China's Currency Manipulation Undermines U.S. Manufacturing Base by Making U.S.-Made Goods More Expensive Relative To Foreign Goods
Responding to China's repeated failure to float its currency, U.S. Senators Charles Schumer (D-NY), Debbie Stabenow (D-MI) and Bob Casey (D-PA) announced on Monday their plan to offer legislation to vigorously address currency misalignments that unfairly and negatively impact U.S. trade.
If passed, the legislation would provide less flexibility to the Treasury Department when it comes to citing countries for currency manipulation. It would also impose stiff new penalties on designated countries, including duties on the countries' exports and a ban on any companies from those countries receiving U.S. government contracts.
The announcement comes on the eve of Chinese President Hu's arrival in Washington for a state visit.
Senator Schumer said: "China's currency manipulation is like a boot on the throat of our economic recovery. We are sending a clear message to the Chinese government: if you refuse to play by the same rules as everyone else, we will force you to. China's currency manipulation would be unacceptable even in good economic times. At a time of persistent, high unemployment, we simply will not stand for it. There is no bigger step we can take to promote U.S. job creation, particularly in the manufacturing sector, than to confront China's currency manipulation. This is not about China bashing; it's about defending the United States."
Senator Stabenow said: "China's policy of currency manipulation forces Michigan companies into unfair competition, with Chinese goods priced as much as 40 percent lower because of their undervalued currency. This legislation will require the U.S. government to get tough on China's unfair trade practices that are hurting our economy and costing us jobs."
Senator Casey said: "China's currency manipulation has contributed to job loss and weakened economic growth in Pennsylvania and across the country. China has been allowed to develop an unfair advantage while going virtually unchecked. A comprehensive approach is required to level the playing field for Pennsylvania workers and employers."
By manipulating its currency, countries can gain an unfair advantage over U.S. manufacturers by effectively lowering the price of their exports as compared to domestic goods. Currency manipulation also imposes a direct cost on U.S. exports, making American goods sold abroad more expensive. This creates an unfair trade advantage, which ultimately harms U.S. manufacturers, workers, and farmers, and contributes significantly to the U.S. trade imbalance.
Currency misalignment and the continuing trade imbalance with China have severely impacted the U.S. manufacturing sector in relation to both domestic sales and exports. The U.S. has lost over 5.3 million manufacturing jobs in the last decade. Since the beginning of the recession, millions of Americans have lost their jobs and unemployment has been hovering around 10 percent for several months.
The debate about China's currency manipulation has been going on in the Senate since 2004, when the U.S. trade deficit with China ballooned to the largest imbalance ever recorded with a single country, in part because China undervalued its currency by pegging it to the U.S. dollar. In 2005, Schumer and Senator Lindsay Graham (R-SC) offered the first legislation to combat China's currency manipulation by imposing 27.5 percent tariffs on Chinese goods. The bill helped put pressure on the China, which slowly began letting the yuan appreciate that same year. But according to the Peterson Institute for International Economics, China's currency remains between 25 and 40 percent undervalued against the dollar. This is fundamentally the same level of undervaluation that existed in 2005.
The Currency Exchange Rate Oversight Reform Act of 2011 combines the best elements of the Schumer-Graham bill that was passed by the Senate Finance Committee in 2007 and a separate bipartisan measure advanced by Stabenow along with Senators Sherrod Brown (D-OH) and Olympia Snowe (R-ME). It would:
* Create a new approach to identifying currency manipulators by requiring that the Treasury Department base its determination strictly on objective measures related to currency exchange rates. Under current law, Treasury also has to determine that the misalignment is a willful attempt to gain a trade advantage before it can cite the country. The new legislation would eliminate the need to show intent.
* Establish important consequences immediately upon designation, moderately severe consequences if consultations have not resulted in appropriate policies and identifiable actions to eliminate misalignment after 90 days, and more severe consequences if consultations have not resulted in appropriate policies and identifiable actions to eliminate misalignment after 360 days
* Establish two tracks by which the Department of Commerce can take action should a foreign country refuse to float its currency. One path would be to utilize anti-dumping laws to enable Commerce to counter the effect of misaligned currency, as outlined in the previous Schumer-Graham legislation. The other path, originally contained in the Stabenow-Snowe-Brown legislation, would allow Commerce to apply countervailing duties to goods coming into the United States from nations that misalign their currency.
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