US Senate Gears Up for China Currency Vote
The US Senate is prepared to take up legislation targeting China's valuation of its currency, with senators voting on Monday 3 October to begin debate on a bill that would allow the US to impose duties on countries that undervalue their currencies. The move has provoked a stern response from the Chinese government, which has cautioned that such legislation could lead to a trade war between the two countries.
The 79-19 procedural vote to open up debate on the bill propelled it into a week of discussion on the Senate floor, with a vote on the actual legislation expected in the coming days.
Only last year, the Currency Reform for Fair Trade Act, a similar bill, was passed in the House with overwhelming bipartisan support, and then died in the Senate (see Bridges Weekly, 7 October 2010).
The new currency bill was introduced by Senators Sherrod Brown and Charles Schumer, both Democrats, and has 19 co-sponsors - including various Republicans.
With unemployment still lingering at high levels and the US-China trade gap having grown 12 percent in the first half of 2011, criticism over China's currency policies has heightened over recent months. "China's deliberate actions to devalue its currency give its goods an unfair competitive advantage in the marketplace. That hurts our economy and it costs American jobs," Senate Majority Leader Harry Reid, a Democrat, said on Monday.
Speaking to the Joint Economic Committee - a US congressional committee - just a day after Monday's Senate procedural vote, US Federal Reserve Chairman Ben Bernanke also addressed the impact of China's strict control of the yuan, also known as the renminbi.
"Right now, our concern is that the Chinese currency policy is blocking what might be a more normal recovery process in the global economy. It is to some extent hurting the recovery," Bernanke said.
Opposition grows from US businesses, trade associations
Businesses, trade associations, and think tanks have all expressed concern about the possible impacts of this bill.
In a letter addressed to both Reid and to Senate Minority Leader Mitch McConnell, a Republican, 51 trade associations - including the US Chamber of Commerce and the US-China Business Council - urged the Senate to drop the bill and focus on "the nation's broader objectives of addressing the many and growing challenges we face in China."
Rather, businesses said the focus should be on China's policies regarding intellectual property rights, market access, rare earths, and financial services liberalisation - rather than a "unilateral" measure that would be "counterproductive" to those goals.
Besides the bill being "counterproductive," the president of the US-China Business Council, John Frisbie, told reporters that he questioned the bill's effectiveness in bringing manufacturing jobs back to the US. He noted that China's yuan value had risen by about 30 percent since 2005; however the US has continued to lose manufacturing jobs.
Other critics have suggested that a stronger yuan would simply cause jobs to migrate to the next lowest-cost place - such as Indonesia, Vietnam, or Bangladesh.
China issues swift response
Meanwhile, China showed a strong and co-ordinated opposition against the proposed bill, with statements being released simultaneously by several government ministries.
The measures would "seriously violate rules of the World Trade Organization and obstruct China-US trade ties," said foreign ministry spokesman Ma Zhaoxu. He added that trade co-operation between the two countries has produced mutual benefits, and stressed that "it is widely understood that the exchange rate of the renminbi, the Chinese currency, is not the cause of the Sino-US trade imbalance."
China's central bank also expressed worry about the implications of the US Senate legislation, cautioning that this bill could harm China's currency reform and lead to a trade war.
The Ministry of Commerce spokesman, Shen Danyang, said that the US-China trade imbalance should not be blamed on China's currency policies, stressing instead that the US limit of high-tech product exports to China was a major cause of the trade imbalance.
Future of reform unclear
While the bill is largely expected to pass the Senate, its fate in the House of Representatives is less clear. Republicans are generally less supportive of measures that could hurt trade; however, ninety-nine Republicans voted for a similar bill last year, which would have treated undervalued currencies as export subsidies. In addition, the new Senate bill appears to already have well over 200 co-sponsors in the House.
Speaker of the House John Boehner, a Republican, has spoken out strongly against pursuing Chinese currency legislation. "This is well beyond, I think, what the Congress ought to be doing," he told reporters on Tuesday.
The White House's position is also unclear. Speaking to reporters on Tuesday, White House Press Secretary Jay Carney said that, while the Obama administration "share[s] the concern of members about the valuation of the Chinese currency... we also are concerned that any action that might be taken would be effective and consistent with our international obligations."
ICTSD reporting; "China Currency Bill Runs into GOP Opposition," Bloomberg, 5 October 2011; "Bernanke criticizes China over currency," FINANCIAL TIMES, 4 October 2011; "China warns of ‘trade war' over currency bill," FINANCIAL TIMES, 4 October 2011; "Reid selling currency bill as jobs legislation," THE HILL, 3 October 2011; "Senate votes 79-19 to move bill punishing China on currency," THE HILL, 3 October 2011; "Trade associations urge Senate to abandon China currency bill," THE HILL, 21 September 2011; "Corrected-Update-1-China says ‘adamantly opposes' US senate currency bill," REUTERS, 3 October 2011; "Senators court 2012 voters with China currency bill," REUTERS, 2 October 2011; "Wider trade gap could propel China currency bill," REUTERS, 11 August 2011; "China Rips Senate but Repeats Reform Pledge," THE WALL STREET JOURNAL, 4 October 2011.