Senate bill would hit China over undervalued money

JIM ABRAMS

Asso­ci­ated Press

WASHINGTON — The Sen­ate weighed on Mon­day whether to pun­ish China for under­valu­ing its cur­rency and tak­ing away Amer­i­can jobs. At issue is whether leg­is­la­tion would boost the Amer­i­can econ­omy, as its sup­port­ers argue, or ini­ti­ate a dam­ag­ing trade war with a major partner.

The bill has bipar­ti­san back­ing and on a 79–19 vote eas­ily achieved the 60 votes needed to move it to the Sen­ate floor. Still, the leg­is­la­tion faces con­sid­er­able hur­dles before it becomes law. The Obama White House, while agree­ing that China’s yuan is under­val­ued, has been wary of uni­lat­eral sanc­tions against the Bei­jing gov­ern­ment. Major U.S. busi­ness groups share those mis­giv­ings and House Repub­li­can lead­ers have shown no inter­est in bring­ing it to a vote.

The cur­rency bill gives con­gres­sional Democ­rats an oppor­tu­nity to show they remain tough on unfair trade prac­tices. The Sen­ate took up the bill on the same day the White House sent to Con­gress free trade agree­ments with South Korea, Colom­bia and Panama that some Democ­rats see as threats to U.S. jobs.

The Sen­ate bill, which does not specif­i­cally men­tion China, sets in motion a process for impos­ing puni­tive tar­iffs against a coun­try with mis­aligned cur­ren­cies. The bill also makes it eas­ier for spe­cific indus­tries to seek higher tar­iffs on for­eign com­peti­tors when under­val­ued cur­ren­cies become a means to sub­si­dize exports.

Sup­port­ers of the bill say that, despite some incre­men­tal adjust­ments by Bei­jing over the past year, the value of the yuan is still as much as 40 per­cent below what it should be, keep­ing the prices of Chi­nese goods arti­fi­cially low and U.S. prod­ucts exces­sively high. They say that is a major fac­tor in a trade deficit with China that hit $273 bil­lion last year.

Demo­c­ra­tic Sen. Charles Schumer, who has been spon­sor­ing cur­rency leg­is­la­tion for the past six years, said China’s “preda­tory cur­rency prac­tices” were “under­min­ing the eco­nomic health of Amer­i­can man­u­fac­tur­ers and their abil­ity to com­pete at home and around the globe.”

It is time, said Demo­c­ra­tic Sen. Bob Casey, to “let the offi­cials in China know that there are con­se­quences to cheating.”

Said Sen­ate Demo­c­ra­tic Leader Harry Reid on Mon­day: “This leg­is­la­tion will even the play­ing field and help Amer­i­can goods com­pete in a global mar­ket, and keep Amer­i­can jobs here at home.”

The Fair Cur­rency Coali­tion, a group that sup­ports the bill, gives the exam­ple of how a Chi­nese cus­tomer want­ing to buy a $20,000 U.S. car would have to pay almost 140,000 yuan at the cur­rent exchange rate. But if the rate reflected mar­ket val­ues, that car would cost only about 80,000 yuan, mak­ing it much more affordable.

Robert Scott of the left-leaning Eco­nomic Pol­icy Insti­tute said that with a 28.5 per­cent reval­u­a­tion the price of a Boe­ing 737, about $57 mil­lion in dol­lars, would fall from the cur­rent 363.7 mil­lion yuan to 259.3 mil­lion yuan. “This would greatly increase the com­pet­i­tive­ness of U.S. air­craft both in China and in world export markets.”

The con­se­quences of impos­ing higher tar­iffs on Chi­nese goods are hard to pre­dict. Bill sup­port­ers say it would make Amer­i­can goods more com­pet­i­tive and point to a study by Scott that appre­ci­at­ing the yuan by 28.5 per­cent would cre­ate up to 2.25 mil­lion jobs and cut the U.S. annual trade deficit by $190.5 billion.

Doug Guthrie, dean of the George Wash­ing­ton Uni­ver­sity School of Busi­ness, argues how­ever that the leg­is­la­tion would do lit­tle to put Amer­i­cans back to work and could sad­dle con­sumers with higher-priced Chi­nese goods.

He said it was dif­fi­cult to see how any cur­rency adjust­ment would close the wage gap between Chi­nese and Amer­i­can work­ers and that most econ­o­mists pre­dict that Amer­i­can importers would sim­ply switch from China to other low-wage coun­tries such as Viet­nam or Indone­sia. More­over, big sell­ers of Chi­nese goods such as Wal-Mart are heav­ily invest­ing in the Chi­nese mar­ket, and are not likely to stop buy­ing from Chi­nese factories.

“Wal-Mart is so deeply embed­ded in China that there is no way” they will leave, and the end result will be higher prices for Amer­i­can con­sumers, he said.

Another con­cern is that China would retal­i­ate by boost­ing tar­iffs on U.S. prod­ucts. China’s offi­cial Xin­hua News Agency, in a com­men­tary, said the Sen­ate bill was “a pub­lic­ity attempt to attract vot­ers and dis­tract atten­tion from the real prob­lems fac­ing the U.S. econ­omy.” It added that “trade con­flict always leads to bilat­eral damage.”

The Obama admin­is­tra­tion, like the Bush admin­is­tra­tion before it, agrees that China needs to appre­ci­ate its cur­rency but has cau­tioned against uni­lat­eral action that could gen­er­ate a trade war.

The Sen­ate vote coin­cides with a trip to Bei­jing by Trea­sury Under­sec­re­tary Lael Brainard. Trea­sury said in a state­ment that Brainard would tell the Chi­nese that while the yuan “has appre­ci­ated 10 per­cent adjusted for infla­tion since June 2010, the cur­rency remains sub­stan­tially under­val­ued, and more progress is needed.”

The House in Sep­tem­ber 2010, voted 348–79 for a more nar­row China cur­rency bill, but the top two Repub­li­cans, cur­rent Speaker John Boehner and Major­ity Leader Eric Can­tor were against it and do not appear inclined to bring up the issue if it should pass the Senate.

Asked about it at a news con­fer­ence Mon­day, Can­tor replied only that he was “curi­ous, really, as to where the White House is on that.” He said he wanted to find out if there were any “unin­tended con­se­quences” from the measure.

Posted by AP News on Oct 3 2011. You can follow any responses to this entry through the RSS Feed. Comments can be made below.