U.S. Treasury Secretary John Snow says that even if China decides to cooperate with the United States and revalue its currency, the U.S. will still have a trade deficit with China.
Snow said, however, the overall U.S. trade deficit would narrow if the currency is revalued. Last year, the $162 billion U.S. trade deficit with China made up a fourth of the overall deficit, which was a record $618 billion.
“What we’ve indicated that the Chinese need to do is take steps … that are of such a magnitude and in such a manner that they clearly get on a path to flexibility and relieve some of the imbalances and the distortions that are currently associated with the peg,” said Snow.
The United States Treasury recently said that it would give China six months to make its currency more flexible, or it would name the country a “manipulative trading partner” in its report to congress.
China rejected this demand saying that U.S. and European curbs on its textile imports are not fair. The country said that it could not revalue its currency in a set timeframe. The Treasury then elected Snow’s counselor, Olin Wethington as a special envoy to China to step up pressure on China.
“I think that for the foreseeable future we’re going to have a trade imbalance with China. I don’t think that moving to a flexible exchange rate is going to eliminate our trade imbalance with China, but I think it would help the overall adjustment process,” Snow told the Senate Banking Committee.
Congress is becoming impatient with the way China is handling its currency, and with the U.S. Treasury for the way it has handled the situation with China in the past.
“China is now ready and should move without delay in a manner and magnitude that is sufficiently reflective of underlying market conditions,” said Snow.
American manufacturers claim that China has a big competitive advantage as it keeps its currency at 8.28 yuan per dollar. Revaluing it would make Chinese products less expensive for U.S. consumers and U.S. products more expensive for Chinese consumers.
Chris is a staff writer for Murdok. Visit Murdok for the latest ebusiness news.
