The Bush administration warned China today that its currency policies were “highly distortionary” to world trade and implicitly threatened to retaliate if Chinese leaders did not change course within the next year.
In language far harsher than any it has used before, the Treasury Department declared that China’s fixed exchange rate between its yuan and the dollar posed a risk to itself as well as to global growth.
But the administration stopped just short of accusing China of outright currency manipulation, a move that would have immediately started a process of direct negotiations with Chinese leaders and the possibility of retaliation if those talks failed.