WASHINGTON President Barack Obama said on Monday that China has not done enough to raise the value of the yuan, keeping up tough American rhetoric on Chinese policy as U.S. lawmakers weigh new legislation to punish Beijing.
A bipartisan group of former cabinet officials warned Congress, however, that action against China for not letting its currency rise faster could backfire on the United States.
And Trade Representative Ron Kirk said it was not clear whether various bills in Congress to pressure China on the currency issue were legal according to World Trade Organization rules.
The yuan "is valued lower than market conditions would say it should be," Obama said, giving China an advantage in trade because it makes Chinese goods less expensive in the United States and U.S. goods more expensive in China.
"What we've said to them is you need to let your currency rise in accordance to the fact that your economy's rising, you're getting wealthier, you're exporting a lot, there should be an adjustment there based on market conditions," Obama said at a town-hall style meeting hosted by CNBC television.
"They have said yes in theory, but in fact they have not done everything that needs to be done," Obama said.
Calling for a fairer trade relationship with Beijing, Obama said Washington was bringing more actions against China before the WTO. "We are going to enforce our trade laws much more effectively than we have in the past," he said.
With the currency issue tensing relations, Obama will meet with Chinese Premier Wen Jiabao when the two attend the U.N. General Assembly in New York later this week.
U.S. Treasury Secretary Timothy Geithner said last week he will rally other world powers to push China for trade and currency reforms.
In New York, U.S. Secretary of State Hillary Clinton and Chinese Foreign Minister Yang Jiechi discussed currency issues at length during a meeting on the sidelines of the annual gathering of the U.N. General Assembly in New York.
"It was a significant part of the discussion," State Department spokesman P.J. Crowley told reporters.
"Obviously it is an important aspect of our bilateral relationship," he said. "We both understand that this is something that both substantively and politically is a vitally important element of the relationship."
Senate Banking Committee Chairman Chris Dodd said Congress would not pass a bill this year. But he said it might be possible for the White House and lawmakers to agree on the basic outlines of legislation before Obama goes to the Group of 20 nations summit in Seoul in November.
"That might help, that would not be a bad arrow to have in your quiver going into Seoul," Dodd said in an interview at the Reuters Washington Summit.
But supporters of currency legislation still hold out hope the House of Representatives will act and create pressure for the Senate to also pass a bill in the short time left before the November 2 congressional elections.
China's central bank said in June it would let the yuan fluctuate more freely. Since then it has risen 1.53 percent, but many economists say it is undervalued by up to 40 percent, making it an easy target for politicians eager to appear to be addressing high U.S. unemployment in an election year.
Impatient with diplomacy, many members of Congress are pushing for a vote on legislation to force China to act. Businessmen who compete with China, such as the steel sector, agree on the need for legislation.
But many in the broader U.S. business community are worried China could retaliate if Congress passes a popular bill to punish Beijing with punitive duties on some of its exports to the United States.
"Yes, China's exchange rate needs to reflect market influences and it needs to do so sooner rather than later," the group of eight former officials in the Clinton and Bush administrations said in a letter to congressional leaders.
"But congressional currency mandates are not the answer and may, in fact, exacerbate challenges our nation already faces in our trade relations with China and in creating economic growth and jobs here at home," the group said.
They included Susan Schwab and Carlos Gutierrez, who were U.S. Trade Representative (USTR) and Commerce Secretary under Republican President George W. Bush, and Charlene Barshefky and Mickey Kantor, who held the trade and Commerce Department slots under Democrat President Bill Clinton.
The former Cabinet officials, in their letter, said there was little doubt China would challenge such a bill at the WTO, exposing U.S. exports to possible trade retaliation if the United States lost the case.
The Obama administration has walked a fine line on the issue, agreeing China's yuan is undervalued but saying it could only support a bill that is consistent with WTO rules.
At an event in Baltimore, USTR's Ron Kirk said it was "not a clear call" whether the bills on China were consistent with WTO rules.
Even without authority to act specifically against China's "undervalued" currency, the U.S. Commerce Department in recent years has slapped duties on wide a wide range of industrial products from China it has determined are either government subsidized or unfairly priced or both.
On Tuesday, it will announce final anti-dumping and countervailing duties in a case brought by U.S. paper manufacturers against magazine-quality paper from China.
(Additional reporting by Patricia Zengerle, David Clarke and Andrew Quinn; Writing by Anthony Boadle; Editing by Philip Barbara