WORLD / Wall Street Journal Exclusive

US senators press China on yuan
By JASON DEAN (Wall Street Journal)
Updated: 2006-03-22 13:06

http://online.wsj.com/public/article/0,,SB114296503445404278-suxP0EIbdmRKQKrnT7BVBlPbyog_20060328,00.html?mod=regionallinks

A group of U.S. senators ended their first day of talks in Beijing saying Chinese leaders need to understand U.S. determination to see a stronger Chinese currency. But the lawmakers left unclear exactly what China must do to avert sweeping U.S. tariff legislation.

Senators Charles Schumer, a New York Democrat; Lindsey Graham, a South Carolina Republican; and Tom Coburn, an Oklahoma Republican, held their first day of discussions in Beijing Tuesday, meeting with China's foreign minister and the deputy head of its legislature. Messrs. Schumer and Graham have proposed a bill that would impose 27.5% tariffs on all Chinese imports unless Beijing sharply revalues its currency, which the lawmakers allege is unfairly undervalued. A Senate vote on the bill is scheduled for March 31.

The senators told reporters later Tuesday that their aim is to impress on Chinese leaders the seriousness of a backlash in the U.S. against trade with China.

"Our goal is to let the Chinese government realize that the politics of this issue is about to get out of hand," Mr. Graham said. He said the senators are stressing to leaders in Beijing that "if you think the relations between our two countries are good, you're misreading the tea leaves back home [in the U.S.]. They're not good, and they're getting worse."

The Treasury Department has hinted it might label China a "currency manipulator" in a coming report, which could further exacerbate bilateral strains.

Under mounting pressure from the U.S., China in July raised the yuan's value by 2.1% against the dollar and unpegged its exchange rate from the U.S. currency. The currency has appreciated little since then, even with a relative surge in recent days. The yuan closed slightly weaker Tuesday at 8.0277 yuan to the dollar, about 3% stronger than its pre-revaluation level in July, after hitting highs in recent sessions.

Some economists predict the Chinese currency could breach the psychologically important eight yuan to the dollar ahead of a planned visit to Washington by Chinese President Hu Jintao next month. Still, that level of appreciation is far less than the amount by which U.S. critics say the Chinese currency is undervalued. Messrs. Schumer and Graham say the undervalued yuan makes Chinese goods cheaper in the U.S. and exacerbates a huge U.S. trade deficit with China, which widened 24% last year to $201.63 billion, according to U.S. data.

All three senators said they believe the tariff bill would pass both houses of Congress, with enough votes to overcome any attempt by President Bush to veto it.

The senators left open the possibility that their trip could persuade them to push back the vote on the Schumer-Graham bill or even shelve it. But it was unclear what exactly they need to hear for that to happen. "There are no magic words," Mr. Schumer said. "We have to get the feeling that they are on a path, in a reasonable period of time, to stop manipulating the currency, to let it float freely."

The senators are to meet with other senior Chinese officials, including the central bank chief and the commerce minister, Wednesday and Thursday.

The prospect that the Schumer-Graham bill, which has long been discussed, might pass has sparked concern among some U.S. economists and businesspeople. Stephen Roach, chief economist for U.S. investment bank Morgan Stanley, said he believes tariffs of the sort the senators are proposing would be a "mistake" that could prompt Beijing to cut back on purchases of U.S. Treasurys, leading to a weaker dollar and higher interest rates.

"At a time when the U.S. is more dependent on foreign capital than ever before, to impose tariffs not just on a major provider of goods, but a major lender of capital, I think would be close to economic suicide," said Mr. Roach, who also is in Beijing for a conference with Chinese officials and global executives.