David R. Francis

China's yuan will rise someday. US should push for now.

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"The jig is up," says Charles Blum, executive director of the Fair Currency Coalition, a group of 46 American industry associations, unions, and companies striving to get China to boost the value of its currency.

Maybe he's right.

Two days after this writer spoke with Mr. Blum, China's central bank chief, Zhou Xiaochuan, startled the world by saying his nation eventually will move away from its current exchange rate policy.

American officials have been urging China for years to revalue the yuan upward against the dollar, thereby making Chinese imported goods more expensive and US goods more competitive. Last fall when President Obama met with Chinese President Hu Jintao, reportedly half the time was spent on the currency dispute.

So far, though, the Chinese still control the value of their currency at an exchange rate that Blum maintains amounts to a 30 to 40 percent unfair subsidy of China's exports.

This is not a mere technical issue. The undervalued renminbi, or yuan, is undercutting the American economic recovery, argues Blum.

Mr. Zhou cautioned that Beijing may not let the yuan appreciate as fast as many nations desire.

Blum doesn't have much faith that talk will persuade China to act against what it sees as its national interest in providing export-related jobs for tens of millions of peasants moving off farms.

"You can't negotiate [with China] without leverage," he says. "You need to have a tool." His favored tool is legislation now before Congress, the Currency Reform for Fair Trade Act. It would open the door for the United States to impose immediately countervailing duties on various Chinese imports subsidized by currency manipulation. Such duties are sometimes a real threat, more than 20 percent.

The bill now has eight sponsors in the Senate and 79 in the House, obviously not majorities. But Blum notes that midterm elections are coming in the fall. He recently warned legislators in a blog that action would save American jobs, "maybe your own."

Opposing such action are corporations with subsidiaries or other business interests in China.

From 2002 to 2009, the US ran a cumulative trade deficit of almost $1.6 trillion with China. China's share of the total US trade deficit amounted to 45 percent last year.

Under a 1988 law, the US Treasury Department must report semiannually whether any countries are manipulating their currencies to gain a competitive trade advantage. The US hasn't blown this whistle on any country since July 1994.

The next report is due by April 15. But Blum says the law is toothless. It only requires negotiations. It has no deadline for taking action.

Meanwhile, China has launched antidumping cases against US exports that could lead it to issue duties of its own.

Some economists fear China might dump some of the $700-plus billion of Treasury bills it has piled up over the years in its international reserves because of its huge international trade surplus. That would push up interest rates on US government debt at a time of huge budget deficits.

Blum calls this worry a "red herring," since China would thereby clobber the value of its own huge dollar holdings. He notes that many more than 100 nations have US Treasuries in their international reserves. The biggest foreign owner of Treasuries is a group of Arab oil-exporting nations. Japan owns more than China.

Further, China needs the US as a friend, and vice versa, Blum notes.

•David R. Francis writes a weekly column.

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