Snow keeps pressure on China to revalue
[God I hope China puts a 27.5% tariff on all goods coming out of China right here right now - Mish]
Thursday, May 26, 2005 4:46:47 PM
afxpress.com
WASHINGTON (AFX) - Treasury Secretary John Snow kept up pressure on China to move to a more flexible foreign exchange rate in congressional testimony on Thursday
Speaking to the Senate Banking Committee, Snow repeated his views that China is now ready to adopt a more flexible rate and must do so "without delay" to safeguard global economic growth. The United States has been urging China to abandon the strict peg of the renminbi to the U.S. dollar. U.S. labor and manufacturing interests say the Chinese policy keeps Chinese exports cheap relative to U.S.-made goods, costing hundreds of thousands of American jobs
China has balked at U.S. demands on its currency, saying it would act on its own timetable, suggesting that U.S. pressure could be self-defeating
Snow expressed confidence in the U.S. policy. "We've got their attention and I think they'll move," he said
A stronger renminbi would make U.S. goods more competitive, but it could also raise prices for U.S. consumers and could have a large impact on the U.S. economy. If China were to reduce or reverse its large purchases of U.S. securities (needed to keep the renminbi weak), U.S. interest rates could rise rapidly. Senators were highly critical of Snow for being soft on China. Sen. Elizabeth Dole, R-N.C., said she was "astounded" that Snow had not gone further and branded China as a manipulator of its currency
"You cannot ask one side to play by the rules and the other does not," said Sen. Charles Schumer, D-N.Y., who has sponsored a bill that would punish China with high tariffs if it does not revalue its currency. "If free trade is to work, currencies need to float." Schumer said China's currency manipulation is destroying political support for trade agreements that end up being one-sided
China has become the largest single source of the U.S. trade deficit and current account deficits. The deficit with China was $162 billion in 2004, more than twice the deficit with second-place Japan
Snow told the senators that flexibility is in China's interest, as well as in the interest of the world
"China's rigid currency regime has become highly distortionary," he said in prepared remarks. "It poses risks to the health of the Chinese economy, such as sowing the seeds for excess liquidity creation, asset price inflation, large speculative capital flows, and overinvestment." "Sustained, noninflationary growth in China is important for maintaining strong global growth and a more flexible and market-based renminbi exchange rate would help the Chinese achieve this goal," Snow said. Snow said Chinese action by itself would not solve all the world's economic imbalances. He pledged to bring down the U.S. fiscal deficit and encourage more domestic savings. He also called on Europe and Japan to pull their weight in the global economy
The United States is not demanding an immediate, full float of the Chinese currency, Snow said. "What we are calling for is an intermediate step that reflects underlying market conditions and allows for a smooth transition - when appropriate - to a full float." Snow repeated that if China does not act soon, it would likely be in "technical violation" of U.S. trade laws as a currency manipulator. Such a designation would lead to mandatory consultations and would further inflame U.S.-China relations |
