WASHINGTON -- The Treasury Department said yesterday that China's currency is "undervalued," but it found no evidence the Asian giant is manipulating the yuan to gain an unfair trade advantage.
Senators reacted to the finding in the department's semiannual currency review by introducing a bill providing new ways for the United States to pressure nations suspected of currency manipulation.
"For too long, our currency policy has left American workers and businesses unprotected from foreign governments seeking an unfair financial advantage," Senate Finance Committee Chairman Max Baucus, a Montana Democrat,, said at a news conference. He was joined by fellow Democratic Sens. Charles E. Schumer of New York and Republican Sens. Lindsey Graham of South Carolina and Charles E. Grassley of Iowa.
The bill would let the Treasury Department declare any country a currency manipulator if it concludes that the country's currency is "fundamentally misaligned," even if it does not find evidence that the misaligment is intentional.
If the country did not take steps to remedy the misalignment within six months, the bill lets U.S. companies seek higher import tariffs to offset any benefit a foreign competitor might get from having an undervalued currency.
After a year, the bill requires that the U.S. trade representative file a dispute with the World Trade Organization and requires the treasury secretary to consider possible remedial intervention by central banks.
Clay Lowery, acting treasury undersecretary for international affairs, told reporters that the Bush administration believes the best way to engage China on exchange-rate issues "is through dialogue and not legislation."
But the senators said their new bill has enough support in the Senate and House to pass by a veto-proof margin. "There have been a lot of currency bills, but this one is the real deal," Baucus said.
Critics say China has been intentionally holding down the yuan's value to give its manufactured goods an unfair price advantage in global markets. Having a cheap currency makes China's goods less expensive for customers in this country, and also makes U.S.-made goods more costly in China.
That double whammy contributes to China's surging trade surplus with the United States, which last year shot to a record $232.5 billion.
The Treasury Department has not identified any nation as a currency manipulator since 1994. The administration's failure to name China as a manipulator this time around rankled many Republicans, driving another wedge between the Bush administration and many GOP lawmakers. "Treasury's narrow definition of currency manipulation just doesn't survive the laugh test," Rep. Phil English, a Pennsylvania Republican and senior member of the House Ways and Means Committee, said in a statement. "Today's boilerplate from the bureaucracy just highlights why Congress needs to take an active role in addressing Chinese currency practices."