A senior U.S. Treasury official warned Congress on Thursday that trying to force faster China currency appreciation by legislative effort would fail and might provoke retaliation against the United States.
If the United States adopts currency legislation that is perceived abroad as unilateralist, investors' confidence in the openness of our economy could be dampened, diminishing capital inflows into the United States and potentially putting upward pressure on interest rates and prices, deputy assistant Treasury Secretary Mark Sobel said.
In prepared testimony for delivery to a U.S. House of Representatives subcommittee on trade, Sobel said a legislative drive to force faster change in China would be counterproductive and could lead to unintended adverse consequences.
Two U.S. Senate committees have approved legislation that aims to equip Treasury with new tools to pressure China into letting its yuan currency rise faster in value, which U.S. manufacturers say is necessary to eliminate an unfair price advantage for Chinese-made goods.
But Treasury Secretary Henry Paulson has made clear that he does not want the additional legislative tools and that he prefers to seek a faster pace of economic reform in China through discussion, especially in a strategic economic dialogue that he initiated with Beijing last December.
Sobel's appearance before the House subcommittee was a bid by Treasury to wave off more such legislation in Congress, where anger at China has been mounting.
We appreciate the frustrations of Congress with the slow pace of Chinese reform. Indeed, we strongly share those frustrations, Sobel said. Yet we continue to believe that direct, robust engage with China is the best means of achieving progress.