President Obama and Mitt Romney both talked tough on trade relations with China during Monday’s debate. But they sparred over how best to get China’s currency more in line with the U.S. dollar.
U.S. officials have complained for years that China was keeping its currency, the renminbi, too low relative to the dollar in order to make Chinese goods less expensive for U.S. consumers. Some in Congress have pushed the Treasury Department to formally declare China a currency manipulator, which would trigger negotiations with Beijing over the issue.
If those talks failed, the U.S. could institute trade sanctions against China. During the 2008 campaign, Obama said he would “use all diplomatic means” to deal with China’s currency.
But under Obama, the Treasury Department has not formally labeled China a currency manipulator, a designation the United States has not placed on the country since 1994.
PHOTOS: Memorable presidential debate moments
Romney on Monday said that, if elected president, he would designate China as a currency manipulator on his first day in office.
“I’ve watched year in and year out as companies have shut down and people have lost their jobs because China has not played by the same rules. In part, by holding down artificially the value of their currency, it holds down the prices of their goods,” Romney said. “It means our goods aren’t as competitive, and we lose jobs. That’s got to end. They’re making some progress. They need to make more.”
Some leading business groups, including the U.S. Chamber of Commerce and the U.S.-China Business Council, have said they oppose such a designation because of fear it could trigger a trade war and hurt the U.S. economy.
“Both presidential candidates have said they will ‘get tough’ on China, but evidence has shown that the best way to make progress is through comprehensive engagement and legal actions — not political rhetoric,” John Frisbie, president of the U.S.-China Business Council said Monday night.
Romney said Monday night that there’s a trade war with China right now, in part because of its artificially low currency.
DEBATE QUIZ: Who said it?
“It’s a silent one and they’re winning,” he said.
The Obama administration has opted for less formal pressure, which the president said Monday has been working.
Under pressure from the United States, the value of China’s currency has been rising. In 2005, China began letting the renminbi adjust, but with limits that meant it was not a true floating exchange rate.
The currency rose about 18.7% until mid-2008, when China halted the policy because of declining global demand caused by the Great Recession. In June 2010, China resumed allowing its currency to float, with the same limits.
By May of this year, the currency had risen about 8% against the dollar. At that time, citing the progress, the Treasury Department again declined in its annual report to label China a currency manipulator. But Treasury said it still believed the renminbi was “significantly undervalued” and that further appreciation against the dollar and other major currencies was warranted.
Obama said Monday night that China’s currency is “at its most advantageous point” for U.S. exporters since 1993. Last month, Bloomberg reported that China’s currency reached its highest level since 1993.