Treasury Chief Sees Chinese Currency Manipulation

At his confirmation hearing January 22, Secretary of the Treasury Timothy F. Geithner said
President Barack Obama believes China is manipulating its currency and that he will aggressively
use all diplomatic avenues open to him to correct the problem. Geithner’s comments signaled a much
stronger approach to addressing what textile manufacturers and others see as a major subsidy for
Chinese exports.

While the Bush administration had expressed its concerns about Chinese currency, it took a
much softer line in its approach to the problem, insisting that diplomacy was the better way to go.

About the time Geithner made his comments, the American Federation of Labor – Congress of
Industrial Organizations issued its recommendations for new approaches to a number of trade issues,
including currency manipulation, as it called for “cracking down on the Chinese government’s unfair
trade practices.” Kevin L. Kearns,  president of the US Business and Industrial Council, said
Geithner’s comments were a “welcome step forward,” adding that they send a clear signal to Congress
to send President Obama a strong currency manipulation bill during the first 100 days of his term
in office.

Legislation branding currency manipulation as an unfair trade practice that could be
addressed by US trade sanction laws was introduced in both houses of Congress last year, but it got
nowhere in the face of a threatened veto by then-President George W. Bush. That legislation would
have used US trade remedy laws, such as countervailing duties, to counteract a trade advantage
stemming from an undervalued Chinese yuan. This type of legislation in one form or another is
expected to be given new life under the new Obama administration and Congress.

January 27, 2009