Proposal Against Chinese Currency Manipulation

On Sept. 22, a bill (S. 1619) targeting the effect of Chinese currency manipulation on the U.S. economy was introduced in the Senate. The Currency Exchange Rate Oversight Reform Act of 2011 introduced by Sen. Sherrod Brown (D-Pa.) drew significant bipartisan support and is the latest in a five-year effort focused on the Chinese yuan.

Senate Majority Leader Harry Reid (D-Nev.) informed reporters that next week the chamber will “start our work on trade matters,” including the legislation on China’s currency, though it was unclear when the bill would come to a final vote—most likely before the end of the year.

Senate sponsors predict overwhelming passage when the bill reaches the floor for a vote. However, it is expected to face some opposition in the Republican-led House. Concerns with the bill by Republicans include whether the bill would pass World Trade Organization scrutiny, and how it would affect U.S.-China relations.

The Senate bill would require the U.S. Commerce Department to investigate if a country is undervaluing its currency, which would be regarded as a government subsidy under U.S. law. Affected U.S. companies would then be allowed to seek retaliatory tariffs on goods imported from the country.

Specific elements of the bill, S. 1619 include:

  • Requiring administration action against countries that fail to correct currency misalignment if the Treasury Department finds that a country has misaligned currencies;
  • Clarifies when the Commerce Department must investigate currency manipulation for the purpose of applying a countervailing duty;
  • Establishing new criteria to identifying misaligned currencies; and
  • Establishes triggers and consequences unless countries adopt policies to stop misalignment.

Some analysts say China has intentionally undervalued the yuan, giving Chinese companies an unfair advantage against U.S. manufacturers. Whereas, China denies the allegations of currency manipulation and says it is committed to letting the yuan naturally rise or fall on global markets.

Earlier this month, the Economic Policy Institute—an American economic research organization—estimated that the country’s growing trade deficit with China has eliminated or displaced nearly 2.8 million jobs since 2001.

So far, the White House has refused to lend its support for any legislation imposing punitive sanctions on China and instead is relying on diplomacy, urging China to ensure its currency is on a level playing field. Many in the business community also oppose the Senate bill, saying it would not give China any incentive to change its policies but instead could cause it to retaliate against U.S. goods.