President Barack Obama’s administration faces a deadline on Friday on whether to formally declare for the first time that China manipulates its currency, following an election-year vote in Congress to get tough with Beijing.
The House of Representatives last month passed a measure directed at China that would allow the United States to apply duties on job-threatening imports from countries with fundamentally undervalued currencies.
U.S. voters go to the polls for a congressional election on November 2 that is widely viewed as a referendum on Obama’s handling of the economy and some politicians have made China’s currency policy a campaign issue.
An International Monetary Fund meeting in Washington last weekend failed to defuse tensions between China and some developed countries, including the United States, that are pressing Beijing to allow the yuan to appreciate.
Under U.S. law, the Treasury Department must issue a report every six months on currency practices of major trading partners.
Since it took office in January 2009, the Obama administration has declined to label China a currency manipulator, though many economists believe the yuan is undervalued by as much as 25 percent to 40 percent.
The currency stalemate is one of a number of issues vexing the U.S.-China relationship, including U.S. arms sales to Taiwan, Chinese trade practices and efforts to rein in North Korea’s nuclear program.
“When large economies with undervalued currencies act to keep the currency from appreciating, that encourages other countries to do the same,” U.S. Treasury Secretary Timothy Geithner said last week at the Brookings Institution, a Washington think tank.
“The main problem today is you have a set of emerging economies that both remain undervalued and are leaning heavily against appreciation,” Geithner said, adding that “China will be less likely to move to allow its currency to rise more rapidly” unless it is confident other countries will follow.
Given that statement, it is hard to believe that Geithner would not cite China for currency manipulation in Friday’s report, said Fred Bergsten, president of the Peterson Institute for International Economics think tank.
But it is probably more likely Geithner would delay the report until after the election, Bergsten said.
“Delaying the report is the path of least resistance once again. Because if he puts out the report in the teeth of this election, in the teeth of the House bill … how can he not (declare China a manipulator)? How can he not? To me, it’s almost inconceivable,” Bergsten said.
