U.S. Senate legislation that would punish China for an undervalued currency ran into opposition from senators and a roadblock by House Speaker John Boehner, who said the bill was “pretty dangerous.”
Boehner’s opposition may derail a bill backed by 225 House members, including 61 Republicans. The bill is aimed at forcing China to address what Federal Reserve Chairman Ben S. Bernanke yesterday called a currency policy that’s “blocking what might be a more normal recovery process in the global economy.”
In the Senate, Republicans sought an amendment yesterday to make it harder for unilateral U.S. action, something China’s government said this week would risk triggering a trade war and affecting how it overhauls exchange-rate policy. The Obama administration has said it’s reviewing the bill, citing the need to comply with global trade obligations.
“It seems like they have some extreme reservations on the bill,” said Erin Ennis, vice president of the U.S.-China Business Council, referring to Boehner and the group of Republican senators. “It doesn’t achieve the goals of what the sponsors say it would by creating jobs in the U.S. or reducing the trade deficit.”
The bill mandates that the Treasury Department identify misaligned currencies, instead of finding that a currency was manipulated, as is currently 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 form the Overseas Private Investment Corporation.
Control of Vote
“This is well beyond, I think, what the Congress ought to be doing,” Boehner, an Ohio Republican, told reporters yesterday. “While I’ve got concerns about how the Chinese have dealt with their currency, I’m not sure this is the way to fix it.” The speaker would decide whether to allow a vote on the bill, which also lets American companies seek duties on Chinese imports to make up for the weak currency.
The People’s Bank of China said it “regrets” the Senate’s vote yesterday to advance the bill, and the Foreign Ministry said the measure would violate World Trade Organization rules, in statements on their websites.
Senator Orrin Hatch, a Utah Republican, proposed amending the bill to require that the U.S. work with the World Trade Organization and International Monetary Fund to persuade nations to eliminate misaligned currencies. Were that approach to fail, the U.S. should work with allies to deal with the adverse effects of a nation’s weak currency, Hatch said.
Bill supporters led by Senator Charles Schumer, a New York Democrat, criticized Boehner for saying the legislation exceeded Congress’s role.
“I’m aghast at that notion,” Schumer said on the Senate floor. “There is nothing else Congress should be doing except rising to defend American jobs.”
Bernanke, asked at a hearing whether the Fed has calculated the number of U.S. jobs lost due to an undervalued yuan, said it’s “difficult to estimate.” He told the Joint Economic Committee that “a more normal recovery, more balanced recovery would have some more demand being shifted away from the emerging markets toward the industrial economies. The Chinese currency policy is blocking that process” and is “certainly a negative.”
Representative Sander Levin, a Michigan Democrat, said Boehner should let members vote on the legislation. Leadership “should not get in the way” of efforts to produce U.S. jobs, he said.
Opponents said the bill may lead to trade conflicts that might stall a global economic recovery already weighed down by the slumping U.S. housing market and Europe’s sovereign-debt crisis. Global stocks began October by extending a third-quarter slump that was the biggest since the 2008 collapse of Lehman Brothers Holdings Inc.
“This is a lot of posturing, and I don’t know why,” Doug Guthrie, dean of the George Washington University School of Business, said in an interview. “Rather than dealing with our own problems with job creation, we can just say there is another problem; we can say the economic pain is because China manipulates its currency.”
With U.S. companies such as Wal-Mart Stores Inc. investing in China, levying duties or pushing to increase the value of the yuan would raise prices for consumers, Guthrie said.
President Barack Obama’s administration is reviewing the legislation, White House press secretary Jay Carney told reporters aboard Air Force One yesterday.
“We share the concern of members about the valuation of the Chinese currency,” Carney said. “We also are concerned that any action that might be taken would be effective and consistent with our international obligations.”
The yuan has appreciated 5.1 percent against the U.S. dollar in the past year and 24 percent in the past five years, the steepest advance 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 China’s exports.
The yuan will appreciate by 4 percent to 5 percent against the U.S. dollar this year, Li Daokui, an adviser to the China central bank, said yesterday at a conference in Santiago.
In addition to letting U.S. companies seek tariffs on Chinese imports, U.S. exporters would benefit from an appreciation in the yuan because it would make American goods less expensive relative to Chinese goods.
The U.S. needs “to have rules in place and then to have tough consequences,” Senator Robert Casey, a Pennsylvania Democrat and a bill sponsor, said on the Senate floor.
The future of the bill depends on what is passed by the Senate, Ennis of the U.S.-China Business Council said. “I hope it is dead on arrival in the House,” Ennis said.
Bloomberg LP, the parent of Bloomberg News, is a member of the U.S.-China Business Council.
The bill is S. 1619.