WASHINGTON, May 19 (UPI) -- While the United States continues to put pressure on China to float its currency, some in Washington are suggesting further flexing of U.S. political muscle will only cause strain to a vital trading relationship.
Over the last five days the United States has imposed four quotas on the Chinese textile industry on cotton products including men's and boy's shirts, blouses and trousers in the hopes that further restrictions on China's textile industry would push Beijing to loosen its decade-old yuan peg of 8.28 to the greenback.
"I think we need to be very, very careful about Chinese relations," Thomas Donahue, president of the U.S. Chambers of Commerce, told reporters at a news conference Thursday. "These are huge trading relations. What we need to do is resolve these issues without a lot of punitive action by the Congress."
According to Donahue, there is a political divide among members of Congress who support tightening restrictions on Chinese textiles and feel that China isn't playing by the rules set by the World Trade Organization. While he says there is some substance to the emotional reactions by constituents back home for some congressional leaders, Donahue suggests that it would be wise of Congress not to create an "overkill arrangement."
"I am encouraging that we should be evolutionary, not revolutionary," said Donahue. "We are saying to the Congress we've got to deal with China in a strong way, but in a reasonable way ... (with) enlightened self-interest."
Washington has been under extreme pressure from U.S. manufactures that claim that surging textile exports from China have created a "threat of market disruption."
"American manufacturing and its corresponding jobs will not survive without improved government programs and a concerted effort to fully enforce existing trade laws," said William J. Jones, Chairman of U.S. Business and Industry Council, before the U.S.-China Economic and Security Review Commission in New York.
"Our trade polices are not working, and small and medium-sized American manufactures are paying the price. We can survive, but not without a level playing field here at home and in export markets abroad," Jones added.
Chinese exports have been on the rise for the last six months, according to the latest report issued by the Chinese customs bureau last week. Exports rose 32 percent from last year, to $62.2 billion, while imports increased 16 percent to $57.6 billion, causing a trade surplus of $4.59 billion. Textile exports also increased 16 percent in the first four months of this year to $19.3 billion.
In an attempt to appease U.S. manufactures and take further action against the Chinese textile industry, the Senate proposed a bill that would impose a 27.5-percent import tax on Chinese textiles if China does not take action to float its currency in six months.
Another bill, co-sponsored by Sens. Chuck Schumer, D-N.Y., and Lindsey Graham, R-S.C., would amend the Exchange Rates and International Economic Policy Coordination Act of 1988 to clearly define currency manipulation in order to prevent countries from undervaluing their currency to gain export advantage.
Additionally, the bill would increase the United States' ability to take action against countries with rising trade surpluses by limiting the global account surplus requirement to only a bilateral account surplus. Currently, the U.S.-China trade deficit set a record last year at $162 billion, making it the largest trade imbalance with a single country.
Donahue called the Schumer-Graham bill "stupid," explaining that this type of congressional action against the Chinese "would not be sensible."
"I am opposed to any single company, country (taking) punitive actions. We have the WTO as a way to deal with this. There is no question that domestic politics are playing a huge tone here," said Donahue.
"I don't want to see a lot of punitive Chinese trade legislation unless we get absolutely no response from them over a reasonable period of time. It would be a mistake."
The bill was introduced in light of a recent report by the U.S. Department of Treasury released Tuesday that took a light view on the ongoing Chinese currency issue. Treasury Secretary John Snow said Chinese officials had publicly acknowledged "the need to move to a more flexible system" and that the current debate over China's currency regime was "clouded by a number of misconceptions of U.S. policy."
Snow explained that the Treasury Department was not calling for a full float of the yuan in a fully liberalized capital market, but rather was calling for an "intermediate step" before a full float.
Responding to the report, in a released statement Tuesday, Schumer said, "It is clear from this report that something is wrong in our trade relationship with China, but the Treasury Department seems to be unwilling to say that in plain English. While the report states that China's policies are 'highly distortionary,' it does not address the protracted time period that the Chinese have been engaging in this anti-free trade practice."
While congressional leaders took a harder view on the Chinese currency issue, Donahue explained that China had begun to move in the direction of floating its currency and has made some progress in stabilizing its central banks by investing $60 billion in a few major banks to clean up their non-performing loans.
"I think they are better off than they were now," said Donahue. "I think they are about ready to move on it. They've been testing it and they've been floating it a little to see where it goes."