US Treasury Report at: <http://www.treas.gov/press/releases/reports/js2448_report.pdf>
<http://news.ft.com/cms/s/78ac227a-c700-11d9-a700-00000e2511c8.html> US sets currency deadline for China By Andrew Balls in Washington Published: May 17 2005 19:31 | Last updated: May 17 2005 19:31 The US Treasury, in its twice-yearly report to Congress on exchange rates and trade, stopped short on Tuesday of accusing China of currency manipulation but made clear it expected revaluation within six months. The conclusions sparked an angry reaction from those legislators who have lost patience with the Treasury's gentle diplomacy on China's exchange rate. The report, however, marked a clear hardening by the administration. It said: "If current trends continue without substantial alteration, China's policies will likely meet the statute's technical requirements for designation [for currency manipulation]." Seeking to cast the problem in terms of global imbalances, rather than the bilateral US-China relationship, it said: "The fixed exchange rate that China now maintains is a substantial distortion to world markets, blocking the price mechanism and impeding the adjustment of international imbalances." John Snow, US Treasury secretary, said China had made ample preparations for a shift in its currency regime, and there was no excuse for further delay. He also sought to clarify US demands, saying Washington was not calling for "an immediate full float". Instead, he said, China should take "an intermediate step that reflects underlying market conditions and allows for a smooth transition when appropriate to a full float". This step should be "substantial", a senior Treasury official later added, saying that a 5 per cent revaluation would not satisfy the US or quell rising protectionist pressures in Congress. The administration has been under pressure from Congress and US manufacturers to respond more aggressively to the trade deficit with China. Officials are alarmed at a bill put forward by Charles Schumer, a Democrat senator, that would impose heavy sanctions if China did not revalue in six months. Tuesday's report in effect sets a similar deadline, though without an overt threat of retaliation. Many China experts have suggested threats will only delay Beijing's avowed intention of changing its currency regime. Mr Schumer said: "It is clear from this report that something is wrong in our trade relationship with China, but the Treasury Department seems to be unwilling to say that." The National Association of Manufacturers said it was disappointed China had not been cited but "the language in the report is about as hard-hitting as it can be without actually citing China". Singling out China would require the administration to enter talks with Beijing over its currency peg. The Treasury pointed out it had been involved in discussions with Beijing since 2003. The US has not accused a country of currency manipulation since China was last named in 1994. The report stressed the benefits for China of allowing its currency to rise, to allow it to run policy based on domestic needs rather than an exchange rate target. Mr Snow said on Tuesday a shift in the exchange rate peg was in China's own interest to help prevent protectionist policies in the US Congress. -- "To use a vocabulary is to change it." [Robert Brandom]
