Congress addresses Chinese currency manipulation

By Jim Abrams
The Associated Press

WASHINGTON (AP) — It’s a political given that China’s economic assault has damaged American manufacturers and taken away American jobs. After years of trying, Congress is taking another stab at retaliating against what many see as Chinese manipulation of its currency to make its exports to the United States cheaper and U.S. exports more expensive.

The Senate took up legislation Monday, Oct. 3, to impose higher U.S. duties on Chinese products to offset the perceived advantage that critics say China gets by undervaluing its currency. Senate is expected to approve the bill on Thursday, Oct. 6.

China denies that its exchange rate is responsible for the huge trade deficit that the United States has with it, and it’s not clear that lawmakers have the political will to follow through.

While the Senate bill has bipartisan support, intense lobbying against it by American-based multinational corporations and their trade associations could spell trouble for the legislation in the Senate.

Moreover, the Obama administration, like the Bush administration before it, doesn’t like the bill, saying quiet diplomacy is a better way to influence Chinese policy and warning that overt sanctions could lead to a destructive trade war.

Democratic Sen. Chuck Schumer and Republican Sen. Lindsey Graham among others, have been trying for at least six years to pass legislation making it easier to slap higher tariffs on Chinese goods to compensate for what they say is Beijing’s effort to keep its currency, the yuan, undervalued against the dollar, making its exports cheaper and U.S. exports to China more expensive.

Under U.S. pressure, China did take steps last year that allowed for some flexibility in the exchange rate, but the yuan has risen only a few percentage points since then, and economists say it is still undervalued against the dollar by as much as 40 percent.

Schumer and others say that’s a major reason that some 2 million U.S. jobs have been lost to Chinese competitors in the last decade and that the U.S. trade deficit with China last year hit a record $273 billion, some 43 percent of the entire U.S. trade gap.

“They get away with economic murder and thus far, our country has just said, ‘Oh, we don’t care,’ ” Schumer said.

“This legislation will send a huge shot across China’s bow.”

Among Republicans, presidential hopeful Mitt Romney has said he would sanction China for keeping its currency artificially low.

The Senate bill, which does not specifically mention China, has two main components:

—Up to now, the Treasury Department has had to declare that a country was willfully manipulating its currency to trigger a response, something the Bush and Obama administrations have avoided doing. The legislation would require the Treasury to determine only that another country’s currency is misaligned, then give its government 90 days to make corrections before countervailing duties are imposed.

—The bill makes it easier for specific industries to petition the Commerce Department for redress under claims that the misaligned currency of China or another country amounts to an export subsidy. The more narrowly focused provision, sponsored by Democratic Sen. Sherrod Brown and Republican Sen. Olympia Snowe, passed the House of Representatives last September on a 348-79 vote. The last Congress, however, ended before the Senate could take it up.

Supporters point to studies by the Peterson Institute for International Economics that say a 20 percent appreciation of the yuan would reduce the U.S. trade deficit by up to $120 billion and create a half-million U.S. jobs. The more liberal Economic Policy Institute estimates that a 28.5 percent appreciation would create more than 2 million jobs.

Opponents of the bill, including the U.S. Chamber of Commerce and the Business Roundtable, whose members do business overseas, paint a different picture. A letter to Senate leaders from more than 50 such groups warned that unilateral action against China would likely result in retaliation against U.S. exports to China, possibly violate World Trade Organization rules, and do little to create U.S. jobs because other low-cost manufacturing countries would take up the slack if Chinese goods became more expensive.

There’s also concern that a trade war with China would remove incentives for China to improve its record on intellectual property rights or cooperate in easing tensions with North Korea. The conservative Club for Growth, which holds sway among many Republicans, opposes the Senate bill, saying it would raise prices for American consumers. “Starting a trade war with China will have no winners and many losers,” the group said.

China denies that the exchange rate is the cause of the huge trade imbalance, saying that the United States could help itself by lifting a ban on sales of high technology goods. “We hope the U.S. will maintain all interests of bilateral economic relations in good faith and refrain from politicizing the issue,” Foreign Ministry spokesman Hong Lei said when asked about the Senate bill.

White House press secretary Jay Carney would only say that the administration is reviewing the Senate bill. “We share the goal of achieving further appreciation of China’s currency,” he said, saying it was “substantially undervalued and we need to see continued progress.”

If the bill does make it through the Senate, it faces an uncertain future in the House. Democratic Rep. Tim Ryan has similar legislation with 201 sponsors, nearly half the House. But among those who voted against the House bill last year are the two men who hold the power for bringing it to the House floor, Speaker John Boehner and Majority Leader Eric Cantor. (end)