U.S. Treasury Secretary Henry Paulson and other top Bush administration officials warned on Tuesday of risks to the U.S. and global economy if Congress passes legislation aimed at punishing China for its currency policy.
"At a time when U.S. exports are growing globally, such legislation also exposes the United States to the risk of 'mirror legislation' abroad and could trigger a global cycle of protectionist legislation," Paulson, U.S. Trade Representative Susan Schwab and Commerce Secretary Carlos Gutierrez said in a joint letter to senior senators.
Paulson, who is in China this week, and the other senior Bush administration officials said they shared the lawmakers' concern "that China's currency is undervalued and that the pace of economic reform is too slow, to the detriment of American businesses and workers."
But a bill passed last week by the Senate Finance Committee and another scheduled for a vote on Wednesday in the Senate Banking Committee will not accomplish their goals of persuading China to "implement economic reforms and move more quickly to a market-determined exchange rate," the officials said.
Instead, those bills "would substantially weaken the position of the United States in our ongoing efforts to achieve essential economic reforms in China and around the world, while jeopardizing our rapidly growing exports that have benefited American workers and farmers," they said.
Sen. Charles Grassley, an Iowa Republican, defended the bipartisan Finance Committee bill he helped craft with Committee Chairman Max Baucus, a Montana Democrat, Sen. Charles Schumer, a New York Democrat, and Sen. Lindsey Graham, a South Carolina Republican.
"China's progress on currency modernization has been glacial. It's good to continue the dialogue, but we can't rely on it exclusively. Also, the Finance Committee bill isn't a China bill. It's not directed at any single country. It's a much-needed overhaul of our current law, which dates to 1988. And its been drafted to comply with our WTO obligations," Grassley said.
"I look forward to seeing currency exchange rate legislation passed this Congress," Grassley added.
Paulson, Schwab and Gutierrez argued the best way to pressure China to revalue its currency was through intensive dialogue, "coupled with appropriate reliance on WTO litigation and WTO-consistent trade remedies under U.S. law." The Bush administration has employed all those tools and is beginning to get results, "although more is needed and at a faster pace," they said.
Certain provisions of both bills "appear to raise serious concerns under international trade remedies rules and could invite WTO-sanctioned retaliation against U.S. goods and services," they warned.