By Ian Swanson - 06/24/10 12:28 AM EDT
The White House has pressed Sen. Charles Schumer (D-N.Y.) not to offer his China currency legislation as a floor amendment, where it would almost certainly be approved, according to two sources.
White House Chief of Staff Rahm Emanuel is one of several figures in the administration to have contacted Schumer to pressure him to hold back.
Schumer on Wednesday said he and other senators will move forward with legislation meant to pressure China to strengthen its currency, which would raise the price of its exports and could take pressure off the growing U.S.-China trade deficit.
The administration is desperate to prevent floor action on Chinese currency legislation, since a successful vote would be a setback to U.S.-China relations.
Schumer’s measure could lead to higher tariffs on Chinese imports by allowing currency manipulation to be considered when assessing anti-subsidy duties.
But the administration wants to keep the currency issue from distracting the U.S. and China from other bilateral issues. Treasury Secretary Tim Geithner put off a report on currency manipulation this spring to give China more time to respond to U.S. pressure. After that decision, China supported U.S.-led sanctions against Iran at the United Nations Security Council.
China announced this weekend it would allow more flexibility for its currency value — a move intended to keep the currency issue from dominating this weekend’s G-20 meeting.
The problem for China and the Obama administration is that patience is wearing thin on Capitol Hill, given a trade deficit that stood at $40 billion in April alone.
Schumer on Wednesday complained that China, in the face of domestic pressure, had already backtracked from its Saturday statement on its currency.
After gaining .42 percent on the dollar on Monday, the Chinese yuan has lost value for two consecutive days.
“They took back half the gains on Tuesday that they had allowed to occur on Monday,” Schumer said at a Senate Finance Committee hearing. “So they take a step forward, and then a step back. It’s the same pattern we have seen for years. Nothing ever changes unless we force the Chinese to act.”
Schumer and other senators grilled U.S. Trade Representative Ron Kirk and Commerce Secretary Gary Locke on a host of trade issues with China. On the other side of the Capitol, House Democrats held a press conference to call on the administration and Congress to increase pressure on China on the currency issue.
“The Chinese will keep treating us like they have us on a yo-yo unless we make a serious push for our legislation,” said Schumer, who promised he and his allies would do so shortly.
Worries that China’s economy is overtaking the U.S. are contributing to the fears in Congress. A report this week by IHS Global Insight said the U.S. would lose its position as the world’s biggest manufacturing nation to China in 2011. The U.S. has been No. 1 for 110 years.
A separate survey by the Alliance for American Manufacturing found more people in the U.S. think China has a stronger economy than the U.S., according to Scott Paul, the group’s executive director.
Stocks initially jumped on Monday as traders interpreted China’s announcement as a vote of confidence in the global economic recovery. As Wall Street began to see the move as more of a political game, stocks fell back.
“The bottom line is, this may be more political than action,” said Douglas Roberts, the founder and chief investment strategist for ChannelCapitalResearch.com. “They did it because of political pressure.”
Such moves won’t come close to satisfying Schumer and other lawmakers, since economists have estimated the Chinese currency is undervalued by between 25 and 40 percent.
The question for the administration, according to Paul, will be how many lawmakers agree with it that China should be given more time.
J. Taylor Rushing and Richard Barry contributed reporting to this story.