WASHINGTON - The Obama administration decided Thursday not to name China as a country that is manipulating its currency to gain unfair trade advantages.
The Treasury Department said it has "serious concerns" about a lack of flexibility in the value of China's currency against other currencies and that country's rapid accumulation of foreign exchange reserves including U.S. dollars.
The latest finding is certain to spark protests among American manufacturers who contend that China is keeping its currency at artificially low levels against the dollar to gain unfair trade advantages. The critics say the weak Chinese currency has resulted in lost U.S. jobs.
The decision came in a report the Treasury is required to submit to Congress twice a year. Based on a 1988 law, the administration must designate countries judged to be manipulating their currencies to boost their exports to the United States or make U.S. products more expensive in overseas markets.
If China had been designated as a currency manipulator, it would have triggered negotiations between the two countries and could have led to economic sanctions if the United States had taken a case before the World Trade Organization.
China was cited in previous reports from May 1992 through July 1994 during the administrations of Presidents George H.W. Bush and Bill Clinton. Those negotiations produced no major results, and no country has been cited since 1994.
Treasury Secretaries John Snow and Henry Paulson, both of whom served under President George W. Bush, also sought to increase pressure on China to allow its currency to rise in value against the dollar. However, the Bush administration refrained from designating China as a manipulator.
President Barack Obama promised during his campaign for the White House last year to take a tougher position against China on trade issues. But in April and the current report, the administration said China's actions did not meet the legal requirements to be named a currency manipulator.
Obama decided in September to impose punitive tariffs on Chinese tire exports, agreeing to demands of U.S. manufacturers and their unions that a flood of cheap Chinese tires was costing U.S. manufacturing jobs.
American manufacturers contend that China's currency is undervalued by 20 to 40 per cent against the dollar, giving the country a huge trade advantage. An undervalued Chinese currency means that Chinese products are cheaper for U.S. consumers and American products cost more in the Chinese market.
The U.S. trade deficit with China totals $143.7 billion through August, the largest imbalance with any country. Still, the figure is running 15.1 per cent below the corresponding period in 2008, a decline attributed to a recession that has depressed consumer demand.
U.S. manufacturers say China has stopped allowing its currency, known as the renminbi, to appreciate in value against the dollar as the global recession has cut into China's trade surpluses.
"Both the rigidity of the renminbi and the reacceleration of reserve accumulation are serious concerns which should be corrected to help ensure a stronger, more balanced global economy consistent with the G20 framework," according to the Treasury report.
Obama and other leaders of the G20 major industrial countries and emerging economies pledged at a meeting in Pittsburgh, Pennsylvania, last month to develop a program to attack worrisome global imbalances, including America's huge trade deficits and soaring budget imbalances and China's large trade surpluses.
The finance ministers of the G20 countries are scheduled to meet in Scotland next month to discuss ways to accomplish the goals of reducing global imbalances.
