Treasury Secretary John Snow, a former board member of U.S. Steel Corp., told members of the American Iron and Steel Institute (AISI) and the Steel Manufacturers Association (SMA) that "the time has come" for China to begin moving in a direction that will eventually lead to a free-floating currency for the country. But his comments fell short of satisfying manufacturers who want immediate action, either through World Trade Organization channels or congressional action, to force China to unpeg its currency from the U.S. dollar. According to Keith E. Busse, SMA chairman and president of Steel Dynamics Inc., the currency imbalance amounts to a 40% tax on U.S. goods entering China because it keeps production costs there artificially low. If the currency manipulation stopped, he continued, the U.S. trade deficit would be cut in half, and U.S. manufacturers would be able to create 5 million new jobs.
"I've long believed that the administration has ignored a longstanding problem," Busse said.
Snow explained the Bush administration's more cautious approach by saying the Chinese economy was not ready for an independent monetary policy in the past. "We didn't want to see them on a float two years ago because it would have caused a run on the banks," Snow told the two groups, which are holding a joint annual meeting for the first time. "We're working to convince them that having an independent monetary policy is in their own best interest."
Snow said the Chinese have already taken steps toward an economy that can support a floating currency by addressing problems in its banking sector and reaching out to groups such as the Chicago Mercantile Exchange to set up new equity market opportunities.
Manufacturers who think the Bush administration is moving too slowly on China currency have found simpatico with many members of Congress. Several bills have been introduced that would impose tariffs on Chinese imports and use other sanctions to offset the currency imbalance. Snow said such legislation would be more harmful than helpful and told the manufacturing executives that the Bush administration is being tough -- but also being smart by not forcing a float too soon.
"I fully expect in the next few months that we will see something, and that it will move to a floating yuan."
Snow did pointedly comment, however, that Congress is definitely losing patience with what members see as harmful unfair trade. "Congress is decidedly anti-China," he said. "The currency has become the absolute center of this."