Industries Criticize Administration’s Chinese Currency Stance

Washington lobbyists for manufacturing industries, including textiles, have sharply criticized the
Obama administration’s failure to cite China as a currency manipulator. Although Treasury Secretary
Timothy Geithner said during his Senate confirmation hearing that “countries like China cannot
continue getting a free pass for undermining free trade principles” with such actions as currency
manipulation, he said in his semi-annual report to Congress on International Economic and Exchange
Rate Policies that China has taken steps to enhance exchange rate flexibility that preclude citing
it for currency manipulation at this time.

The Treasury secretary cited a number of considerations in making the decision. He said the
Chinese currency appreciated by 16.6 percent between the end of June 2008 and the end of February
2009, and as the worldwide economic crises developed, China’s currency appreciated slightly against
the dollar while other emerging-market currencies fell sharply against the dollar. In addition, he
said China has enacted a large fiscal stimulus package – second in size to that of the United
States – which he believes should spur domestic growth in China and balance the Chinese economy.

Geithner said, “Chinese officials reaffirmed in January 2009 their commitment to greater
flexibility and the need to allow the exchange rate to adopt to an equilibrium level.” He added,
however, that Treasury continues the view that China’s yuan is undervalued and said the progress
made to date is “only the beginning” of a series of steps China needs to take in order to rebalance
its economy, so its economic growth is more dependent on domestic consumption.”

US manufacturers, who see China’s undervalued currency as a major contributor to the US/China
trade deficit, saw the development in an entirely different light.

Anderson Warlick, chairman of the National Council of Textile Organizations, said: “We are
disappointed that the administration did not send a strong signal that the Chinese trade model is
unsustainable by labeling China as a currency manipulator.” Warlick claimed that China’s ability to
produce “enormous trade surpluses to achieve economic growth” is a significant factor behind the
global economic and financial crisis. He urged Congress and the administration to make the trade
imbalance a “top priority on the road to restoring our country’s economic health.”

Alan Tolenson, a research fellow at the 1,900-member United States Business and Industry
Council, said the report breaks a major commitment President Barack Obama made during the
presidential campaign last year when he promised to fight the Chinese exchange rate problem by
endorsing a currency regulation bill that was pending in Congress. That bill would have labeled
currency manipulation by any country an illegal subsidy subject to countervailing duties under US
trade laws.

Charging that Chinese currency manipulation is “the most protectionist trade distorting and
mercantilist practice of the G-20 nations,” Scott Paul, executive director of the Alliance For
American Manufacturing, said the United States must lead the way toward ensuring that China honors
its commitment to abide by the rules of the World Trade Organization. He said his organization’s
members have been confident President Obama will address trade reforms but added that “this report
represents a step back from that path.”

April 21, 2009