Legislation to address China’s alleged undervaluation of its currency appears to have slowed in both the House and Senate in the first few weeks of 2008. Key lawmakers indicated last month that a China bill would be among their top priorities this year. But Bush administration officials have been critical of punitive legislation recently and members of Congress are reportedly giving more consideration to both the positive and negative effects that such measures may have on U.S. consumers, domestic manufacturers that use Chinese inputs and U.S. companies invested in China.
According to an Inside US-China Trade article, efforts to move a China currency bill in the House Ways and Means Committee “have stalled, leading observers to speculate that any momentum for such a bill has evaporated.” The article cited one source as saying that this issue “seems to have been eclipsed by the current economic woes facing the United States.” On the other hand, International Trade Daily has reported that Trade Subcommittee Chairman Sander Levin, D-Mich., expects to introduce a bill on currency and other China trade issues in the near future.
In the Senate, there has been a jurisdictional impasse between the Finance and Banking committees that has halted progress on the competing bills the two panels passed last summer. The measure approved by the Finance Committee would restructure the U.S. government’s methods for dealing with the trade implications of undervalued foreign currencies by eliminating the politically charged designation of “manipulation” and instead requiring the Treasury Department to consult with (and possibly impose trade consequences against) countries with “fundamentally misaligned” currencies. The Banking Committee, meanwhile, passed a bill that would continue the current process of designating currency manipulators but would eliminate the “intent” component, focusing only on those countries that have both a material global current account surplus and a significant bilateral trade surplus with the U.S. Banking Committee Chairman Chris Dodd, D-Conn., has said it may take the involvement of Majority Leader Harry Reid to resolve the dispute.
Despite the apparent slowdown in Congress, Bush administration officials are continuing to make their case against China currency legislation. In a Jan. 31 speech to the Council on Foreign Relations, Under Secretary of the Treasury for International Affairs David McCormick defended the administration’s approach to the issue of China’s exchange rate, which he said is “mistakenly” viewed by some as a “litmus test” for bilateral trade and economic relations. In fact, McCormick said, this approach is working, “albeit more slowly than we would like.” He pointed out that the yuan appreciated by about 7 percent in 2007 and has risen in value by about 4 percent in the last three months, an annual pace of 17 percent. Since China abandoned its peg to the dollar in July 2005, he added, the yuan has appreciated roughly 15 percent against the dollar and 9 percent against other major currencies on a real trade-weighted basis.
This progress is significant, McCormick said, and the U.S. should avoid “protectionist actions” that could jeopardize it. He indicated that the administration will continue to “push … cajole and support” China on currency valuation and that it will make use of legal trade remedies if it is unsuccessful in resolving differences through dialogue. However, McCormick added, “we must also take care not to vent our frustration in the form of punitive legislation or elevated rhetoric that could ultimately cost the American economy and set back the process of reform in China.” He emphasized that China is the world’s fastest growing major market for U.S. goods and services, with U.S. exports to China having grown five times faster than exports to the rest of the world since China joined the WTO in 2001. China is heavily dependent on the U.S. as well, he said, with 20 percent of its exports going to the U.S. in 2007 and U.S. foreign investment in China jumping from $10 billion in 2002 to $22 billion in 2006.
Caution was also the theme of Under Secretary of Commerce for International Trade Christopher Padilla in a Jan. 30 speech at the Center for Strategic and International Studies. Padilla warned against using “the blunt instrument of punitive legislation,” which he said is often designed to reduce U.S. imports from China rather than to address the “root causes” of China’s problems. For example, he noted, some bills have sought to influence China’s currency policy by requiring the Commerce Department to include an assessment of the yuan’s value in antidumping or countervailing duty rates. This approach is “problematic” for a number of reasons.
• The “central purpose” of such a move is to drive up the price of imports from China. Considering that China is the “single-largest supplier of inexpensive products purchased by American consumers,” price increases would be “very unwise” at a time of domestic economic uncertainty.
• Administering this requirement would be difficult for the Commerce Department and the courts because currency value is a subjective matter.
• This requirement would invite “similarly subjective counter-measures” against U.S. exports, which are currently a major component of U.S. economic growth, and could subject the U.S. to retaliation for breaking WTO rules.
• There is no evidence that any effort to increase the value of the yuan would reduce the U.S. trade deficit with China. For example, since July 2005 the deficit has increased 30 percent even as the yuan has appreciated roughly 15 percent.
Nevertheless, those who support legislative action against China’s currency valuation regime are continuing to press their case. In a Feb. 4 press release, the China Currency Coalition, “an alliance of industry, agriculture, services, and worker organizations whose mission is to support U.S. manufacturing and production by seeking an end to Chinese currency undervaluation,” said the remarks by McCormick and Padilla indicate that the Bush administration intends to continue its “fruitless approach of engaging in intensive dialogue” and therefore “underscore the need for Congress to take immediate action.” Specifically, a coalition press release cited co-chair Doug Bartlett as saying, Congress should pass H.R. 2942, the Currency Reform for Fair Trade Act of 2007, which would (a) provide statutory authority for imposing countervailing duties on products from non-market economies like China that have been provided a countervailable subsidy and (b) include currency undervaluation by a foreign country as a countervailable subsidy.
World Trade/Interactive
