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Obama says China's currency undervalued and a cause of trade deficit

By the CNN Wire Staff
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Obama talks economy on a BBQ pulpit
STORY HIGHLIGHTS
  • NEW: The U.S. House is considering a bill to allow trade retaliation
  • President responds to a question at a town hall-style meeting
  • The issue is a major one between the world's two largest economies

Des Moines, Iowa (CNN) -- President Barack Obama said Wednesday that China's currency is undervalued, resulting in a trade advantage for Chinese goods over American goods that contributes to the U.S. trade deficit.

Responding to a question at a town hall-style meeting, Obama addressed one of the major current issues in relations between the world's two largest economies.

"The reason I'm pushing China about their currency is because their currency is undervalued," he said, adding that " people generally think they are managing their currency in a way that makes our goods more expensive to sell there and their goods cheaper to sell here."

The resulting imbalance was a major factor contributing to the U.S. trade deficit, Obama said.

Last week, Obama urged Chinese Premier Wen Jiabao to speed up the revaluation of the yuan currency, telling him in a two-hour meeting at the United Nations that the slow pace of reforms was affecting both the global and U.S. economies, a top U.S. aide said.

The meeting on the sidelines of the U.N. General Assembly followed a speech by Wen the night before in which he told the business community in New York that China will continue reforming and opening its markets under a policy it started in 1978 by officially ending decades of isolation.

However, demands by U.S. lawmakers that China revalue its currency by more than 20 percent would bankrupt Chinese companies and lead to "major unrest" in his country, Wen said in the speech.

The U.S. House is considering a bill to allow the United States to retaliate against China's handling of its currency.

Jeff Bader, Obama's special assistant and senior director for Asian affairs, said the president noted to Wen in their meeting last week "that there had not been much movement since" China said in June that it would implement a more liberal currency policy.

Obama told Wen that the Chinese inaction "had consequences for the global economy and the U.S. economy," according to Bader.

Obama said the United States "looked for a more rapid and significant revaluation in coming months," Bader said.

Bader declined to characterize Wen's response to Obama, saying only that Wen "did reiterate Chinese intention to continue with reform to their exchange system."

In remarks to reporters, Obama and Wen emphasized cooperation between their governments and the need for frank discussions on their differences.

"Obviously, we continue to have more work to do," Obama said. "On the economic front, although the world economy is now growing again, I think it's going to be very important for us to have frank discussions and continue to do more work cooperatively in order to achieve the type of balance and sustained economic growth that is so important and that we both signed up for in the context of the G-20 framework."

Obama praised Wen for "extraordinary openness and cooperation with us as we try to strengthen the relationship between our two countries, a relationship that is based on cooperation, on mutual interest, on mutual respect."

Wen noted that "common interests far outweigh our differences" and that despite "disagreements of one kind or another between our two countries, the differences can be resolved."

CNN's Tom Cohen contributed to this story.