Senate Passes Measure on China’s Weak Yuan
The Senate voted 63-35 yesterday for the measure backed by Democrats such as Senators Sherrod Brown of Ohio and Charles Schumer of New York and Republicans including Lindsey Graham of South Carolina and Jeff Sessions of Alabama.
China’s leaders and Washington opponents such as Boehner and the U.S. Chamber of Commerce have said the measure letting U.S. companies seek duties on Chinese goods to offset the weak yuan risks starting a trade war. Senate passage put the focus on Boehner.
“By passing by a large majority, maybe they think they will be able to intimidate Boehner into a vote,” Nicholas Lardy, senior fellow at the Peterson Institute for International Economics in Washington, said in an interview.
The Senate bill mandates that the Treasury Department identify misaligned currencies, instead of deciding whether a currency 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.
“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,” Treasury Secretary Timothy F. Geithner said yesterday on Bloomberg Television. “We have been pushing very, very hard to get China to move.”
Geithner said that while China’s currency has appreciated 10 percent in real terms since the middle of 2010, the Obama administration wants the Chinese government to allow a bigger rally.
Schumer, 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,” Brown 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,”
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.
‘Got To Stop’
The current policy “may be good for this company or that company, but it is not good for America,” Sessions 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.”
“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.
Avoid ‘Symbolic’ Laws
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.’’
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 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 China’s exports.
Even if the bill becomes a law, it could take years for it to have any substantive effect in the U.S., Lardy 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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