U.S. manufacturers view upcoming talks as critical for China to speed its currency changes and help reduce soaring U.S. trade deficits deficits. The...
WASHINGTON — U.S. manufacturers view upcoming talks as critical for China to speed its currency changes and help reduce soaring U.S. trade deficits. The big question is whether the Chinese see the meetings in the same way.
The Bush administration is fielding its top economic team for the meetings Sunday and Monday in Beijing; Treasury Secretary John Snow leads the delegation, backed by Federal Reserve Chairman Alan Greenspan.
Greenspan’s presence has raised hopes among U.S. manufacturers that what could have been just a routine consultative meeting of the U.S.-China Joint Economic Commission will produce more tangible results in the area of most concern — currency values.
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“I am hopeful. I think the stars are aligned on this,” said Frank Vargo, vice president for international affairs at the National Association of Manufacturers. “The Chinese have stuck their little toe in the water and it didn’t freeze off. I think the time is right for them to take the next step.”
The first step occurred July 21 when China announced that it was breaking a decadelong fixed link between the Chinese yuan and the U.S. dollar.
China said it would instead link the yuan to a market basket of currencies of its major trading partners and would allow the yuan to move in relationship to the dollar by as much as 0.3 percent per day.
As a first move, the Chinese revalued the yuan upward by 2.1 percent. That change on its own would not have made a dent in the U.S. trade deficit, which hit $162 billion last year, an all-time high for any country, and is expected to approach $200 billion this year.
Optimists hoped for greater moves in the weeks and months to come. But it has not played out that way with the yuan little changed since its July move.
U.S. manufacturers contend that the yuan is undervalued by as much as 40 percent. That makes Chinese goods cheaper in the United States and U.S. products more expensive in China and is a major reason for the trade gap, manufacturers believe.
Congress has reacted to the gap with calls for more forceful action. One measure with widespread support would impose 27.5 percent tariffs on all Chinese imports unless Beijing takes more steps to allow its currency to rise in value against the dollar.
The administration is hoping that the prospect of across-the-board tariffs will prompt China to allow greater appreciation of the yuan. Also hanging over the Chinese is an upcoming report, required by Congress twice a year, in which the administration must cite any countries it believes are manipulating their currencies to gain unfair trade advantages.
Treasury Department officials said they will miss Saturday’s deadline for submitting the report to Congress. Instead, they said, it will be submitted in early November to allow the Treasury time to incorporate what it learns from the discussions in Beijing plus fact-finding trips Snow will make to the Shanghai stock exchange and Chengdu, one of China’s major industrial centers.
The Chinese have said little about their bargaining position before the Snow trip. But Zhou Xiaochuan, the head of China’s central bank, said recently that the country should re-examine the value of its currency in light of the soaring trade surplus.