Obama says China must stop manipulating currency

WASHINGTON (Reuters) - China’s huge trade surplus with the United States is “directly related to its manipulation of its currency’s value,” Democratic presidential candidate Barack Obama said in a letter released on Wednesday.

The blunt statement from the frontrunner heading into next week’s U.S. election follows years of Bush administration refusal to label China as a currency manipulator.

It came in a letter to a U.S. textile group concerned about a surge in clothing imports from China when quotas negotiated by the Bush administration expire at the end of the year.

“China must change its policies, including its foreign exchange policies, so that it relies less on exports and more on domestic demand for its growth,” Obama said in a letter to the National Council of Textile Organizations.

“That is why I have said I will use all diplomatic means at my disposal to induce China to make these changes,” Obama said in response to a questionnaire from the group.

He promised to beef up U.S. enforcement efforts against unfair trade practices and increase resources at the U.S. Trade Representative’s office “devoted to this mission.”

China’s exchange rate with the United States is a hot-button issue for many textile and other U.S. manufacturers, who believe Beijing deliberately undervalues its currency to boost exports and discourage imports.

The Bush administration has pressured China for years to raise the value of its currency, with some success.

But it has steadfastly refused to formally declare China a currency manipulator, which would open the door to other steps to pressure Beijing, including a possible complaint to the World Trade Organization.

The textile group said Republican presidential candidate John McCain had not yet responded to a six-point questionnaire sent to both candidates on Oct. 1. It promised to publish a McCain response as soon as it received one.

The U.S. trade deficit with China hit a record $256.2 billion in 2007. That included U.S. imports of more than $30 billion worth of clothing and other textile goods.

U.S. textile producers have asked the Bush administration to establish a monitoring program to guard against an import surge from China when quotas end, but have so far been rebuffed.

Obama promised, if elected, to monitor textile imports from China to make sure they do not violate “applicable laws and treaties.” He also pledged support for the Berry amendment, which requires the U.S. Defense Department to only buy textiles made in the United States.

And he signaled his willingness to consider imposing emergency safeguard restrictions on imports of Chinese goods using a trade mechanism known as Section 421.

As Democrats seek to expand their current majority in Congress, textile trade has been an issue in races for the House of Representatives and Senate in North Carolina, a major textile-producing state.

Sen. Elizabeth Dole, a North Carolina Republican, is facing a tough challenge for reelection from Democratic state Sen. Kay Hagan, who has run ads criticizing Dole for supporting Bush administration trade deals.

U.S. Trade Representative Susan Schwab came to Dole’s aid last week by threatening to bring a WTO case against Chinese textile subsidies unless Beijing ended the programs.

Reporting by Doug Palmer, editing by Todd Eastham