China-U.S. Currency Feud Draws Senators to Beijing

RENEE MONTAGNE, host:

Three U.S. Senators visiting Beijing are threatening China with heavy import tariffs unless the Chinese government revalues its currency. Democrat Charles Schumer of New York, Republicans Lindsey Graham of South Carolina, and Tom Coburn of Oklahoma are on a fact-finding mission. Depending on what they find, they could put the tariffs to a vote in Congress before the end of the month.

NPR's Anthony Kuhn joins us from Beijing. Let's just start with what does it mean to revalue the currency? Why would that be important?

ANTHONY KUHN reporting:

Well, what the senators are arguing is that China is unfairly manipulating its currency, and undervaluing it by 40 percent. And what they're saying is that this has cost their states thousands of jobs, and led to a $202 billion trade deficit with China. So they want to see the value of the Chinese currency, the U.N. or the [unintelligible] appreciate against the dollar.

MONTAGNE: So that's what the senators want from the Chinese. But, you know, how are they talking to them?

KUHN: Well, if China refuses to allow significant revalution of its currency, they would table this Schumer/Graham China Free Trade Bill, which would slap an across the board 27.5 percent tariff on all imports from China. And they claim that they now have enough votes to pass the bill, and also to override any presidential veto that might come up.

MONTAGNE: I gather you have some tape from what Senator Graham said about this?

KUHN: Yes, that's right. Senator Graham said today that they wanted to see China adhere to global trade rules, and this is what he said about it.

Senator LINDSEY GRAHAM (Republican, South Carolina): The best way, I believe, to have stability to bring about real reform is to adopt rules where everyone will play the same. If you want instability, you have one group doing it this way, another group doing it that way. So, my goal is to sell the idea that stability is best achieved when all the countries play by the same rules.

MONTAGNE: Now, that's what Senator Graham is saying over there in China. But in the U.S., the Bush administration is against imposing import tariffs. So how likely is it that anything is going to happen?

KUHN: Well, the Treasury Department and the Federal Reserve have indicated opposition to these bills. There are many economists in the states who fear that if this bill passes, China could retaliate. It could trigger a trade war, and that could send the dollar into a downward spiral. Other people are concerned that it would cause China to unload its huge holding of U.S. Treasury bonds, and that could cause U.S. interest rates to soar.

Many people just feel that this is about posturing for a U.S. audience, and to address the problem of job losses in the states, which is not entirely China's fault.

MONTAGNE: And just back to China where you are, what's the Chinese position? I guess, what, no? We don't like tariffs?

KUHN: That's right. They're saying that they will allow flexibility for their currency, but not a huge revaluation all at once. They say they have to reform their banking and foreign exchange systems so it can handle the risks of fluctuation of their currency. And there's also resentment at what they feel is hectoring and preaching by the U.S. side. They say, you know, it's not our fault that the U.S. is unable to save and invest more. And so, they feel that they will just move towards this at their own place.

MONTAGNE: Anthony, thanks very much.

KUHN: Thank you.

MONTAGNE: NPR's Anthony Kuhn speaking from Beijing. Transcript provided by NPR, Copyright NPR.