China policy

Yuanimpressed

China’s adjustment of its currency is too small and slow for many

Washington, DC

Schumer is not going to shut up

CHINA might have hoped for better. The decision at last to suspend its exchange-rate peg to the dollar bought the Chinese government little more than a moment’s peace with its largest trading partner. Ominously, Charles Schumer, a Democratic senator from New York, is still busily pressing ahead with legislation designed to force China into a significant revaluation.

Mr Schumer has sought congressional action against Chinese trade policies since 2004. But with unemployment still near 10% and little change in the dollar-yuan rate since 2008, his strategy has attracted growing support. The senator introduced a new measure, with bipartisan sponsorship, in March this year. If passed, the bill would force the Treasury to issue a ruling on whether China is manipulating its currency (a determination Tim Geithner, the treasury secretary, postponed making in April). Chinese goods might then be subject to import tariffs.

China’s new exchange-rate policy has not deterred the senator, who says it will not “placate” his colleagues. He may soon offer his measure as a floor amendment to a bill with lots of support, and some reckon the chances of approval are good.

That possibility seems to make the White House nervous. Barack Obama has emphasised that the yuan must eventually appreciate. But in comments at the recent G20 summit he explained that he did not expect a rapid rise in the currency. Instead, the administration would be “paying attention over the next several months”.

The White House is pressing Mr Schumer to give China more time to revalue. A blow-up over trade and the currency could pose serious diplomatic difficulties for the administration: Mr Obama needs Chinese help to deal with Iran and North Korea. And with the global recovery in a fragile state, the world cannot afford a serious trade row.

Critics respond that with America’s economy stuck in the doldrums, China’s undervalued currency means that America is importing unemployment. They argue that the “flexibility” is mostly bluster. Since the policy was announced, the yuan has appreciated by just 0.7% against the dollar, and markets are expecting only a 2-3% rise over the whole of the next year. However, that is only a little slower than the pace at which the yuan rose at the beginning of the 2005-2008 period, over which time the currency appreciated by 20% in total. According to some analyses, a further revaluation of that size would bring the yuan close to fair value against the dollar. But with America’s trade deficit swelling towards pre-recession levels, legislators are anxious to see faster results.

Their expectations may be unrealistic. China faces its own internal battles over its currency, pitting its diplomats against its powerful export lobby, so it may have little choice but to pursue only a slow revaluation. A sudden appreciation could damage its manufacturers, doing more harm than good to the global economy. Both American and Chinese leaders are nervous about the impact of European economic troubles on their own economies.

Mr Obama may again prevail on Congress to give China more time. But American voters are frustrated and legislators are fearful. What little patience China has won may soon run out.