Updated: 2005-06-24
Raising tariffs against China for its refusal to let the yuan rise would hurt the U.S., Federal Reserve Chairman Alan Greenspan and Treasury Secretary John Snow told lawmakers Thursday.

Speaking in front of the Senate Finance Committee, Greenspan said new tariffs on imports would do little to protect U.S. manufacturing jobs or cut the trade deficit.

"Some observers mistakenly believe that a marked increase in the exchange value of the Chinese renminbi (yuan) relative to the U.S. dollar would significantly increase manufacturing activity and jobs in the United States," he said. "I am aware of no credible evidence that supports such a conclusion."

Instead, he said, protectionist laws would boost imports from other Asian nations and could push import prices up enough to hurt the U.S. standard of living.

But Congress is in a foul mood. In April, 67 senators voted for a measure to slap 27.5% tariffs on Chinese goods if Beijing doesn't revalue the yuan soon.

China's yuan has been set at 8.3 to the dollar for a decade. Some U.S. lawmakers and manufacturers argue that vastly undervalues the currency. That, and starkly lower labor costs, let Chinese companies undercut U.S. rivals.

Tariffs Bad, But We'll Do It

Facing domestic pressure, the Bush administration has become more aggressive vs. China.

Snow said the U.S. might be forced to impose tariffs if the peg isn't loosened. He said if no move happens by his next currency report in October, the U.S. will act.

The U.S. last month imposed emergency tariffs on Chinese textile imports, which jumped after global quotas were lifted on Jan. 1.

But Greenspan and Snow echo the Bush administration's line that tariffs aren't the answer to reducing trade imbalances.

Snow said isolationist policies "would be ineffective, disruptive to markets and damaging to America's special role as the world's leading advocate for open markets and free trade."

But Snow and Greenspan said a revaluation is needed to let the Chinese currency catch up with years of hot economic growth.

"China is now ready and should move without delay in a manner and magnitude that is sufficiently reflective of underlying market conditions," Snow said, noting his frustration at Beijing's inaction.

He also warned tariffs would mean retaliation against U.S. exports, and said it would do little to lessen the current account deficit, which hit $666 billion in 2004 and continues to climb.

Greenspan expects China to adjust the yuan to a more sustainable level "sooner rather than later."

Economists have predicted all year that China would revalue its currency, at least a bit. But China has offered few hints that such a move is in the works.

Deepening U.S.-China ties were highlighted Wednesday after Chinese oil giant CNOOC offered to buy Unocal for $18.5 billion. That is $1.5 billion more than an earlier bid from Chevron. It would be the largest international takeover by a Chinese company ever.

Several Republicans were quick to oppose CNOOC's offer. House Resources Committee Chairman Richard Pombo, R-Calif., warned the deal "could come with disastrous consequences for our economic and national security."

Snow said his review would include the security implications.