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back to index backASIAtalk December,  2005


China Update: Currency - Something Old, Something New

This week the Bush Administration took a long-expected step: it did NOT cite China in its biannual report on foreign exchange regimes as a country that manipulates the value of its currency in order to gain a trade advantage. But, instead of sticking to the tough rhetoric on China the U.S. used in its May report, the administration took a surprisingly conciliatory tone this week.

The big surprise to many people was that the Bush Administration said it would continue to trust that China would eventually bring flexibility to its exchange rate regime. Here's the kicker: officials talked about trusting China even after admitting that they have no idea whether China has lived up to its July announcement that it would take key steps in this direction. In fact, the administration's report said the available evidence "strongly suggests" that China did not unpeg the renminbi from the dollar in July, despite China's announcement that it had.

The acknowledgement that the U.S. isn't quite sure what China is up to, in combination with the decision not to cite China as a manipulator, floored many of the people and industry groups who have been pressing the U.S. to cite China, which would lead to more formal talks between the U.S. and China on currency. As of this week, many were scrambling to think up new ways to put pressure on the U.S. on this issue… stay tuned for more in the coming weeks.

In other news, the administration is feeling more pressure from U.S. textile producers, who want to make sure China lives by the bilateral textile deal reached in early November. Now that quotas are in place, industry groups want to make sure China doesn't send goods through other countries in an effort to exceed those quotas. As a start, they want a slew of new textile enforcement agents hired, something the government has been promising for the last year.

And finally, China hit back this week by telling U.S. officials that any decision to impose trade restrictions on Chinese steel pipe could lead to a WTO challenge against the United States. But given the administration's stance on currency, many are predicting that the U.S. will avoid putting this trade safeguard in place in order to avoid creating yet another source of friction.

Source: World Trade Online's Newsstand - GAI


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