China Will Resist Pressure On Currency Issue

President Barack Obama has weighed in on unfair international trade practices, saying they cannot
be used to give other countries government-subsidized trade advantages. At a meeting with the
Senate Democratic Policy Committee, the president said, “We must get much tougher about enforcement
of existing trade rules, putting constant pressure on China and other countries to open their
markets in reciprocal ways.”

Obama specifically mentioned currency manipulation, saying, “One of the challenges that we’ve
got to get much tougher about is currency rates and how they match up to make sure that our goods
are not artificially inflated and their goods are not artificially deflated in price.” He said such
actions place the United States at “a huge competitive disadvantage.”

The Chinese government quickly responded with government spokesperson Ma Zhaoxu saying China
does not seek a trade surplus with the United States and that “wrongful accusations and pressure
will not help solve the issue.” He went on to say that even if the currency’s value rises, it is
China’s “own business and China will not appreciate the yuan in accordance with the U.S. demand.”
An economist with the Ministry of Commerce said that even if China’s exchange rate is revalued,
U.S. importers would look to other low-cost countries for their products.

A number of economists and U.S. manufacturers estimate that the yuan is undervalued by 25 to
40 percent against the dollar and other currencies. This makes China’s exports cheaper and imports
more expensive.

At a Senate hearing following Obama’s comments, Sen. Charles Grassley, R-Iowa, the ranking
Republican member of the Senate Finance Committee, urged the Obama administration to label China a
currency manipulator, a step the administration has been reluctant to take, opting instead to rely
on diplomatic negotiations. Saying he has given the administration the “benefit of the doubt on
diplomatic efforts, but so far that has not produced any results,” Grassley said it is time to
label China a currency manipulator and impose U.S. trade law remedies.

“This Administration can cite China as currency manipulator,” Grassley said. “Secretary of
the Treasury [Timothy] Geithner already acknowledged as much during his confirmation proceedings.
Maybe that will get China’s attention and lead to a more level playing field.”

With Congress and the administration embarked on a mission to create more jobs at home, the
Chinese trade deficit and the currency manipulation increasingly could become priority issues.

February 9, 2010