Chen Says U.S.-China Trade Gap Not Caused by Currency

China’s Commerce Minister Chen Deming said his country’s trade surplus with the U.S. is being caused by American export controls and shifts in the global production chain, not by an undervalued Chinese yuan.

While foreign exchange can have an impact on a nation’s overall trade balance, “it is not something to do with currency” if the gap is just between two countries, Chen told reporters in Washington. China’s trade surplus with the U.S. made up “99 percent” of the Asian nation’s overall surplus of $183.1 billion last year, he said.

“Both sides need to sit down and discuss specific barriers to trade,” said Chen, who is accompanying President Hu Jintao on his state visit to the U.S.

In addition to U.S. export controls on military gear and some high-technology products, Chen said the trade gap is a result of a shift in global production in which China imports components from countries such as South Korea and Japan for final assembly and shipping.

The U.S. imposed an arms embargo on China following the 1989 crackdown on protesters in Beijing’s Tiananmen Square and limits some “dual-use” technology exports which could have military applications.

Currency Friction

Hu’s visit is taking place amid continued tensions between the two nations over the value of the yuan. U.S. officials and lawmakers say China’s currency is undervalued, contributing to lost jobs and the trade deficit. The U.S. trade gap with China reached a record $28 billion in August, according to the Census Bureau.

“The RMB is undervalued,” Obama said during a joint press conference with Hu today at the White House, using an acronym for the currency, which is also called the renminbi. “The Chinese government has intervened very forcefully in the currency markets -- they’ve spent $200 billion just recently, and that’s an indication of the degree to which it is undervalued.”

China is shifting its growth model to focus more on consumption, boosting demand for imported goods. Today the Obama administration of announced a package of export deals to China worth $45 billion. That included a $19 billion purchase of 200 Boeing Co. aircraft which were previously announced orders.

Rising Chinese Exports

China reported a less-than-forecast $13.1 billion trade surplus for December, the smallest since April. Exports rose 17.9 percent to $154.2 billion from a year earlier and imports climbed 25.6 percent to $141.1 billion.

The yuan reached a 17-year high today in Shanghai before the White House ceremony, rising to 6.5817 per dollar before closing little changed at 6.5824, according to the China Foreign Exchange Trade system.

Chen also defended China’s decision to cut export quotas for rare earths, metals used in products including hybrid cars and windmills. He said other countries needed to avoid the “blame game” and step up their own production. China is responsible for about 90 percent of worldwide production of rare earths while having only about 30 percent of the world’s reserves, Chen said.