U.S. Senators Renew China Forex Penalty Effort

Jan. 18, 2011
Proposed bill would impose new penalties on designated countries, including tariffs on the countries' exports and a ban on any companies from those countries receiving U.S. government contracts.

Three U.S. senators announced plans on Jan. 17 to renew their effort to penalize China for what they term currency "manipulation," on the eve of a state visit by Chinese President Hu Jintao.

"Our message to President Hu is, 'Welcome to America, but we want to make sure we have a fair trading system,'" said Michigan Senator Debbie Stabenow, who joined fellow Democrats Charles Schumer and Bob Casey in the announcement.

The bill to be introduced in the new Congress would "vigorously address currency misalignments that unfairly and negatively impact U.S. trade," the three said in a joint statement.

If passed, the legislation "would provide less flexibility to the Treasury Department when it comes to citing countries for currency manipulation," the three said.

"It would also impose stiff new penalties on designated countries, including tariffs on the countries' exports and a ban on any companies from those countries receiving U.S. government contracts."

Although similar measures have fallen short in recent years, Schumer said, "We think we have majority support in the House and Senate... and we think this will pass."

Stabenow said that the measure is "WTO compliant," meeting the rules of the World Trade Organization and "gives us the ability to say to China, 'We want a level playing field on trade and if you don't (comply), we are going to create it ourselves."

Casey said the move was aimed at countering manipulation costing millions of jobs, a situation that has been exacerbated by a long recession. "The worst that we can do.. is to ignore a substantial driver of job loss in the country and that's China's trade policies, and in particular China's currency," Casey said. "We've got to take action to let the Chinese government know that we are serious, that we're not going to sit back and wait for some engagement."

In the past, similar efforts have had little impact on Beijing, despite claims from Washington and other trading partners that the Chinese yuan is undervalued as much as 40% to help boost exports.

On Jan. 16, Hu argued that China's policies are not much different from those of the United States, where the Federal Reserve has been pumping hundreds of billions of dollars into the financial system by buying Treasury bonds.

"The monetary policy of the United States has a major impact on global liquidity and capital flows and therefore, the liquidity of the US dollar should be kept at a reasonable and stable level," Hu said in response to written questions from The Wall Street Journal and The Washington Post.

While dubbing the international currency system a "product of the past," he suggested the dollar would nevertheless remain the reserve currency of choice for some time as it would be "a fairly long process" before China's currency, the yuan, would become a player.

The comments from the lawmakers highlight some of the tough talk Hu is expected to hear during his visit on U.S-.China relations. In a separate statement on Jan. 17, Senator Max Baucus urged Hu to resolve a number of trade issues with Washington -- citing "inadequate protection of US intellectual property rights; policies that discriminate in favor of domestic Chinese or 'indigenous' innovation; China's unfair currency undervaluation; and unscientific restrictions on imports of U.S. beef."

The Chinese leader, who is expected to step down as president and general secretary of China's Communist Party in 2012, arrives on Jan. 18 in Washington for what will be his first and last state visit.

Copyright Agence France-Presse, 2011

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