President Barack Obama vowed to "get much tougher" with China on trade rules, including currency rates, to ensure that US goods do not face a competitive disadvantage.
With US-Chinese relations under pressure over a host of issues, including US arms sales to Taiwan and Mr Obama's planned meeting with Tibet's spiritual leader, the Dalai Lama, Mr Obama said his administration was pushing China and other countries to enforce trade rules and open their markets.
"The approach that we're taking is to try to get much tougher about enforcement of existing rules, putting constant pressure on China and other countries to open up their markets in reciprocal ways," Mr Obama told a meeting with Senate Democrats yesterday.
"One of the challenges that we've got to address internationally is currency rates and how they match up to make sure that our goods are not artificially inflated in price and their goods are artificially deflated in price."
However, China today dismissed US threats. A Chinese Foreign Ministry spokesman responded by saying the yuan was at a reasonable level, and that China did not deliberately pursue a trade surplus with the United States.
"At the moment, looking at international balance of payments and forex market supply and demand, the level of the yuan is close to reasonable and balanced," Ma Zhaoxu told a regular news briefing, repeating China's standard line when criticised about its currency.
"Accusations and pressure do not help to solve the problem," he added.
The US president insisted he would not take a protectionist stance toward China, the world's third-largest economy, warning that "to close ourselves off from that market would be a mistake".
Republican Senator Charles Grassley urged Mr Obama to formally label China a currency manipulator to induce Beijing to raise the value of its yuan. Mr Obama so far has resisted that step.
US manufacturers have complained for years Beijing's currency policies give Chinese companies an unfair price advantage. China says exchange rate policy is an internal matter.
Mr Obama has twice declined to label China as a currency manipulator, which would escalate the issue to the World Trade Organisation, but faces a third decision on that issue in April.
Finance ministers and central bank governors of the Group of Seven rich nations will discuss China's currency this weekend in Canada, a US Treasury official said.
China yesterday warned Mr Obama against meeting the Dalai Lama, reviled by Beijing as a separatist for seeking self-rule for Tibet. The meeting may happen as early as this month.
During a summit in Beijing in November, President Hu Jintao himself urged Mr Obama not to meet the exiled Tibetan leader, said a Chinese Foreign Ministry spokesman.
Beijing was already upset with Washington over a $6.4 billion US weapons package for Taiwan, the self-ruled island that Beijing deems a breakaway province.
The latest flare-up also comes amid disagreements over Internet freedoms in China, after search engine Google threatened to pull out over censorship and hacking attacks.
The US Senate unanimously passed a bipartisan resolution on Tuesday urging China to conduct a transparent investigation into the cyber attacks against Google and other firms.
Reuters