BOSTON—U.S.-China economic tensions are growing following recent statements by Premier Wen Jiabao on currency policy, analysts say.
Experts are concerned that the two countries are headed for a showdown over Premier Wen's pledge on March 14 to resist "external pressure" and maintain China's controversial exchange rates.
At a press conference marking the closing session of the National People's Congress (NPC), Wen dismissed frequent criticism that China undervalues the yuan to boost exports. Instead, he accused the United States of driving down the dollar for the same reason.
"I can understand some countries' desire to raise exports, but what I do not understand is depreciating one's own currency and attempting to pressure others to appreciate for the purpose of increasing exports," said Wen. "In my view, that is protectionism."
U.S. analysts voiced surprise at the vehemence of Wen's comments before an April 15 deadline for a Treasury Department report to Congress on whether China manipulates the value of its currency.
"Both sides seem to have upped the ante here," Harvard economics professor Dale Jorgenson told Radio Free Asia. "So, we're going in the direction of a confrontation, if we're not actually there."
Wen's statement touched off a series of reactions, including introduction of a bill that could lead to steep tariffs on Chinese goods.
The legislation calls for tariffs if China fails to respond to a Treasury finding that the yuan is "fundamentally misaligned" with the dollar.
The bill, advanced in various versions since 2005, is sponsored by 14 senators, including New York Democrat Charles Schumer and Lindsey Graham, a South Carolina Republican.
On March 15, 130 members of the U.S. House also wrote to Secretary Geithner and Commerce Secretary Gary Locke, urging countervailing duties on imports from China.
U.S. manufacturers have complained for years that China deliberately pegs the yuan 25 to 40 percent below its real worth, although Wen insisted at his press conference that the currency is not undervalued.
The monetary mismatch is seen as a significant cause of the $226-billion U.S. trade deficit with China last year.
"I'm having some difficulty understanding where Premier Wen is coming from, frankly," said Jorgenson.
"It is definitely undervalued. I think that is something that most Western economists would agree to. The question is whether the United States can do anything about it and should do anything about it," he said.
On March 11, President Obama announced plans to double U.S. exports in five years and urged China to move toward "a more market-oriented exchange rate" to help rebalance world trade.
On March 17, International Monetary Fund Managing Director Dominique Strauss-Kahn told a meeting of the European Parliament that the yuan is "obviously undervalued."
Last week, China's Ministry of Commerce said Vice Minister Zhong Shan would visit the United States on March 24 "to increase mutual understanding and defuse trade frictions," the official Xinhua news agency reported.
Beijing and Washington differ strongly on economic issues, complicating the currency conflict, said Lowell Dittmer, political science professor at the University of California's Berkeley campus.
"The Chinese feel they have suffered blows from the international financial crisis, which they blame exclusively on the United States," said Dittmer.
"They feel aggrieved, and we feel more aggrieved perhaps because they survived the economic crisis more than anyone else," he said. "There is a sense that their economy is prospering at our expense."
Dittmer sees little substance in China's criticism of a weaker dollar, since the yuan depreciates along with it against other currencies under the rigid peg policy.
"It's a lot of hot air, a lot of criticism to deflect the fact that everybody's criticizing China now," he said.
Although the United States and China have headed off confrontation over currency many times in the past, Wen's comments make action more likely, said David Bachman, professor of international studies at the University of Washington in Seattle.
"The pressure is going to build for the U.S., one way or another to brand China as a currency manipulator on April 15 or whenever it comes out," said Bachman, "And then, we're in a brand new ballgame in some ways."
Under a 1988 trade law, the designation would trigger a requirement for expedited consultations to "eliminate the unfair trade advantage." If talks fail, retaliatory tariffs could be imposed.
Bachman predicted "a groundswell in Congress" for tariffs if Treasury holds back on the currency issue.
On March 14, New York Times columnist Paul Krugman argued that the United States should not shrink from a confrontation because "we have no reason to fear China."
Krugman said China might dump Treasury bills in retaliation, but such a move would hurt China because its remaining holdings would lose value, while a lower dollar would lift U.S. exports.
"In short, right now America has China over a barrel, not the other way around," Krugman wrote. "It's time to take a stand."
Bachman said both sides would be hurt in a confrontation over currency and trade.
"Of course, there would be damage on both sides," he said. "But if a conflict is inevitable, it may be best to face it.
"If the fight is coming or the issue is going to lead to confrontation down the road, do you want to do it now or later?" Bachman said. "That's the estimate you have to make."