U.S. Rejects Petition to Punish China on Currency

The Bush administration on Thursday rejected a petition by organized labor and the steel and textile industries seeking to punish China for allegedly manipulating its currency to gain unfair trade advantages.

The rejection, quickly criticized by Democratic presidential candidate Sen. John F. Kerry as the “wrong direction” for U.S. trade policy, stepped up the political fighting between Kerry and President Bush over their contrasting policies on U.S.-China economic tensions.

The petition also marked a growing split within the business community over U.S.-China policies, because some trade groups supported the action while others denounced it.

Filed under Section 301 of the 1974 Trade Act, the petition asked the Bush administration to pursue a case in the World Trade Organization alleging that China unfairly subsidizes its exports by undervaluing its currency by as much as 40%. A cheaper currency makes Chinese products less expensive in foreign markets. If the U.S. won that case, it could levy steep penalties on Chinese exports.

The petition, filed Thursday morning with the U.S. Trade Representative’s office, was rejected within hours. The Bush administration had warned critics in April that it would not pursue a global trade complaint, arguing that the Chinese were taking steps to move toward a more flexible monetary policy under pressure from the U.S.

Richard Mills, spokesman for the U.S. Trade Representative’s office, said the petition proposed a “reckless” act of “economic isolationism” that would jeopardize U.S. jobs.

Asked whether he thought the petition’s timing was driven by election-year politics, Mills answered: “People can judge for themselves the political motivation behind a petition filed less than 60 days before the election.”

The petition was also criticized by one of its original supporters, the National Assn. of Manufacturers, which accused its former allies of taking a “counterproductive step” that would anger China and undermine the Bush administration’s diplomatic efforts.

NAM was a founder of the Fair Currency Alliance, which has been a vocal critic of Chinese currency policies. Some alliance members, including the American Forest & Paper Assn. and the Assn. for Manufacturing Technology, stuck with NAM, arguing that the Bush administration was making progress.

But other alliance members, including the American Iron and Steel Institute and the American Textile Machinery Assn., defected. They joined with the AFL-CIO and formed a new group, the China Currency Coalition, to file the petition.

In a statement issued Thursday by his campaign, Kerry criticized the Bush administration for “refusing to enforce our trade agreements and continuing to allow China to manipulate its currency. As president, I would take America in the right direction -- acting vigorously to end China’s illegal currency manipulation.”

Thea Lee, director of international trade for the AFL-CIO and an advisor to the Kerry campaign, said the coalition wanted to force the Bush administration to demonstrate “what kind of action they see as appropriate to address this dramatic competitive disadvantage” created by China’s currency policies.

There is a debate within economic circles over whether China’s currency, pegged to the U.S. dollar, should be revalued -- and whether that would be good for China and the world.

Although China runs a large trade surplus with the U.S., it imports huge amounts of raw materials and components and has become one of the fastest-growing markets for U.S. high-tech goods, cotton and farm items.

The rancor over China’s currency practices also highlights an increasingly partisan divide within the U.S. business community over the presidential election and U.S. trade policies.