WASHINGTON - US Treasury Secretary Henry Paulson and other top Bush
administration officials warned on Tuesday of risks to the US and global
economies if Congress passes legislation aimed at punishing China for its
US Treasury Secretary Henry Paulson views a reforestation
area aimed at combating the advancement of desert near Qinghai Lake in
western China July 30, 2007. [AP]
Treasury Secretary Henry Paulson, Commerce Secretary Carlos Gutierrez and US
Trade Representative Susan Schwab argued in a letter to congressional leaders
that two Senate bills could undermine the administration's efforts to get China
to address issues that have contributed to a soaring trade deficit.
"At a time when US exports are growing globally, such legislation also
exposes the United States to the risk of 'mirror legislation' abroad and could
trigger a global cycle of protectionist legislation," the
three top officials said in a joint letter to senior senators.
One senator said it was incorrect to raise the threat of retaliation by China
as a reason to oppose the legislation.
"If we manipulated our currency, then China should go after us. But we
don't," said Sen. Charles Schumer, D-N.Y.
Sen. Max Baucus, D-Mont., disputed the administration's contention that the
current system for policing misaligned currencies was working. He said his
proposal would provide the administration with "a new approach, new tools and
new incentives" to crack down on nations that were undervaluing their
"We recognize that many Americans are concerned that China's currency is
undervalued and that the pace of economic reform is too slow, to the detriment
of American businesses and workers. We share this concern," the Bush officials
said. "However, these bills will not accomplish our shared goal of persuading
China to implement economic reforms and move more quickly to a market-determined
Paulson was scheduled to meet Chinese President Hu Jintao in Beijing on
Wednesday as he wraps up a three-day trip designed to defuse congressional
demands for sanctions against China. The administration hopes to show that China
is moving more quickly to implement reforms as part of an effort to narrow last
year's $233 billion trade deficit with China, the largest ever recorded with a
The Senate Banking Committee is scheduled Wednesday to take up legislation
sponsored by Committee Chairman Christopher Dodd, D-Conn., and Sen. Richard
Shelby of Alabama, the top Republican on the panel.
Last week, the Senate Finance Committee approved by a 20-1 vote a measure
sponsored by the leaders of that panel that would propose various punishments
for countries with a "fundamentally misaligned currency."
The penalties in the Finance Committee bill, sponsored by Baucus and Charles
Grassley, R-Iowa, would include using the amount that the currency is
undervalued to determine tariffs imposed in cases where countries are found to
be selling products in the US market at below fair value.
The Finance measure is also sponsored by Schumer and Lindsey Graham, R-S.C.,
who last year were pushing a more draconian bill that would have imposed 27.5
percent tariffs on all Chinese imports if China did not move more quickly to
revalue its currency.
American manufacturers contend the Chinese currency is undervalued by as much
as 40 percent, giving that country a tremendous competitive advantage against US
The administration officials argued in their letter that the best approach
for success was through continued use of the strategic economic dialogue which
requires the two countries to hold two meetings a year to discuss economic
issues. These high-level talks started last year in Beijing with the second
session held in Washington in May.
"The best way to achieve results in through continued intensive dialogue and
engagement with China bilaterally and through multilateral institutions," the
three officials said.
Certain provisions of both Senate committee bills "appear to raise serious
concerns under international trade remedies rules and could invite
WTO-sanctioned retaliation against US goods and services," they