U.S. GROUPS UP PRESSURE OVER CHINESE CURRENCY


2003.11.10
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Groups blame weak yuan for loss of American jobs

An agreement between China and the United States to start talks on the value of the yuan has raised hopes among U.S. groups that have criticized Beijing's currency policy, RFA reports. But some say China is just stalling for time, claiming that the yuan is undervalued, and that this is directly responsible for the loss of jobs in the United States.

"I think at this point this is an issue that does need dealing with," Patricia Mears, director for international commercial affairs for the National Association of Manufacturers (NAM), which is among the loudest voices to complain about China's currency.

"I don't think it will be one that there is indefinite patience about on the part of the American business community that feels that they are being disadvantaged by the overvalued dollar," Mears told RFA's special correspondent, Michael Lelyveld.

China agreed in October to form a study group to explore ways in which the yuan--pegged at 8.28 to the U.S. dollar--might be floated. However, the U.S. business lobby has already voiced suspicions that the study group is merely a way of buying time for China--which fears for its financial stability without capital account controls.

"Our first impression is that it means more delay rather than progress," said Robert DuPree, vice president for government relations at the American Textile Manufacturers Institute. "Yes, it's nice that the Chinese have agreed to discuss it, but...we would have much preferred them to tell President Bush that they will allow their currency to freely float."

U.S. manufacturers say that China's policy of keeping its currency pegged at a fixed rate to the dollar has contributed to the loss of 2.7 million American jobs over the past three years. China has maintained the same rate since 1994, while its economy, its dollar reserves and its trade surplus with the United States have all soared to record highs.

Beijing argues, however, that the yuan helped maintain regional stability during the Asian currency crisis of 1997. It has also fought off pressure to freely trade or float the yuan on the grounds that the shock would be too great for China's fragile banking system, which is riddled with bad debt.

After the meeting between Bush and Chinese President Hu Jintao at the Asia Pacific Economic Cooperation (APEC) summit in Bangkok, the Central Committee of the Communist Party of China issued a statement saying: "We shall perfect the mechanism for forming the exchange rate of (the) yuan and maintain a general stability of (the) yuan at a reasonable and balanced level."

The official English-language China Daily also quoted a member of the Monetary Policy Committee of the People's Bank of China as saying that reforms of the exchange rate mechanism may take five to 10 years.

The clash of agendas is causing bilateral tensions which may become hard to ignore. "The longer they delay making any change in policy, which is the only thing that will have an impact, the more jobs we are going to lose, the greater the share of our market Chinese imports will take," DuPree told RFA. "They're basically stalling while they grab a greater and greater share of not just the U.S. market but some of our mutual export markets."

But some U.S. economists warn against blaming China for the current problems in the U.S. manufacturing sector. Ronald McKinnon, international economics professor at Stanford University, says the U.S.' problems stem from a low domestic savings rate, which means it must attract finance from overseas. The Chinese government has been a major buyer of dollar-denominated bonds in recent years.

"Certain industries are heavily protected, like American agriculture is quite protected. Then, it's very difficult to generate a trade deficit in services. That's one area where we do quite well. And so it means that manufacturing really takes the hit," McKinnon told RFA.

Meanwhile, DuPree said his group would back legislation being introduced to Congress which aims to slap a 27.5% retaliatory tariff on Chinese products if it fails to float its currency within 180 days after the measure becomes law.

The National Association of Manufacturers is supporting a milder congressional resolution, calling on the Bush administration to take action, including a possible complaint to the World Trade Organization (WTO), should the study group fail to produce results.

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