China Power

That ‘Wacky’ Treasury

Is the US govt decision not to cite China as a currency manipulator wise or wacky?

Well, as expected the US Treasury declined to name China as a currency manipulator in a regular report submitted to Congress yesterday. The report is issued every six months, and there has been growing pressure among Congressmen concerned (and those needing to appear concerned ahead of mid-term elections) about the possible impact China’s undervalued currency is having on the US economy by giving Chinese firms a supposedly unfair advantage.

The consensus appears to be that the yuan or renminbi really is undervalued, though estimates as to how much vary widely, with some arguing that it could be anywhere up to 40 percent. Under growing international pressure—and not just from the United States—China agreed late last month to allow its currency to trade more freely, but this hasn’t been enough to quell criticism among US lawmakers, many of whom argue that the move is too little too late.

ABC News reported:

‘Sen. Chuck Grassley, the ranking Republican on the Finance Committee, said, “As expected, the administration has again failed to identify China as a currency manipulator. China recently allowed a modest crawling peg of its currency exchange rates, but overall China’s currency is tightly controlled and mostly removed from market forces. So Treasury’s determination doesn’t match the facts.”’

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But it’s not just the politicians who are perplexed by the Treasury’s decision. Speaking with Bloomberg, Donald Straszheim, senior managing director for China research at International Strategy and Investment Group, called the decision ‘wacky’, questioning the logic of Washington ‘raising the bar on its own behaviour’ by effectively stating that China is innocent of currency manipulation through the first half of this year.

So what next?

US House Ways and Means Committee Chairman Sander M. Levin, a Democrat, believes the US should explore the option of suing China at the World Trade Organization. The suggestion comes following the introduction of bi-partisan legislation that would, if passed, force the Treasury to take action over China’s currency.

However, the ‘wackiness’ of the Treasury’s decision aside, Straszheim doesn’t believe filing a case with the WTO over the issue is the right way forward, arguing that such a move would ultimately harm global growth by encouraging protectionism.

‘If Washington does that, China would slap Washington back immediately,’ he reportedly said. ‘They wouldn’t sit idly by, who knows where that leads. Neither country wants to go down that road.’