The U.S. Senate passed a bill aimed at punishing China for keeping the yuan undervalued, triggering a backlash from Chinese officials who warned the measure risks damaging trade relations and undermining the global recovery.
The Senate voted 63-35 for the legislation, which would let U.S. companies seek duties to compensate for “misaligned” currencies. House Speaker John Boehner has called the bill “dangerous” and is resisting pressure for a vote in the Republican-controlled chamber, casting doubt on whether it will become law. China protested in three government statements.
Failure to allow faster gains in the yuan against the dollar has impeded a shift in demand toward emerging markets that would bolster the global economy, according to Federal Reserve Chairman Ben S. Bernanke. The yuan has appreciated 10 percent, adjusted for inflation, since mid-2010, a pace that’s too slow, Treasury Secretary Timothy F. Geithner said yesterday.
Facing a weak economic recovery, “the U.S. and China need to work together” said Shen Jianguang, a Hong Kong-based analyst at Mizuho Securities Asia Ltd. who has worked for the International Monetary Fund and the European Central Bank. “Raising the currency bill at this point is inappropriate.”
Boehner, the U.S. Chamber of Commerce and other Washington opponents have said the bill risks starting a trade war. China’s central bank and commerce and foreign ministries issued statements today restating the nation’s opposition.
China Sees ‘Protectionism’
“This proposal in the name of so-called currency misalignment is protectionism and a serious violation of World Trade Organization rules, and won’t be able to resolve America’s own economic and employment problems,” Ma Zhaoxu, a spokesman for China’s foreign ministry, said in a statement. The central bank cited risks to bilateral trade and the global recovery.
The issue flared at a debate by Republican presidential candidates in New Hampshire yesterday, with former Massachusetts Governor Mitt Romney saying that “when people have pursued unfair trade practices, you have to have a president that will take action.” He added that he would label China as a currency manipulator on “day one” as president.
The yuan declined 0.17 percent to 6.3859 per dollar at 10:58 a.m. in Shanghai, following a 0.4 percent loss yesterday.
The legislation would let U.S. companies seek duties on Chinese goods to offset an undervalued yuan. It mandates that the Treasury Department identify misaligned currencies, instead of deciding whether an exchange rate was manipulated, as is now required. Governments that undervalue their currencies and don’t take corrective action would face penalties, including increased dumping duties, a ban on federal procurement in the U.S. and ineligibility to receive financing from the Overseas Private Investment Corporation.
Geithner’s Take
“We are very supportive of the objectives of that bill, which is to try to make sure there’s a level playing field around the world, that countries can’t keep their currencies weak at the expense of American exporters,” Geithner said yesterday on Bloomberg Television. “We have been pushing very, very hard to get China to move.”
Senator Charles Schumer of New York, who has proposed similar measures on China’s currency over the past six years, failed in his previous attempts to get an up-or-down Senate vote on a bill.
“We are in trade war,” Senator Sherrod Brown of Ohio said in a statement following the vote. “We’re fighting back with one of the biggest bipartisan jobs bill the Senate has seen this year.”
Global Woes
Opponents say they worry that protectionism and trade conflicts may stall a global economic recovery already weighed down by the slumping U.S. housing market and Europe’s sovereign debt crisis. The legislation is opposed by business groups, such as the Chamber of Commerce, that say it may cause a trade dispute.
The current policy “may be good for this company or that company, but it is not good for America,” Republican Senator Jeff Sessions of Alabama said on the floor before the vote. “It’s got to stop.”
The measure may stall in the House Ways and Means Committee, which controls trade legislation in its chamber. Representative Dave Camp, the Michigan Republican who heads the panel, hasn’t committed to supporting the bill even though he voted for a similar measure last year backed by Representative Sander Levin of Michigan, top Democrat on the committee.
“While currency is certainly an issue, solely looking at currency manipulation misses the larger points,” spokesman Jim Billimoria said last week in an e-mail. Camp “will begin looking aggressively at China’s abuses this fall.”
‘Economic Uncertainty’
Boehner, an Ohio Republican, and House Majority Leader Eric Cantor of Virginia voted against Levin’s bill last year.
“To force the Chinese to do what is arguably very difficult to do I think is wrong, it’s dangerous,” Boehner said Oct. 6 at the Washington Ideas Forum, sponsored by the Atlantic magazine and the Aspen Institute. “Given the economic uncertainty around the world, it’s just very dangerous and we should not be engaged in this.
President Barack Obama said at a news conference the same day that while ‘‘China has been very aggressive in gaming the trading system to its advantage and to the disadvantage of other countries, particularly the United States,’’ he wants to avoid laws that ‘‘are symbolic, knowing that they’re probably not going to be upheld by the World Trade Organization.’’
Momentum ‘Increasing’
Levin has said that the House version of the legislation had 225 supporters and urged Boehner to let members vote.
‘‘It’s clear to me momentum is very much increasing,’’ he told reporters yesterday before the vote. ‘‘The pressure will mount here in the House to act.’’
Representative Mark Critz, a Pennsylvania Democrat who backs Levin’s bill, sought in July to force a vote against the wishes of Republican leaders. He rounded up more than 173 House members, mostly Democrats, to sign a petition that would bring the measure to the floor. It needs at least 218 signatures, a majority, to succeed.
The yuan has appreciated about 4.6 percent against the U.S. dollar in the past year and 24 percent in the past five years, the steepest advance after Colombia’s peso among 25 emerging- market currencies tracked by Bloomberg. China limits currency conversions for investment purposes and buys dollars to slow the yuan’s advance and preserve the competitiveness of the country’s exports.
Even if the bill becomes a law, it could take years for it to have any substantive effect in the U.S., Nicholas Lardy, senior fellow at the Peterson Institute for International Economics in Washington, said. Between filing complaints and conducting investigations, companies wouldn’t get any immediate relief, he said.
‘‘I would think it would take years before you saw any sort of microeconomic effect,” Lardy said. “I don’t think it would reach its objective, it might not make any difference for a long time.”
The bill is S. 1619.
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