Senate Passes China Currency Bill

Oct. 11, 2011
Legislation now faces an uphill battle in the Republican-led House, amid worries that the bill could trigger a trade war.

Defying Chinese anger and White House warnings, the Senate on Tuesday passed legislation to punish Beijing for alleged currency manipulation widely blamed here for costing American jobs.

Lawmakers voted 63-35 to approve the measure, which faces a gloomy future in the Republican-led House of Representatives amid warnings from leaders there that it could spark a trade war between the two economic giants.

"We are in trade war. But today we're fighting back," said Democratic Sen. Sherrod Brown, one of the bill's chief champions, celebrating an end to "the unilateral disarmament approach we've taken for the past decade."

The proposal, powered by a tide of U.S. voter frustration at a sour economy and high unemployment ahead of November 2012 elections, envisions retaliatory duties on Chinese exports if the value of the yuan is unfairly "misaligned."

Republican House Speaker John Boehner has signaled that he will not bring the legislation to a vote, calling it "dangerous" to economic relations between the world's No. 1 and No. 3 economies.

"You could start a trade war. And a trade war, given the economic uncertainty here and all around the world -- it's just very dangerous, and we should not be engaged in this," Boehner said recently.

President Obama last week declined to back the legislation and worried it could violate World Trade Organization rules even as he accused China of "gaming the trade system" in a way that hurts the U.S. economy.

Appearing on Bloomberg TV, Treasury Secretary Timothy Geithner reiterated Obama's concerns about breaking international trade rules. However, when asked whether senators had fired the first shot in a trade war, Geithner replied: "They did not."

'This Vote Showed We Will Not Be Bullied by China'

Few in Washington dispute the charge that China keeps the yuan unfairly low against the dollar, giving its goods as much as a 30% edge over similar U.S. products, widening the American trade deficit and costing jobs here.

But the measure's opponents warn that it risks worsening ties with China, and say a rise in the yuan would merely boost manufacturing and jobs in countries such as Vietnam or Malaysia -- not in the United States.

They also contend that, if successful, the bill will increase the cost of commodities or consumer goods from China, hurting rather than helping U.S. businesses and families.

The legislation's backers -- an unusual coalition of Democrats and Republicans -- have said it's time for Washington to take on Beijing, and predict a boost in the yuan will make Chinese workers wealthier and more likely to buy U.S. goods, thus creating jobs and narrowing the trade gap.

They also say that current U.S. law and multinational dispute mechanisms have failed to curb what they call Beijing's unfair practices, which also include favoring Chinese producers for government contracts and tolerating rampant intellectual piracy.

China's government had repeatedly condemned the proposal as it advanced in the Congress over the past several weeks, accusing U.S. lawmakers of scapegoating Beijing for their own incompetence and warning it could trigger a trade war.

"This vote showed we will not be bullied by China when it is clear they are in the wrong," Republican Sen. Lindsey Graham said, adding: "We ignored the threats and do not apologize for taking this action."

"I want a good trading relationship with China," he said. "But the current Chinese policy on currency is clearly unfair and designed to benefit them at our expense."

Bill Could Be Doomed in the Senate

Republican House leaders have pointed out that Obama's Treasury Department has refrained from labeling China a currency cheat and said they have no plans to bring the legislation up for a vote, effectively killing it.

But House aides say it could return to life if the issue somehow became a core dispute as Obama faces off with his as-yet-undetermined Republican foe ahead of next year's elections.

The bill would empower U.S. businesses and, in some cases, labor unions to trigger a U.S. government investigation into alleged currency manipulation and seek retaliatory duties on the offending country's exports.

It also aims to make it harder for the U.S. Treasury to stop short of labeling China a currency manipulator and to restrict the White House's ability to waive the resulting sanctions.

On Wednesday, China again vowed to loosen currency controls but denied that the yuan is overvalued, as policymakers set the central parity rate -- the midpoint of the allowed trading band for the yuan -- at 6.3598 to the dollar.

That represented a depreciation compared with 6.3483 on Tuesday.

The issue has split the top two Republican White House contenders, with Texas Gov. Rick Perry opposing it and former Massachusetts Gov. Mitt Romney saying he would confront China on his first day in office.

In a Republican debate Tuesday night, Romney said strong action is needed to combat Chinese "cheating," and that if elected he would issue an executive order branding China a currency manipulator.

"I'm afraid that people who have looked at this in the past have been played like a fiddle by the Chinese. And the Chinese are smiling all the way to the bank, taking our currency and taking our jobs and taking a lot of our future," Romney said Tuesday night.

Copyright Agence France-Presse, 2011

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