–Treasury Secretary Shifts Tactics With Congress On China
–Geithner Declines To Say That China Has Embraced Currency Reform
–Sen. Schumer Repeats Threat To Move Currency Bill This Summer

By John Shaw

WASHINGTON (MNI) – For reasons that are not difficult to discern,
Treasury secretaries rarely utter the words “I don’t know” when they
testify before Congress.

Neither ignorance nor uncertainty are the best impressions to
convey before Congress.

So when Treasury Secretary Tim Geithner traveled to Capitol Hill
Thursday and told the Senate Finance Committee that he was not sure if
China is committed to currency reform any time soon, his words attracted
a great deal of attention.

In response to a sharp line of questioning about China’s intentions
on currency reform from Sen. Chuck Grassley, the ranking Republican on
the Finance Committee, Geithner said in effect that he really doesn’t
know what China is up to.

“Senator Grassley, I, to be honest, do not know whether we’re at
the point now where we’ll see meaningful progress in the short term. It
is very important to us that we see that. China understands that,”
Geithner said.

“China has made it clear in public that they have decided to resume
the reform — that’s the phrase they used, reform — resume the reform
of their exchange rate policy … . But as you know, they clearly have
not decided when and where they’re going to act and they are watching
closely developments in the world economy as they make that basic
decision,” he added.

Moments later, Democratic senator Chuck Schumer scorched Chinese
economic policies as “mercantilist” and threatened to begin moving
currency legislation directed at China very soon.

Geithner made no attempt to dissuade Schumer from this.

“I think it’s very important for China to understand that your
current legislation, or the legislation that you helped create in
cooperation with Senator Stabenow and others has very broad support, not
just on your side of the aisle, but very broad bipartisan support. I
think the strength of sentiment in the Congress on this is
overwhelmingly strong. It’s bipartisan and it reflects again, how
important this is to the United States,” Geithner said.

It remains unclear precisely what Geithner’s strategy with China
is, but it seems safe to conclude that the recent Strategic and Economic
Dialogue in Beijing did not leave him fully confident that China is
preparing to move soon.

The Treasury secretary may believe that a significant ratcheting up
of congressional criticism of China’s currency policy will get the
attention of Chinese leaders in a way his private negotiations haven’t.

Geithner may also have concluded that Congress’ crowded agenda,
limited schedule and partisan divide will prevent any bill that directed
against China from becoming actually becoming law.

From Geithner’s perspective, the threat of possible legislation
from an increasingly frustrated and angry Congress might be the
inducement necessary to really get China’s attention.

Schumer and a small group of senators are now pushing a bill that
would compel Treasury to report to Congress biannually on what nations
have “fundamentally misaligned currencies” with the United States.

If those countries after having been identified by Treasury do not
address this issue within 90 days, the administration would be required
to take action through the International Monetary Fund and end federal
procurement from these nations. After 360 days, the U.S. Trade
Representative would be required to request dispute settlement
proceedings at the World Trade Organization.

The bill would also make it easier for American firms to request
import duties from the Commerce Department.

During the three hour hearing before the Finance panel, Geithner
signalled that he is very reluctant to issue another iteration of the
congressionally-mandated international economic and foreign exchange
report that fudges on the issue of currency manipulation by China.

When asked when the report — which was due on April 15 — will be
released, Geithner said only that it will occur “at that right moment.”

When pressed, he said “I haven’t decided yet,” but added that he
will “take some stock” after the G-20 meeting in Toronto is concluded.

The last time China was cited as a currency manipulator was 1994
and successive reports have danced around that designation carefully and
with varying degrees of plausibility.

** Market News International Washington Bureau: (202) 371-2121 **

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