China May Retaliate for Currency Measure, U.S. Businesses Say

Timothy Geithner, U.S. treasury secretary
Timothy Geithner, U.S. treasury secretary. Photographer: Joshua Roberts/Bloomberg

China may retaliate against U.S. businesses operating in the country if Congress passes legislation intended to force a revaluation of the yuan, representatives of those companies said.

China “is looking for another bad guy” after decades of tension with Japan, Robert Roche, the chairman of the American Chamber of Commerce in Shanghai, said at a briefing in Washington yesterday. “We are going to fit that bill.”

The House of Representatives is set to consider legislation this week that would let companies petition for higher duties on imports from China to compensate for the effects of a weak yuan. Representatives of the American Chambers of Commerce in China were in Washington warning congressional aides, administration officials and lobbyists about rising commercial tensions between the nations.

The group includes representatives from the China offices of General Electric Co., Citigroup Inc. and Baxter International Inc.

“This step would make it harder for us to export to China, not easier,” Timothy Stratford, a partner in Beijing at Covington & Burling LLP and a former U.S. trade official, said of the legislation that was approved by the House Ways and Means Committee on a voice vote last week.

The U.S. trade deficit with China widened to $145 billion in the first seven months of this year, from $123 billion for the same period in 2009. The expanding deficit, unemployment lingering at almost 10 percent and polls showing Democrats’ seats at risk heading into the election added support for the currency bill, which has been discussed since 2005.

Gain Called Inadequate

The yuan has strengthened 1.9 percent against the dollar since June 19, when China’s central bank said it would pursue a more flexible exchange rate. That rate of gain is inadequate, Treasury Secretary Timothy F. Geithner told the Ways and Means Committee this month.

The Chinese leadership has already been persuaded that gradually lifting the value of the yuan is in the nation’s own interest because it will give consumers more buying power and help control inflation, Stratford said. “They are trying to figure out how to adjust over time,” he said.

That may be delayed by House passage of the measure, said Christian Murck, head of the American Chamber of Commerce in Beijing.

“In reaction to a vote in the House, they will not be able to move forward on that front because it will be seen to be giving into foreign pressure,” Murck said.

Forcing China to raise the value of its currency may create 500,000 jobs in the U.S., most in manufacturing at above-average wages, according to C. Fred Bergsten, director of the Peterson Institute for International Economics in Washington. China’s currency, which is undervalued by as much as 25 percent, is the most important trade issue facing the U.S., he said in testimony last week.

The legislation is H.R. 2378 and S. 3134.

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