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US Adopts Tougher Stance on China

The Obama administration is moving to take a harder stance on the Chinese government’s trade and currency policies, with anger toward China rising in both political parties ahead of midterm elections.

Treasury Secretary Timothy F. Geithner, in separate hearings before House and Senate panels, plans to acknowledge on Thursday that China has kept the value of its currency, the renminbi, artificially low to help its exports and has largely failed to improve the situation as it promised to do in June.

Tim Geithner in China
CNBC.com
Tim Geithner in China

“We are concerned, as are many of China’s trading partners, that the pace of appreciation has been too slow and the extent of appreciation too limited,” Mr. Geithner plans to say, according to excerpts of his statement released on Wednesday night by the Treasury Department.

The United States brought two cases to the World Trade Organization on Wednesday, accusing China of improperly blocking imports of a specialty steel product and denying credit card companies access to its markets. The move came just hours before House lawmakers demanded action on the currency issue.

The renminbi has risen about 1 percent against the dollarsince Beijing promised new exchange rate flexibility in June.

In his testimony, Mr. Geithner is not expected to rule out declaring China a currency manipulator, a finding that could lead to retaliatory trade measures. The administration has so far refused to take such a step, relying instead on persuasion, though with little success.

The currency issue is increasingly likely to be a focus when leaders of the Group of 20 nations meet in November in Seoul, South Korea. A bill with support from 143 House members from both parties would allow the United States to impose tariffs and other penalties on countries that undervalue their currencies.

But many economists believe that China is unlikely to yield to American pressure, and they have called on the Obama administration to do a better job of enlisting support from the European Union and Japan.

The Chinese Foreign Ministry said Thursday that the pressure from the United States would not help resolve the currency issue and could even backfire, Reuters reported.

‘‘I would point out that appreciation of the renminbi will not solve the U.S. deficit and unemployment problems,’’ a Foreign Ministry spokeswoman, Jiang Yu, said at a regularly scheduled news conference in Beijing.

The office of the United States trade representative, Ron Kirk, said the timing of the new W.T.O. cases was unrelated to the other economic tensions with China.

In one case, the United States accused China of violating world trade ruleswhen it imposed antidumping duties and countervailing duties on grain-oriented, flat-rolled electrical steel, which is used to make transformers and reactors used to generate electricity. The two largest makers of such steel are Allegheny Technologies , based in Pittsburgh, and AK Steel , based in West Chester, Ohio.

China imposed duties as high as 65 percent in April after concluding that the American manufacturers had sold the steel at less than fair value and had received improper subsidies from the United States. The Americans say the charges are false.

In the other case, the trade representative’s office accused China of illegally blocking American electronic payment companies from access to its markets, through its support of a state-financed company, China Union Pay, which has had a monopoly since 2001 over renminbi-denominated debit and credit card payments in China.

Mr. Kirk said his office was “fighting for the American jobs threatened by China’s actions, and insisting on the level playing field promised in our W.T.O. agreements.”

Leaders of the Senate Finance Committee, which oversees trade, applauded the filings. Its chairman, Senator Max Baucus, Democrat of Montana, called them “critical steps forward in our effort to enforce our market access rights in China.” The panel’s senior Republican, Senator Charles E. Grassley of Iowa, said, “It’s about time the administration decided to act.”

Mr. Grassley added: “The administration should go one step further and bring a case against China’s unfair currency manipulation at the W.T.O.”

On Wednesday, the House Ways and Means Committee began two days of hearingson China’s currency, its third set of hearings this year on the topic.

Its chairman, Representative Sander M. Levin, Democrat of Michigan, said “a multilateral approach would be the most likely to yield the broadest results.” Mr. Levin also called Japan’s move to weaken the yen, that country’s first intervention in the currency markets since 2004, “a deeply disturbing development.”

Mr. Levin said that the International Monetary Fund had little power to enforce its rules against currency manipulation, adding that the G-20 should take up the issue. But he warned that “there does not appear to be anything remotely approaching an international agreement to end predatory exchange rate policies.”

Mr. Levin urged the administration to bring a case before the W.T.O. arguing that China’s currency policy amounted to an illegal export subsidy. He said he thought the United States could impose countervailing duties against China without violating its own obligations under world trade rules.

More than 140 House members have signed onto a bill sponsored by Representatives Tim Ryan, Democrat of Ohio, and Tim Murphy, Republican of Pennsylvania, that would compel the administration to impose such duties.

The United States-China Business Council has said it believes such a move would antagonize China without yielding meaningful results, and the senior Republican on the committee, Representative Dave Camp of Michigan, expressed similar skepticism at the hearing.

Manufacturers, labor unions and politicians from the Midwest have been among the most vigorous in calling for sanctions, but there were indications on Wednesday that policy experts were increasingly in favor of tough action.

China permitted the value of the renminbi to rise about 20 to 25 percent against the dollar from 2005 to 2008, before the government reimposed a currency peg to support its export-centered economy after the global financial crisis.

C. Fred Bergsten, director of the Peterson Institute for International Economics, a leading research organization here, told House lawmakers on Wednesday that a similar increase over the next two to three years would create about 500,000 jobs. He said it would reduce China’s current account surplus by $350 billion to $500 billion, and the American current account deficit by $50 billion to $120 billion.

The United States should seek to mobilize the European Union and countries like Brazil, Russia and India to press China to realign the renminbi, and should seek W.T.O. authorization to impose restrictions on Chinese imports if it does not do so, Mr. Bergsten said.

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