Treasury Dept. and Bush Administration Warns China on Currency, threatens Sanctions

Yahoo! News

WASHINGTON – The Bush administration, in its hardest stance yet, warned China on Tuesday that it likely will be accused of manipulating its currency to gain an unfair trade advantage over the United States — unless Beijing acts swiftly to overhaul its currency system.

The administration has been prodding China in earnest over the last two years to stop linking its currency, the yuan, to the U.S. dollar. Manufacturers and other critics, including Democratic and Republican lawmakers in Congress, contend that China’s currency system puts U.S. companies at a big competitive disadvantage and has contributed to the loss of U.S. factory jobs.

The Treasury Department issued the warning as part of its twice-a-year report to Congress. However, it stopped short of finding that China — or any other major trading partner of the United States — was engaging in unfair currency practices.

But the administration clearly stepped up the pressure on China, saying it could be branded a manipulator of currency if the country doesn’t switch soon to a flexible exchange system — something advocated not only by the United States but also by other economic powers.

A 1988 law requires the department to analyze countries’ exchange rate policies and determine whether manipulation to gain unfair trade advantages is occurring. The law has economic sanctions that can be imposed on countries found in violation.

“If current trends continue without substantial alteration, China’s policies will likely meet the statute’s technical requirements for designation” of currency manipulation, the Treasury Department’s report said.

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