A coalition of labor and industry groups, seeking to put election-year pressure on the Bush administration, filed a petition yesterday calling for a confrontational U.S. stance against China's currency policies -- and was promptly rebuffed by administration officials.
The petition, filed by the AFL-CIO and organizations from the steel and textile industries, accused Beijing of keeping the yuan pegged to the dollar at a rate that makes Chinese products about 40 percent cheaper than they would be with a fairly valued currency. The petition was filed under a provision of U.S. trade law that authorizes the government to investigate unfair trading practices and impose sanctions if necessary.
Arguing that the administration's use of "quiet diplomacy" to change China's policy isn't working, Richard L. Trumka, the AFL-CIO's secretary-treasurer, said at a news conference that "our own government is simply failing to manage our important trade relationship with China in a way that gives our businesses and workers a fighting chance of competing fairly."
The administration signaled four months ago that it would reject such a petition, however, just as it did to a similar AFL-CIO petition alleging that China reaps unfair competitive advantages by abusing worker rights.
While acknowledging that "we have serious concerns" about China's currency peg, Richard Mills, a spokesman for U.S. Trade Representative Robert B. Zoellick, said in a written statement: "Today's petition is reckless because the remedy it seeks of a 40 percent across the board tariff would put up walls around America. . . . In April, the administration made it clear that accepting such a petition would be a retreat into economic isolationism. . . . It is a path we will not take."
Sen. John F. Kerry (Mass.), the Democratic presidential nominee, blasted President Bush for "continuing to allow China to manipulate its currency."
Giving Kerry the opportunity for that political swipe was one of the motivations for the petition, according to the National Association of Manufacturers, which had planned to join the AFL-CIO on the petition but withheld its backing yesterday, as did several other industry groups.
"Some supporting today's filing clearly intend a statement of genuine concern about exchange rates, but, regrettably, other filers seem to be more serious about election-year politics than currency values," said Michael E. Baroody, NAM's executive vice president.
Still, some free-trade advocates sympathized with the petitioners.
At a briefing on China trade, scholars at the Institute for International Economics stepped up criticism of the U.S. Treasury for using behind-the-scenes negotiations to induce Beijing toward a flexible exchange rate. China has maintained an 8.28 yuan-per-dollar exchange rate since 1995, and the institute's economists said that is 15 to 25 percent less than what it should be -- not as much as alleged by the AFL-CIO, but an appreciable amount.
"The U.S. has decided they want to do it [change China's policy] quietly, but nothing has happened," said Morris Goldstein, an IIE economist who recently issued a study criticizing the International Monetary Fund for not addressing the problem more aggressively. C. Fred Bergsten, the institute's director, added that pressure for protectionism against Chinese goods was the price the administration was paying "because of failures to do things [on the yuan] these past three or four years."
Rob Nichols, the Treasury Department's chief spokesman, said, "Due to our engagement with the Chinese on the currency issue, they are moving in the right direction." For example, he said, "they are actively taking important measures to modernize their financial infrastructure to prepare for a flexible exchange rate regime. . . . The most effective way at this time to achieve the goal . . . is to maintain the persistent engagement."
Earlier in the day in Beijing, Chinese bank officials reaffirmed their currency policy in a statement meant to rebuff IMF calls for a more flexible rate.
"We will maintain the basic stability of the yuan at a reasonable and balanced level," said Su Ning, deputy governor of the People's Bank of China, Bloomberg News reported.