Treasury weighs crucial decision on China amid political pressure

The Treasury Department is due to release a report Friday afternoon on whether China is manipulating its currency.

The bi-annual report comes amid intense pressure from Congress for the administration to declare for the first time that China is manipulating its currency to keep the value of the yuan low.

An affirmative finding would require the Obama administration to seek consultations with the Chinese on its currency.

Speculation over what the politically charged report will find is running rampant in Washington.

Some say they’ve heard definitively that Treasury will name China and several other countries as manipulating their currencies to achieve a trade advantage, while others say they’ve received assurances Treasury will again not report China as manipulating its currency. It’s also possible  Treasury could delay the report, something it did in the spring.

The House in September approved legislation that would require the Commerce Department to consider currency values when it calculates anti-subsidy duties on imports. The Senate might take up the legislation in a lame-duck session. If it becomes law, it could eventually lead to higher tariffs on Chinese imports.

There are some reasons to think the administration will find China is manipulating its currency in Friday’s report.

If Treasury finds China is manipulating its currency, it could remove any pressure for the Senate to act. Lawmakers could argue they want to give time for the consultations to succeed.

But Erin Ennis, vice president of the U.S.-China Business Council, which opposes the legislation, said it’s also possible the Senate could decide that consultations are not enough. Sen. Charles Schumer (D-N.Y.) and other supporters of legislation have argued the consultations would be unlikely to succeed and a new law would have more force in getting China to allow its currency to appreciate.

The trade deficit with China widened to $28 billion in August from $26 billion the month before. By keeping the value of its currency low compared to the dollar, China drives down the price of its exports. U.S. manufacturers and workers say this creates an unfair trade advantage for Chinese products.

China’s monetary policy has led to fears of a currency war that would lead other countries to also drive down the value of their currencies in order to compete. It is expected to top the agenda of a meeting of G-20 leaders in Seoul in November that President Obama will attend.