China’s currency policy is the most important U.S. trade issue and raising the yuan’s value would help add 500,000 American jobs, said C. Fred Bergsten, director of the Peterson Institute for International Economics.
Most of those jobs would be in manufacturing with pay rates that would be higher than average U.S. wages, Bergsten said today in testimony to the House Ways and Means Committee. The non-partisan institute is based in Washington.
Bergsten, who said he estimates that the yuan is undervalued by 15 percent to 25 percent, outlined steps he said President Barack Obama and Congress should take to press China for a change in the yuan.
First, the U.S. should raise the issue with China at a meeting of economic leaders in South Korea in November. Second, the U.S. should ask the World Trade Organization for the ability to impose duties on imports from China unless it allows the currency to adjust, he said. Third, Treasury Secretary Timothy F. Geithner should begin calling China a currency manipulator, a designation the Obama administration has avoided. President George W. Bush also steered clear of making the determination.
Bergsten said that the U.S. should begin selling dollars and buying renminbi, as the yuan is known, to counter Chinese purchases in the opposite direction.
“The United States should counter by buying corresponding amounts of renminbi with dollars, which we can of course create without limit,” Bergsten said. “This is technically challenging, since the renminbi is not fully convertible, so our authorities will have to find and buy market proxies such as non-deliverable forward contracts for renminbi.”
If China ended its intervention in the market, it would reduce its current account surplus by as much as $500 billion a year and the U.S. global current account deficit by as much as $120 billion, he said.