Washington Post (Sept. 1, 2010)

U.S. trade decision avoids clash over China's currency

By Howard Schneider

The Commerce Department on Tuesday sidestepped a clash with China over that country's currency policies, ruling that the value placed on the yuan could not be considered a direct subsidy to Chinese exporters.

Ruling in a case brought by U.S. aluminum makers and workers, the Commerce Department agreed that China improperly subsidizes factories that produce window frames, car parts and other aluminum products, and proposed duties of more than $500 million per year to offset that government support.

But the companies and unions that brought the case had raised a larger issue - that their Chinese competitors should be taxed even more because the government in Beijing purposely keeps the value of the national currency cheap on world markets, giving its exporters an unfair price advantage. Manufacturers of glossy-coated paper made a similar argument in a separate case.

The Tuesday decision is preliminary and could be changed. But it nevertheless sends a strong signal that U.S. trade rules won't be used to intervene in the currency issue, which is currently handled as a top-level diplomatic discussion between the two nations.

Commerce officials said they were prevented from ruling on the currency dispute because under U.S. law, export subsidies need to clearly target a particular company or industry - as opposed to the broad nature of Chinese currency policy.

Subsidies must "be specific to the enterprise or industries being investigated," Ronald K. Lorentzen, deputy assistant Commerce secretary for import administration, said in a written statement, while China's currency policy applies nationwide and is not shaped to favor different industries.

The decision could add momentum to legislation pending on Capitol Hill that would impose duties on Chinese products because of currency policies that keep the yuan substantially below its market value.

The United States has separate laws to discourage countries from manipulating their currency to gain a trade advantage. However the Treasury Department has been hesitant to characterize China's policies too harshly and has preferred to try to handle the matter through diplomatic negotiations. Chinese officials in June said they would allow the value of the yuan to float more freely on world markets, but since then it has been allowed to appreciate less than 1 percent.

Some economists estimate the currency is undervalued by as much as 40 percent.

The Obama administration is "still managing to ignore the elephant in the room," Sen. Charles E. Schumer (D-N.Y.) said in an e-mailed response to the Commerce Department decision. "Even when the opportunity is thrust into its hands the administration has refused to take action."

Schumer has sponsored legislation meant to toughen U.S. policy toward China's currency management.

Chinese officials dispute the notion that their currency is manipulated to promote exports, or that changing the value of the yuan, also known as the renminbi, would appreciably lower the mammoth U.S. trade deficit with China.

In an interview published on Tuesday in the Wall Street Journal, Hu Xiaolian, deputy governor of the People's Bank of China, said "the yuan doesn't have a key role to play in rebalancing bilateral trade between the U.S. and China . . . I don't think excessive argument and criticism on this issue will help."