Two U.S. senators who are sponsoring a law that would punish China for restricting its exchange rate vowed on Friday to continue their campaign until Beijing takes concrete steps to loosen its currency controls. Senators Lindsey Graham of South Carolina and Charles Schumer of New York said they hadn't decided on whether to continue pushing a bill that would impose 27.5 percent tariffs on Chinese imports if the currency dispute is not settled.
But both said they expected China to take steps to allow the yuan to strengthen against the dollar. Many U.S. manufacturers and politicians say the yuan is undervalued by up to 40 percent, giving Chinese exports an unfair trade advantage and contributing to the United States' record US$202 billion (euro167 billion) trade deficit with China last year.
"We are not going to give up until we see that plan" from the Chinese government, Schumer said at a news conference in Shanghai . The senators met earlier in the week with top Chinese officials, including central bank Gov. Zhou Xiaochuan, Commerce Minister Bo Xilai, and Vice Premier Wu Yi, a former trade negotiator.
Graham described their trip to China as "fruitful and productive," and Schumer said he was confident that Chinese officials recognized the need for currency reform. The Senate faces a March 31 deadline to vote on Graham and Schumer's bill, and the senators said they would meet with U.S. officials and other congressman over the coming days before deciding on whether to bring it to a vote.
"The jury's out. We're going to make a decision next week, we're not saying yes, we're not saying no," Schumer, a Democrat, said. The bill has drawn strong support from both parties and Schumer said up to 67 of the Senate's 100 members have indicated they would vote for it. The law calls for the new tariffs to be imposed two years after passage, allowing plenty of time for further negotiations.
Graham, a Republican, said the senators hoped Chinese action would head off the need for a vote, but said pressure for China to act would remain regardless of the outcome in the Senate. "The status quo is off the table and hopefully imposing tariffs will eventually be off the table, but we're not there yet," Graham said.
China revalued the yuan last July, raising its value by 2.1 percent and cutting its link with the U.S. dollar, allowing it trade instead against a basket of currencies. Since then, however, the yuan has appreciated only about 1 percent against the dollar which U.S. critics say is far to small. Under the new system, the yuan is allowed to move 0.3 percent in either direction each day, but tight government control over trading has restricted the yuan's daily movement.
Chinese leaders say they plan eventually to let the yuan trade freely on world markets, but doing so immediately would cause financial turmoil and damage the Chinese economy. However, Graham said he still wasn't convinced that last year's limited steps were part of a longer reform process, saying the 3 percent change in the yuan's value "is not fixing the problem."
"My question is, are the changes that we're seeing, are they a result of the Chinese government trying to get by with the least amount possible to maintain its advantage?" said Graham, whose state has lost thousands of textile jobs in recent years due to intense Chinese competition. Both senators acknowledged the harshness of their bill, but said it was intended mainly to attract attention to the problem and prod China into action.
"We understand that our bill is tough, tough medicine," Graham said. "Our goal is to find a middle ground." Schumer said American business leaders he met in China had been dubious about the law's effects, but were generally supportive of the need for reform.
He and Graham said economists they had consulted were unanimous in saying that the yuan should be floated, but said they recognized that doing so too quickly would cause problems due to China's weak banks. Reforms should "do the least amount of damage as possible," Graham said.
Graham and Schumer said they didn't want to impose a timeline or dictate other terms of reforms, saying China should gradually introduce those measures it considers most prudent. "Six months would be unrealistic, ten years would be too long. There are some obvious things here," Schumer said, adding of a reform plan: "Basically, I think you'll know it when you see it", reports the AP.
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