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.