US Report Criticizes China's Currency Policy

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The Obama administration said Wednesday that China's currency remains "significantly undervalued," but it stopped short of citing China or any other country for unfairly manipulating its currency to gain trade advantages.

[by Martin Crutsinger | October 15, 2014 | AP Economics Writer

In a new report by the Treasury Department, the administration did warn China and other countries running trade surpluses such as Germany and South Korea that they need to step up efforts to boost domestic growth to support a weak global recovery.

The Treasury report warned Beijing that it needs to stop intervening so frequently in currency markets and allow its currency to rise in value against the dollar. U.S. manufacturers contend the renminbi is undervalued by as much as 40 percent and is a significant reason for America's large trade deficit with the world's second-biggest economy.

A weaker renminbi versus the dollar means that Chinese goods are cheaper for U.S. consumers and American products are more expensive in China.

American manufacturers expressed disappointment with the decision not to cite China or Japan, two countries they claim are violating trade rules by managing their currency to gain trade advantages.

Scott Paul, president of the Alliance for American Manufacturing, said that the Chinese renminbi and the Japanese yen "are clearly undervalued and manipulated and this disparity in exchange rates is one of the largest impediments to real and meaningful growth in U.S. manufacturing jobs."

China began intervening in currency markets in February to lower the value of its currency against the dollar. Between mid-February and April, the renminbi fell in value by 3.1 percent against the dollar. It has partially recovered since late April but remains lower in value by 1.4 percent over the first nine months of this year after having risen 2.9 percent in 2013.

"China should allow the market to play a greater role in determining the exchange rate," the report said, saying the currency needs to appreciate further against the dollar.

On Europe, the report said that policies in the 18 nations that use the euro currency have resulted in persistently weak growth since the 2008 financial crisis. Unemployment is far too high, and inflation is running far below the target of around 2 percent set by the European Central Bank, the report said.

It urged surplus countries in Europe — a reference to Germany — to do more to stimulate domestic demand and give a boost to growth in that region.

The report was also critical of currency intervention conducted by South Korea, which has given that country a huge trade surplus. The Treasury report said South Korea needs to pursue policies that will boost domestic growth and stop relying so much on large trade surpluses.

The report, which Treasury is required by law to issue twice a year, did not point to any nation for currency manipulation. Such a designation would have triggered negotiations and could lead to trade sanctions imposed by the United States. The last time the administration cited a country for manipulating its currency in the report was China in 1994.

Since then, successive administrations have preferred diplomatic avenues over direct confrontation to urge China to change its currency policies.

The criticisms in the report echoed comments Treasury Secretary Jacob Lew made last week during global finance meetings in Washington. In a speech before the policy panel of the International Monetary Fund, Lew noted the recent downgrade in global growth prospects and urged surplus nations in Europe, China and Japan to pursue policies that would jump-start growth.

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