Without quick follow-up by
US president Barack Obama could still formally label China as a currency manipulator that suppresses the value of its yuan for unfair trade advantages and the United States could treat China's currency as a subsidy warranting US duties on more Chinese imports.
Beijing's new currency regime does little to stop efforts in the US Congress to slap duties on Chinese imports, although time might be running out for lawmakers restricted by a busy agenda that includes a major reform of financial regulations and perhaps an energy bill.
Many legislators will start campaigning around September for the elections in November.
Just days before leaders of the Group of 20 major developed and developing nations meet in Toronto, China's central bank said it would gradually make the yuan's exchange rate more flexible, in a possible return to policies it pursued from 2005 to 2008.
But
Congress and the US Treasury Department should hold fire and see how
"If they let the rate start going up on a one-shot basis, that is significant, or look like letting it go up consistently - by say a percent or so a month. Either of those should be enough for the Treasury or the Congress to say 'Okay, this is now moving in the right direction,'" said C Fred Bergsten, head of the Peterson Institute for International Economics.
"But if this is just a statement of principle and nothing much happens for a couple weeks or a couple months, then you have to resume the pressure."
China said on Sunday that it will keep the yuan's exchange rate at a basically stable level, prompting criticism from Schumer, the main hawk on China in Congress.
"Just a day after there was much hoopla about the Chinese finally changing their policy, they are already backing off," Schumer said, calling for "strong legislation" by Congress.
For the three years before that, it loosened the peg and gradually let the yuan rise about 21% in value, which took the steam out of anger in Congress, although many lawmakers and manufacturers were upset it did not rise more.
Sander Levin, chairman of the
"We have seen actions like this before and it is clear that
Many Western economists estimate the yuan is still undervalued by 25% to 40%, giving Chinese companies a huge price advantage in international trade.
A US manufacturing group that blames China's currency for the loss of more than a million jobs said its members still want Congress to keep up the pressure on China.
"Unless the move is rapid and significant, China's announcement is nothing more than a cynical ploy ahead of the G20 and in the wake of mounting congressional pressure," said Scott Paul, executive director of the Alliance for American Manufacturing.
Anger about the exchange rate has coalesced behind a bill advanced by Schumer in the Senate and others in the House that would require the Commerce Department to treat currencies seen as undervalued as a subsidy so that firms could seek duties against them.
The bill is a much milder version of legislation Schumer and colleagues sponsored several years ago that would have hit all Chinese goods with a 27.5% tariff.
The latest bill would probably add to the 3% of
Chinese leaders now have put the onus on Obama and treasury secretary Timothy Geithner to gauge if they can credibly tell Congress that
Obama complained loudly about Chinese currency manipulation during his 2008 presidential campaign but resisted labeling
As the world economy began to stabilize,
Geithner postponed the Obama administration's third review of China's currency practices, which was due on April 15, in effect giving Beijing until the G20 leaders' meeting to act.
Schumer and like-minded lawmakers are also pressing the Commerce Department to begin slapping countervailing duties on some Chinese goods even without new legislation.
In two cases involving coated paper and an aluminum product,
Raghuram Rajan, economics professor at the University of Chicago and former chief economist at the International Monetary Fund, said Beijing's announcement "will allow both China and the US to cool off before either side does something to precipitate a trade war."
But
Even if Washington gives China a pass in the delayed currency manipulation report, now expected by early July, the next semi-annual report is due on Oct 15, just weeks before election day.