Pushing for an End to Chinese Currency Manipulation

Sep 27, 2011 Issues: Trade

Gov. Rick Snyder’s trip to China comes amidst increasing calls for the U.S. to crack down on China’s manipulation of its currency.

Last fall, the U.S. House of Representatives passed a bill that I co-authored to do just that. Majorities of both parties voted in favor of that bill. The vote was overwhelming and bipartisan and it sent a powerful message to the world’s second largest economy: Congress was ready to take action to rein in the artificial devaluation of China’s currency, the RMB.

Unfortunately, it has since stalled. The Senate did not move on the measure. And this year, the Republican-controlled House has ignored the fact that more than 200 Democratic and Republican lawmakers support the legislation I reintroduced in February. The Republican leadership has offered no plans to bring the bill to the floor for a vote.

The consequences of inaction are clear. The Chinese government’s manipulation of the RMB costs at least one million American jobs, according to Fred Bergsten, director of the Peterson Institute for International Economics. The manipulation, Bergsten has said, “is by far the largest protectionist measure adopted by any country since the Second World War — and probably in all of history.”

China, meanwhile, continues to purchase U.S. Treasury bills in order to leverage its currency and maintain its low value. Combined, the practices artificially lower the cost of imported Chinese products and increase the cost of American exports to China.

In the summer of 2010, China said it would float its currency. But in the 15 months since that announcement, the RMB has appreciated only 6 percent against the U.S. dollar, well below what economists say it should. In fact, according to one reputable estimate, the RMB is still 28 percent below its “true” value.

The Currency Reform for Fair Trade Act (HR 639) that I reintroduced this year together with Democratic Rep. Tim Ryan of Ohio and Republican Rep. Tim Murphy of Pennsylvania, would allow countervailing import duties for U.S. industries that are injured by the undervalued RMB. The Commerce Department, as a result of the legislation, would have the authority to impose import tariffs to offset the negative consequences of China’s undervalued currency. The bill reverses a current Commerce Department practice that has precluded it from treating foreign government currency practices as an export subsidy while also directing the department on how to measure subsidies provided to foreign producers through currency undervaluation.

Any retribution by China — a move feared by some critics of the measure — is prohibited by the World Trade Organization. To those who are concerned with the possible cost of reform, I offer this: the Currency Reform for Fair Trade Act could help reduce our trade deficit by at least $200 billion annually.

We must not be afraid to help strengthen the hands of American workers and businesses. Congress should move on this bipartisan measure immediately.