Treasury Dept. Fails To Cite China As A Currency Manipulator

Textile lobbyists have reacted sharply to the US Treasury Department’s decision not to label
China a currency manipulator. The administration opted instead to continue informal discussions on
what is viewed by textiles and other industries as a serious currency undervaluation.

In a semiannual report mandated by Congress, the Treasury Department said there is not
sufficient evidence that China is manipulating its currency in order to gain an unfair advantage in
international trade. The report did note, “[F]ar too little progress has been made in introducing a
flexible exchange rate.” The sticking point is that in order to label China a currency manipulator,
subject to actions by the US government, it must be determined there is an intent to gain an
advantage. The report said the technical requirements for China to be designated a manipulator
under US law have not been met.

The report said that in July 2005, China abandoned its eight-year peg to the dollar and moved to
a managed floating exchange regime. Since that time, China’s currency, the renminbi, has
appreciated 2.6 percent against the dollar. US textile trade officials contend that current
exchange rate amounts to as much as a 40-percent subsidy for China’s imports. Despite the
discrepancy and a surging US trade deficit with China, the report says China continues to take
steps to create market infrastructure and financial instruments for floating currency. It adds that
China’s commitment to move to a flexible exchange rate is clear and has been repeated at the
highest levels of the Chinese leadership.

Textile industry representatives in Washington and congressional supporters sharply attacked the

Charging that the US government kowtows to China, the American Manufacturing Trade Action
Coalition (AMTAC), which represents a wide range of manufacturers including textiles and labor,
said, “[D]ialogue with China is not enough; the US industry needs action now.”

 AMTAC Executive Director Auggie Tantillo stated: “The US trade deficit with China was $202
billion in 2005, and the US manufacturing sector has lost more than 2.8 million jobs since the
beginning of 2001. Rome is burning. How much longer will the US government fiddle while the US
industry bleeds?”

Rep. Robin Hayes, R-N.C., challenged the conclusions of the report and cited what he called the
devastating effect the exchange rate problem has had on the domestic textile industry. In a letter
to Treasury Secretary John W. Snow, Hayes said, “I wholeheartedly disagree with this report, and I
can tell you on behalf of the constituents of the 8th District of North Carolina and manufacturers
across the nation we want action against China now.”

Cass Johnson, president of the National Council of Textile Organizations, said China has shown
it won’t do anything until the US government shows there are consequences, and he called for
Congress to enact legislation that would levy punitive sanctions on China. Sens. Charles E.
Schumer, D-N.Y., and Lindsey O. Graham, R-S.C., have introduced legislation that would levy a
27.5-percent duty on China’s imports unless it reforms its currency. Although Schumer says he is
unhappy with the Treasury Department report, he is willing to postpone a vote on the bill until
September. There also is legislation in the House that would enable US industries to take punitive
actions against China. That bill has more than 150 cosponsors, but action is not expected in the
near future.

On May 15, the Bank of China permitted a slight increase in China’s currency against the dollar
in a move that Treasury Department officials say is evidence that diplomacy can work.

May 1, 2006