From today's Nightly Business Report:
Darren Gersh Examines The Complicated Financial Connection Between the U.S. & China
Wednesday, May 10, 2006
SUSIE GHARIB: The U.S. Treasury has once again given China a pass, refusing to brand it as a currency manipulator. Late today, the Bush administration released its semiannual report on exchange rates, and says there has been too little progress on reform of China
s currency regime. American manufacturers say China has been deliberately keeping its currency devalued by as much as 40 percent against the U.S. dollar, giving the Asian nation a huge competitive advantage against U.S. products. Joining us now with more, NIGHTLY BUSINESS REPORTs Washington bureau chief Darren Gersh. Darren.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: Susie, it really was very interesting. The Treasury put out a toughly worded statement, saying it was extremely dissatisfied with China
s slow pace of currency reform. But when he came before the cameras, Treasury Secretary John Snow seemed reluctant to criticize the Chinese. He said they had embraced comprehensive currency reforms, and he sounded almost pleased with the progress so far. Finally a reporter asked him whether he was really all that dissatisfied with Chinas currency policy and this is what he said.
JOHN SNOW, TREASURY SECRETARY: .Six months and we haven
t seen as much progress as we wanted to see. The Chinese are being too cautious. They arent moving as fast as we think they should or could. We
re critical of China. Were saying that China is in a position to do more.
GERSH: But the Treasury found no evidence China is manipulating its currency to give it an unfair trade advantage. That prompted critics on Capitol Hill to threaten once again to move on legislation slapping tariffs on China if it doesn`t raise the value of the yuan.
SEN. LINDSEY GRAHAM (R) SOUTH CAROLINA: I
m convinced that you could have appreciation in the 7 to 10 percent range by the end of this year without destroying the Chinese banking system, and it would be a commitment on their part that I could use to go back to my constituents and say things are getting better. Right now, all I can tell my constituents is, Im sorry things are not getting better. I
m running out of excuses to explain why theyre not.
GERSH: The Treasury is trying to balance tough talk with the kind of diplomacy it believes will get results with the Chinese. But at the same time, analysts say the Bush administration could lose its credibility on this issue.
MORRIS GOLDSTEIN, INSTITUTE FOR INTERNATIONAL ECONOMICS: We
ve had very little progress both over the last year, over the past three years, and yet Treasury hasnt been able to pull the trigger. So I would characterize the Treasury policy on this as whine and whine, huff and puff and decline.
GERSH: Congressional critics of China
s currency reforms say if the country takes no action by the end of September, theyll push for a vote on a bill that could raise tariffs about 27 percent and that would set up an election-year showdown on the issue. Susie?
GHARIB: So Darren, do you think that the Bush administration really is risking its credibility on this whole China currency issue?
s a really good question. The Bush administration is trying to walk a thin line between criticizing China, which they dont take very well to, and also addressing the political concerns people have that the administration isn
t tough enough on China. The Chinese have moved a bit. Theyve raised the value of the yuan about 3 percent. It`s not enough for congressional critics.
GHARIB: So then do you think it`s just a matter of time that China will do the right thing about its currency or does it have to be pressured to revalue?
GERSH: You know, the Chinese have shown that really they don
t like pressure and they will do things when it is in their interest to do them. Its interesting. Nicholas Larty at the Institute for International Economics was also pointing out recently to me that we don
t have a lot of leverage with the Chinese right now. We have a very inter-dependent relationship. We buy a lot of goods from them. They make a lot of our high-tech goods. Also we need the Chinese. We want them to help us with the Iranian situation, so its very complicated relationship. But the Chinese usually like to do what they like to do when they like to do it.
GHARIB: It is a complicated issue. Darren, thank you very much for your report. Darren Gersh reporting from Washington.