its own
interest.
But while Chinese leaders professed their agreement in
principle, they had balked at any actual change. Mr. Snow stepped up his
rhetoric in April, saying that China was ready and should move "now."
The real progress came only after the Senate in early April
came close to passing the bill sponsored by Mr. Schumer and Senator Lindsey
Graham of South Carolina.
In June, the Bush administration warned that China's currency
policies were tantamount to currency manipulation and implied that it would take
action if China failed to do anything by October.
C. Fred Bergsten, president of the Institute for International
Economics, a policy research organization in Washington, said Chinese leaders
were hoping their hesitant first step on currency policy would defuse both
political pressure and financial pressure.
"My guess is they are trying to see the minimum they can get
away with," Mr. Bergsten said. "My own sense, based on historical experience, is
that this won't do anything to reduce either kind of pressure, and, in fact, it
might increase both kinds of pressure."
Representative Phil English, a Pennsylvania Republican and
sponsor of a bill that would retaliate against government-subsidized exports
from China, was skeptical as well.
"If this is a last best offer," Mr. English said Thursday, "it
is unacceptable."
Administration officials cautioned on Thursday that China's
change on currency policy was unlikely to have a big or quick impact on the
economy or on the United States' trade deficit.
The immediate change is by all accounts inconsequential: an
upward revaluation of the yuan by 2.1 percent being minuscule compared with
China's inherent cost advantages.
But China's central bank also outlined a process by which it
might allow a looser currency policy. In its statement, the People's Bank of
China said the yuan would be allowed to fluctuate as much as 0.3 percent against
the dollar each day.
Taken literally, that could mean the dollar could be in for a
long slow decline in value against the yuan, which would make Chinese products
more expensive and American exports cheaper.
But it remains unclear if the central bank will allow that to
happen, and Bush administration officials admitted on Thursday that they did not
know.
Alan Greenspan, chairman of the Federal Reserve, said the
Chinese move amounted to a cautious step toward a more market-based
economy.
"I think they've been cautious, and I think admirably so, but
I look at it as a first step in a number of further adjustments as they
invariably increase their participation in the world trading market," he
said.
(courtesy of the New York Times)
