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U.S. Business Blames Poor Economy On Chinese Yuan’s Fixed Dollar Value

By Elizabeth Becker

and Edmund L. Andrews

The New York Times -- WASHINGTON

With unemployment high and American manufacturers reeling from three years of misery, politicians and business people around the country have found a villain to blame for these troubles: China, or more specifically its currency.

In South Carolina, Republican Gov. Mark Sanford cites the Chinese yuan as posing a major threat to his state’s struggling textile industry by making Chinese exports unreasonably cheap.

In Erie, Pa., executives and workers at scores of industrial companies are planning a loud protest on Labor Day over “unfair competition” -- and one of the biggest targets will be the seemingly obscure matter of the Chinese yuan.

And in Washington, the Bush administration is gearing up to put direct political pressure on China next week when the treasury secretary, John Snow, makes a high-profile trip through Asia. The subject was near the top of the agenda when President Bush met with his economic team two weeks ago in Crawford, Texas.

The issue is the value of the yuan, which the Beijing government pegs to the dollar rather than allowing it to float in world currency markets. Critics say that keeps the yuan undervalued by as much as 40 percent, enabling Chinese manufacturers to flood the United States with products at prices that homegrown companies cannot match.

Though Chinese exports have been growing at the expense of American manufacturing jobs for years, the crescendo of complaints has risen along with the unemployment rate -- and with the approach of national elections next year. And no matter what it does, the White House is on treacherous ground.

If the administration does not push China hard enough, it risks losing crucial support in important electoral districts. But if it pushes too hard, it could alienate China at a time when the United States needs Beijing’s help in containing North Korea. Then there is the risk of alienating American consumers, who benefit from inexpensive Chinese goods.

“This is probably the hottest single trade issue,” said Rep. Phil English, R-Pa., and head of the congressional steel caucus. “I believe the administration would be making a big mistake if it ceded the high ground on this issue to some of Bush’s competitors.”

In a blunt letter to Bush last month, 16 Republican and Democratic senators and representatives complained that China was undercutting American factories by intentionally keeping its currency undervalued.

The lawmakers, from Democrats like Sen. Charles Schumer of New York to Republicans like English and Sen. Elizabeth Dole of North Carolina, demanded that Bush pressure China to adopt a free-floating currency and to let the yuan rise in value.