WASHINGTON (AP) – Two years of quiet diplomacy by the U.S. administration did not persuade China to change its currency system. So the United States now is turning up the volume, even enlisting the help of financial heavyweights such as Federal Reserve chairman Alan Greenspan.
Critics contend it will take more than just talk to force China to scrap a system they blame for America’s soaring trade deficit and the loss of nearly three million U.S. manufacturing jobs over the past five years.
Since 1994, the Chinese have pegged their currency, the yuan, to the U.S. dollar in a narrow range in which 8.28 yuan will buy $1 US.
American manufacturers say this system has undervalued the yuan by as much as 40 per cent. The weaker yuan makes Chinese goods cheaper in the United States and American products pricier in China.
The administration has hoped its diplomatic efforts since 2003 would convince Beijing that it should allow market forces to set the yuan’s value. U.S. officials also have said they understood China needed time to prepare for such a switch.
But the administration suddenly toughened its rhetoric last month. Treasury Secretary John Snow let it be known the United States now feels that China has made all the preparations necessary and could switch immediately to a flexible exchange rate.
In support, Greenspan told a congressional committee that China’s current system represented an increasing threat, including higher inflation, to the Chinese economy. Also making that point are economists at the International Monetary Fund and the World Bank.
U.S. manufacturers are worried that China will continue to stonewall as America’s trade deficit soars and more U.S. manufacturing jobs are lost.
For that reason, they are lobbying the administration to single out China as a country that is intentionally manipulating its currency to gain unfair trade advantages. The administration is required by law to report to Congress on this matter twice a year. It has yet to brand China as a currency manipulator.