Currency Move Called a Good Start

China’s revaluation of the yuan Thursday was hailed by some U.S. officials as a vindication of Bush administration pressure on Beijing to reform its currency policy, but lawmakers and analysts predicted the goodwill would dissipate if the move did not lead to bigger changes.

On Capitol Hill, lawmakers from both major parties have said Beijing’s currency policy made Chinese goods cheaper and American goods less competitive, contributing to U.S. job losses. For years, President Bush and his emissaries lobbied the Chinese government to stop pegging the yuan’s value to the dollar but resisted congressional pressure to take a tougher approach.

Officials in Washington characterized Thursday’s announcement as a significant policy shift that put China on a “glide path” toward a market-based currency.

“It’s the start of an awfully important process, a process that’s good news for China and good news for the global economy,” said Treasury Secretary John W. Snow, who headed the U.S. lobbying effort.

“This shows China’s willingness to try to cooperate and move some issues forward,” said trade attorney Mickey Kantor, who was Commerce secretary and U.S. trade representative in the Clinton administration.

“It is an important step,” Kantor said. “But it’s certainly not the only step that either China or the United States needs to take.”

Though Chinese officials did not say why they decided to revalue the yuan now, the move came amid U.S. lawmakers’ uneasiness about a bid by Chinese oil firm CNOOC Ltd. to buy El Segundo-based oil company Unocal Corp. In addition, a Pentagon report this week declared that China’s rapid arms buildup was aimed at expanding its power across Asia, not just bolstering its advantage in its long dispute with Taiwan.

After learning of the currency change, some lawmakers said they were willing to give China a chance to demonstrate its commitment to reform. But they said pressure to crack down on China would resurface soon if the revaluation did not produce lasting results and if Beijing did not address other sore spots.

“We’re looking for much more over time,” said Rep. Phil English (R-Pa.), sponsor of a pending bill that would authorize tariffs on government-subsidized imports from “nonmarket economies” such as China.

But U.S. officials acknowledged that the change would have little initial effect on the U.S. economy or put much of a dent in America’s burgeoning trade deficit with China, which reached a record $162 billion last year.

Nicholas R. Lardy, senior fellow at the Institute for International Economics, a Washington policy analysis group, predicted that the initial revaluation would have an almost imperceptible effect on the U.S. economy and trade deficit and its future effect would be determined by the Chinese government’s willingness to allow meaningful adjustments.

He said the Chinese-language statement issued with the currency announcement tried to address the concerns of the domestic audience.

In contrast to the English-language version intended for international consumption, “the emphasis is stability, stability, stability,” Lardy said. “They’re telling their domestic exporters and importers, ‘Don’t worry, there’s not going to be a big change.’ ”

Peter Morici, a University of Maryland economist and former U.S. trade official, said the administration had achieved a temporary political victory.

“The best that could happen is that things won’t get much worse now,” Morici said. “But this will come back at them again. Constituent pressure will be renewed and the president will come under heat next year.... Then we’ll be right back at it again.”

Many economists believe the yuan is significantly undervalued and would need to rise 20% or more to achieve equilibrium with other currencies. China’s initial revaluation was about 2%, although it was accompanied by a new market-based system that could let the yuan rise as much as 10% a year.

“This is a good first step, albeit a baby step,” said Sen. Charles E. Schumer (D-N.Y.). Chinese officials had, in effect, “conceded that pegging their currency is bad for China, for the world economy and for the United States,” he said.

Last month, Schumer and Sen. Lindsey Graham (R-S.C.) agreed to delay action on a bill that would have imposed a punitive 27.5% tariff on imports from China. They said Thursday that they would continue to hold off on the legislation but were prepared to revive it if it appeared China was failing to follow through on its currency policy changes.

Other lawmakers expressed similar caution and promised to keep a watchful eye on both China and the White House.

The currency change is welcome but “by no means the end of the road,” said Senate Finance Committee Chairman Charles E. Grassley (R-Iowa). He pledged to continue efforts “to persuade, and pressure if need be, the Chinese government to abide by the international rule of law in trade and economics.”

Lawmakers said it was unclear whether China’s move had improved the prospects of the Central American Free Trade Agreement, a pact that has become an important test of Bush’s ability to steer his trade agenda through Congress.