Why Bush Won't Bash China

Treasury Secretary Snow will likely tell the Senate that Beijing is making progress toward a more flexible currency system

By Rich Miller

When it comes to the domestic economy, President Bush's major political weakness has been the millions of manufacturing jobs lost under his watch. That's why it's surprising and politically risky, as the Presidential election season approaches, that the Administration has all but decided against citing China, Japan, and other Asian nations under U.S. trade laws for manipulation of their currencies, Washington insiders tell BusinessWeek.

The decision, which is due to be announced on Oct. 30 by Treasury Secretary John Snow, is sure to prompt a furor on Capitol Hill, where Democratic and Republican lawmakers alike have accused China of stealing American jobs by keeping its currency artificially low to boost exports.


  In eagerly awaited testimony to the Senate Banking Committee, Snow is expected to argue that the Administration has made progress in its efforts to coax China to move toward a more flexible exchange-rate regime. In recent weeks, Beijing has taken a number of steps to liberalize foreign-exchange regulations for foreign companies and Chinese residents traveling abroad. It has also agreed to set up a bilateral panel of experts with the U.S. to advise it on how to move more rapidly toward a floating exchange-rate system.

The Administration recognizes that China can't move overnight to dismantle its rigid currency system -- which pegs the yuan at 8.3 to the dollar -- without severely damaging its banks and causing havoc to its economy. That's the last thing the fledgling world economic recovery needs, the Bush team thinks.

The apparent decision not to cite China for manipulating its currency to gain trade advantage doesn't mean the Administration is giving Beijing a free pass. Just this week, U.S. Commerce Secretary Donald Evans was in the Chinese capital warning the country's leaders that the U.S. will "vigorously enforce" its trade laws if Beijing fails to move faster to open its markets to imports and foreign competition.


  That's unlikely to assuage China's increasingly vocal critics on Capitol Hill, some of whom have introduced legislation to slap big tariffs on the country's exports to the U.S. if it doesn't deal with the currency problem. With the U.S. running a trade deficit with China in excess of $100 billion, bashing Beijing is all the rage Inside the Beltway and in the key manufacturing states of the Midwest that are crucial to Bush's reelection next November.

By opting not to single out China in its currency report, the Bush Administration seems, at least for now, to be putting policy above politics on a critical issue for the world economy.

Miller is a senior writer in BusinessWeek's Washington bureau

Edited by Beth Belton

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