Chinese Currency Stirs Debate in U.S. Congress

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U.S. lawmakers are looking for ways to make China keep its pledge to re-value its currency. Some U.S. manufacturers say China undervalues the yuan by as much as 40 percent, giving Chinese exports a big advantage in the market. But Congress has decided to delay a vote on taxing Chinese goods.


China's President Hu Jintao arrives in the U.S. tomorrow for a tour that includes a visit to Seattle and then on to the White House Thursday for talks with President Bush. This will be Hu's first trip to Washington since he became president of China in 2002, and it comes during a strain in U.S.-Chinese relations caused by a huge trade surplus.

Two influential senators have delayed a consideration in Congress of a measure that could have imposed a Draconian tariff on Chinese exports to the U.S. American manufactures have long complained that China competes unfairly by undervaluing its currency and making its products artificially cheap in the U.S.

NPR's Corey Flintoff reports.

COREY FLINTOFF: New York and South Carolina are among the states reporting the loss of hundreds of thousands of jobs because their factories couldn't compete with a flood of cheap Chinese imports. Last year, Senator Lindsey Graham, a South Carolina Republican, and Charles Schumer, a New York Democrat, introduced a bill that would have slapped Chinese goods with a 27.5 percent tariff if China didn't make a serious effort to revalue its currency, the yuan. That bill was scheduled to come up for a vote last month. But after making a trip to China, Graham and Schumer announced that they were delaying action. Senator Schumer.

CHARLES SCHUMER: We do believe that the Chinese see the fact that manipulating their currency cannot continue, and we believe that they see it in the interests of their country to gradually let the yuan float.

FLINTOFF: Pat Mears directs International Commercial Affairs at the National Association of Manufacturers. She says China's currency is greatly undervalued.

PAT MEARS: Most estimates of the undervaluation start at 15 to 20 percent and go up as high as 40 or 45 percent.

FLINTOFF: Although China announced a system for revaluing its currency last year, Meares said it has only allowed the yuan to rise by a little more than three percent.

MEARS: We're not there at all yet. The mechanism they put in place last July could be a very effective one. It allows it to appreciate gradually each day. The key is they need to use it.

FLINTOFF: Senator Schumer says Chinese officials see the need to increase consumption by their own people, especially rural Chinese who feel they have been left out of the country's rising prosperity. A rise in the yuan would make American and other foreign goods cheaper for Chinese consumers. Schumer's partner in the legislation, Senator Lindsey Graham, says he is still wary of China's intentions.

LINDSEY GRAHAM: For me to abandon the idea of imposing tariffs, I have to be convinced that the Chinese have abandoned the idea of getting an unfair trade advantage through manipulating the currency. After my visit, I am optimistic they are moving in that direction. But the jury is still out.

FLINTOFF: Schumer and Graham say they're willing to delay a vote on their bill until September while they see whether China is acting in good faith. Shortly before the two made their announcement, another pair of Senate veterans introduced a bill with the same aim but different penalties. Senate Finance Chair Charles Grassley, an Iowa Republican, and Senator Max Baucus, a Montana Democrat, say their bill would focus on any country that manipulates its currency. It wouldn't raise tariffs, but it would punish unfair traders by cutting off international loans and insurance for their projects.

Corey Flintoff, NPR News, Washington.

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