U.S.-China Clash Over Yuan Escalates

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"Tough talk comes amid concerns global currency order is unraveling."

Treasury Secretary Geithner has issued his harshest attack to date on China's currency policy, the latest move in an escalating superpower clash across the gamut of commercial and strategic relations.

"We are very concerned about the negative impact of (China's) policies on our economic interests," he told a Congressional hearing on Beijing's use of exchange intervention for trade advantage.

"The pace of appreciation has been to slow. The undervalued renminbi helps China's export sector. It encourages outsourcing of production and jobs from the U.S. By continuing a rigid exchange rate, China is impeding the adjustments needed to secure sustainable global growth," he said.

The tough talk comes amid concerns that the global currency order is unraveling, with countries breaking ranks in a 'beggar-thy-neighbor' use of 1930s-style devaluation to help exporters and shore up their economies.

Japan became the latest country to intervene this week, carrying out massive dollar and euro purchases to weaken the yen. Sander Levin, chair of the U.S. House Ways and Means Committee, called the move "deeply disturbing," chiefly because it muddies the political water and lets China off the hook.

Geithner's ire follows a move by U.S. Trade Chief Ron Kirk to file two cases against China at the World Trade Organization, alleging bias against U.S. steel producers and credit card companies. Kirk said he was "fighting for the American jobs threatened by China's actions."

Peterson Institute Trade Expert Gary Hufbauer said the tensions risk triggering a dangerous clash." The U.S. and China are now adversaries, not enemies; but, if the Obama administration pushes this trade agenda the way it is now doing, we will end up antagonists," he said.

Professor Hufbauer said the White House has lost faith in "quiet diplomacy," irked that the yuan has hardly moved since Beijing ended the dollar peg in June.

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