Reuters reports that presidential candidate Barack Obama is saying China’s trillion dollar surplus is “directly related to its manipulation of its currency’s value” in a letter written to the U.S. National Council of Textile Organizations published Wednesday. This statement directly contradicts the Bush Administration, which has refused to label China as a “currency manipulator”.
Obama calls for China to change its current policies to rely less on exports and more on domestic growth, saying he “will use all diplomatic means at my disposal to induce China to make these changes.”
The exchange rate of the yuan to the US dollar is a hot issue, because many believe Beijing purposely undervalue the currency to boost exports and discourage imports. While the Bush Administration has successfully pressured China for years to increase the value of the yuan, it refused calling China a “currency manipulator” because of possible World Trade Organization repercussions.
Republican presidential candidate John McCain had not responded to the questionnaire sent on October 1st to both candidates.
In 2007, the U.S. trade deficit with China reached $256.2 billion, including U.S. imports of more than $30 billion in clothing and textiles. Textile producers in the U.S have pressured the Bush administration for a program to guard against an “import surge” when current quotas end.
China responded to the comments by saying the “exchange rate is not the cause of the trade deficit” but did not give further comment.
Foreign Ministry spokeswoman Jiang Yu said the yuan exchange rate is not the case of the U.S trade deficit and that she, “hope(s) that the U.S. can expand its exports to China and reduce barriers for trade and investment. We believe this will help the U.S. reduce its trade deficit.”
Obama claims that the result of this “currency manipulation” is “a large imbalance that is not good for the United States, not good for the global economy and likely to create problems in China itself.”
Jiang did not give any comment on who China would favor in the upcoming presidential election.
Meanwhile, in the Economist’s recent article, China moves to centre stage, claims that China is “in no rush to act”.
While China is enjoying the attention it’s trillion dollar reserves garner, it is “resisting the tempation to swagger in its dealings with American.”
A Chinese newspaper made claims recently that America should give up its control over the International Monetary Fund (IMF) in return for China helping the current crisis. The government has not made that claim, however, China would like to see an end to the American de facto veto power in the IMF. Currently, the IMF has a report “examining whether China has been manipulating its exchange rate for the sake of trade advantage.”