Bush’s economics team assails China legislation

President Bush’s economic team Tuesday harshly criticized two Senate bills with broad bipartisan support that charge China with manipulating its currency to gain a trade advantage over the United States.

The criticism is contained in a letter to Senate Majority Leader Harry Reid (D-Nev.), Finance panel Chairman Max Baucus (D-Mont.) and ranking member Chuck Grassley (R-Iowa) and Banking panel Chairman Chris Dodd (D-Conn.) and ranking member Richard Shelby (R-Ala.).

{mosads}The letter’s contents were made public on the eve of a Senate Banking Committee markup of legislation that would make it easier for the Treasury to reach a finding that China is manipulating its currency.  

In the letter, Treasury Secretary Henry Paulson and two other Cabinet members say the Senate bills under consideration are counterproductive and risk “broad trade disruption” with China and other countries. They also charge that the bills could undermine market confidence, could violate international trade rules and are not in the best interests of America.

The best way to achieve results with China is “through continued direct, robust engagement with China’s senior leaders,” said the July 30 letter, also signed by U.S. Trade Representative Susan Schwab and Commerce Secretary Carlos Gutierrez.

The letter marks the first time Paulson has publicly criticized both the Finance and Banking bills in detail. He is in China this week and has said he would bring up the need for China to make its currency more flexible.

In response to the letter, Grassley said the current dialogue isn’t working and can’t be relied upon exclusively. “China’s progress on currency modernization has been glacial,” he said.

Critics argue that China keeps its currency artificially low to keep its goods cheap internationally and drive up its exports. Complaints have picked up momentum as America’s trade deficit with China has ballooned, particularly since China joined the World Trade Organization.

Members of Congress have grown increasingly impatient with the Bush administration’s position that it will deal with Chinese currency issues through diplomatic dialogue. They have also been frustrated that the Treasury has not found China guilty of manipulating its currency.

“I think there’s a real good chance something will pass this year,” said one business lobbyist who is not supporting either Senate bill. “It’s a hard year not to vote for a China bill.”

Last week, the Senate Finance Committee voted 20-1 to approve a bill that would also make it easier for Treasury to reach such a determination. The Finance bill, which is co-sponsored by Democratic presidential candidates Sens. Hillary Rodham Clinton (N.Y.) and Barack Obama (Ill.), illustrating its attraction as a political issue, could also allow higher anti-dumping duties to be imposed on imports from a country found to have a misaligned currency.

Maria Cantwell (D-Wash.) was the only senator from either party who voted against the Finance bill. She echoed the administration letter, calling the bill counterproductive.

One complication for the Senate is the bickering that has taken place between Finance and Banking, which both seek jurisdiction on currency. Dodd and Shelby sent a letter to Finance leaders expressing their concern that Finance was marking up a bill that they said fell under Banking’s jurisdiction.

Senators from both committees have previously insisted they will find a way forward. Sen. Charles Schumer (D-N.Y.), a co-sponsor of the Finance bill who sits on both committees, last week said the important thing was to get a bill out that would be approved by the Congress.

The House is also expected to attack China on trade issues, and the Ways and Means trade subcommittee has scheduled a hearing Thursday on legislation affecting trade with China.

 Groups representing labor and small manufacturers have been pressing for action on China, and favor legislation that would impose higher countervailing duties on imports from countries found to manipulate their currencies.

U.S. multinationals oppose legislation on China’s currency, and the conservative Club for Growth is running a full-page ad in The Wall Street Journal decrying protectionist legislation on China.

The Club for Growth has scheduled a press conference for Thursday to protest what it describes as a rising protectionist sentiment in Congress. Ways and Means ranking member Jim McCrery (R-La.) and former House Majority Leader Dick Armey (R-Texas) are among those scheduled to appear.