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U.S. Senate Committee on Banking, Housing, and Urban Affairs
May 19, 2006 - Wall Street Journal - WASHINGTON -- The Bush administration took a beating on Capitol Hill for its decision not to ratchet up pressure on China over its currency policies.

Lawmakers from both parties accused Treasury Secretary John Snow yesterday of going soft on China at a time, they alleged, when Beijing's practice of keeping the yuan weak against the dollar is costing American factory workers their jobs.

"Are we going to stop shaking the saber and stand up and fight for American businesses and American workers?" Sen. Debbie Stabenow (D., Mich.) asked Mr. Snow at a hearing of the Senate Committee on Banking, Housing and Urban Affairs.

In particular, the senators lined up to condemn Mr. Snow's decision this month not to formally accuse China of manipulating the yuan to gain a competitive edge in international trade. Instead, the Treasury's semiannual report on global currencies, while urging China to allow the yuan to rise further and faster against the dollar, said the administration couldn't conclude that Beijing's currency policies were motivated by a desire to boost exports.

"To say China is not manipulating its currency defies all logic, defies all common sense," Sen. Richard Shelby (R., Ala.), the committee chairman, told Mr. Snow.

The yuan has strengthened only about 3% against the dollar since the mid-1990s, and several senators alleged that the currency's weakness has contributed to the $202 billion U.S. trade deficit with China.

Mr. Snow tried to assure the senators that the administration is dissatisfied with the steps China has taken so far to relax its grip on the yuan. But he also argued that a more subtle approach would likely get more action from China. He cited several technical steps China has taken to free up its foreign-exchange markets, such as allowing foreign financial-services companies more access to the Chinese market.

"I don't think they respond well to threats," Mr. Snow said. "I do think this quiet diplomacy is having some benefits."

Threats, however, were very much on the minds of the senators. Congress is considering several bills aimed at punishing China for its currency practices, including one bipartisan measure -- vigorously opposed by the administration -- that would impose 27.5% tariffs on all Chinese products coming into the U.S.

"You can veto the bill, but we can sure as heck pass one that requires China to fall in line," said Sen. Jim Bunning (R., Ky.).

Mr. Snow recognized the growing unease among lawmakers. "Sentiment is pretty strong to do something against China," he said. "The writing is on the wall, and China needs to act. And if they don't act, it heightens the odds of legislation" retaliating against Beijing.
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