U.S. Treasury Secretary Timothy F. Geithner said Thursday that China must take "significant, sustained" steps to increase the value of its currency.
The Obama administration's tougher rhetoric comes as critics pressure Congress to pass legislation that would punish China for artificially keeping its currency low, something they say has cost millions of American workers their jobs.
The sponsors of the Currency Reform for Fair Trade Act -- Rep. Tim Murphy, R-Upper St. Clair, and Tim Ryan, D-Ohio -- say China has kept its currency 25 percent to 40 percent weaker against the dollar by manipulating it rather than letting market forces determine its value. The devalued currency makes Chinese imports cheap for U.S. consumers, fueling massive U.S. trade deficits and costing almost 2.5 million U.S. jobs, the bill's supporters say.
Two days of House hearings on the legislation ended Thursday. The proposal has the backing of labor unions, steel producers and small businesses. Two local supporters, Universal Electric of Cecil and Penn United Technologies of Cabot, are scheduled to join Mr. Murphy at a rally today at Universal Electric urging the House to put the proposal to a vote.
"America cannot keep relying on more empty promises from China -- not when 15 million Americans are out of work," Mr. Murphy said.
The bill would punish countries that use exchange rates as a trade weapon. As politically popular as that sounds at a moment when U.S. voters who are suffering through the most severe recession in decades are going to the polls, some say the measure, if passed, would be counterproductive.
"This is a blunt instrument that is probably not going to accomplish its goals," said Dennis Unkovic, a Pittsburgh attorney who advises clients on doing business in China.
Mr. Unkovic said that while the ratio between the U.S. dollar and China's renminbi has contributed to the decline of U.S. manufacturing, "It's not the major reason in my opinion."
He said China could retaliate in a number of ways, including selling enough of the roughly $800 billion in U.S. Treasury debt it holds to put upward pressure on interest rates.
"That would have a direct effect on the U.S. economy," Mr. Unkovic said.
Keeping China's renminbi weak relative to the U.S. dollar makes Chinese imports less expensive for U.S. consumers and makes U.S. products more expensive for Chinese consumers. Realigning the currencies would promote U.S. exports, but it would also make Chinese products more expensive for American consumers.
"Is that a good thing in a recession?" Mr. Unkovic asked.
Proponents says currency manipulation is only one trade weapon China unfairly uses to promote exports at the expense of U.S. workers.
Last week, the United Steelworkers union asked U.S. Trade Representative Ron Kirk to file a trade complaint against China over the "protectionist and predatory practices" that are unfair to U.S. companies competing against the Chinese renewable energy industry. The practices include export restrictions, local content provisions and technology transfer requirements.
"We are in a trade war and we are losing," USW President Leo W. Gerard said in testimony prepared for Wednesday's House Ways and Means Committee hearing on the currency reform bill.
Mr. Gerard said forcing China to revalue its currency would reduce the U.S. trade deficit between $100 billion and $150 billion per year, and add 750,000 to 1 million American jobs.
Nucor chairman, president and CEO Dan DiMicco told committee members the legislation "will do more to stimulate the economy and create jobs than just about anything else Congress can do."
"This is a jobs bill, pure and simple," the steel executive said in prepared testimony.
Critics say the legislation could provoke countermeasures by China's currency hardliners who want an export-based economy and alienate Chinese officials who realize that letting the value of the nation's currency increase would benefit Chinese consumers. Some say it won't shrink the deficit or create as many American jobs as its proponents advertise.
John Frisbie, president of the US-China Business Council, told the House panel that imports of low-end tires from China fell 26 percent after the Obama administration slapped double-digit duties on them last year. But overall tire imports have increased 21 percent since then as suppliers from Mexico, Japan, South Korea and other nations filled the void, he testified.
The claim that China's currency manipulation cost millions of American jobs "is based on the faulty premise that everything we import from China would be made in the United States otherwise," Mr. Frisbie testified. "That's clearly an erroneous assumption."
To date, the Obama administration has relied on diplomacy to pressure China into increasing the value of its currency. Debate over the currency reform legislation is part of the jawboning process U.S. negotiators have used with China, said Duquesne University finance professor James Burnham. He cautioned against doing something that would escalate into a trade war.
"There is a whole set of relationships with them that you want to take into consideration when moving against them on any one front," Dr. Burnham said.
In prepared remarks for his appearance Thursday before the Senate Committee on Banking, Housing and Urban Affairs, Mr. Geithner said China had not done enough to let the value of its currency rise.
"It is past time for China to move," he said. "The pace of appreciation has been too slow and the extent of appreciation too limited."
While Mr. Geithner's remarks may encourage supporters of the proposal, Terrence Guay, who teaches international business at Penn State, believes that the White House will stick with its strategy of negotiating.
"The rhetoric can increase, but I would really be surprised if the Obama administration signed on to this bill," he said.
Len Boselovic: firstname.lastname@example.org or 412-263-1941.