It’s a political given that China’s economic assault has damaged US manufacturers and taken away US jobs. After years of trying, the US Congress is taking another stab at retaliating against what many see as Chinese manipulation of its currency to make its exports to the US cheaper and US exports more expensive.
The US Senate is expected to take up legislation tomorrow to impose higher US duties on Chinese products to offset the perceived advantage that critics say China gets by undervaluing its currency.
China denies that its exchange rate is responsible for its huge trade deficit with the US and it is not clear that lawmakers have the political will to follow through.
While the Senate bill has bipartisan support and is expected to clear a procedural hurdle tomorrow evening, intense lobbying against it by US-based multinational corporations and their trade associations could spell trouble for the legislation in the Senate.
Moreover, the administration of US President Barack Obama, like that of former US president George W. Bush before it, does not like the bill, saying quiet diplomacy is a better way to influence Chinese policy and warning that overt sanctions could lead to a destructive trade war.
Under US pressure, China did take steps last year that allowed for some flexibility in the exchange rate, but the yuan has risen only a few percentage points since then and some economists say it is still undervalued against the dollar by as much as 40 percent.
Democratic Senator Chuck Schumer and others say that is a major reason that some 2 million US jobs have been lost to Chinese competitors in the last decade and that the US trade deficit with China last year hit a record US$273 billion, about 43 percent of the entire US trade gap.
The Senate bill, which does not specifically mention China, has two main components. Up to now, the US Treasury Department has had to declare that a country was willfully manipulating its currency to trigger a response, something the Bush and Obama administrations have avoided doing. The legislation would require Treasury to determine only that another country’s currency is misaligned, then give its government 90 days to make corrections before countervailing duties are imposed.
The bill makes it easier for specific industries to petition the US Department of Commerce for redress under claims that the misaligned currency of China or another country amounts to an export subsidy.
That more narrowly focused provision, sponsored by Democratic Senator Sherrod Brown and Republican Senator Olympia Snowe, passed the House of Representatives in September last year on a 348-79 vote. However, the last Congress ended before the Senate could take it up.
Opponents of the bill, including the US Chamber of Commerce and the US Business Roundtable, whose members do business overseas, paint a different picture.
A letter to Senate leaders from more than 50 such groups warned that unilateral action against China would likely result in retaliation against US exports to China, possibly violate WTO rules and do little to create US jobs because other low-cost manufacturing countries would take up the slack if Chinese goods became more expensive.
There is also concern that a trade war with China would remove incentives for Beijing to improve its record on intellectual property rights or cooperate in easing tensions with North Korea. The conservative Club for Growth, which holds sway among many Republicans, opposes the Senate bill, saying it would raise prices for US consumers. “Starting a trade war with China will have no winners and many losers,” the group said.