Business and labor are fighting over a proposal to subject China and other countries to duties that counteract the economic effects of an artificially low currency, but it’s not clear whether Democrats will maintain enough party unity to shepherd it to passage.
The theory behind the Fair Currency Act, (H.R. 782), sponsored by Reps. Tim Ryan (D-Ohio) and Duncan Hunter (R-Calif.), and a companion measure (S. 796), sponsored by Sen. Jim Bunning (R-Ky.), is that currencies undervalued compared to the dollar hurt U.S. manufacturers by hiking the prices of American exports and lowering the prices of American imports.
Under the bill, “exchange-rate misalignment” could be considered a prohibited export subsidy eligible for imposition of a countervailing duty to offset it.
“It’s time for our government to hold countries like China accountable for currency manipulation and stop making our companies compete with one arm tired behind their backs,” said Sen. Debbie Stabenow (D-Mich.), who also signed on to the Bunning bill.
Business groups remain wary, though the U.S. Chamber of Commerce has not yet taken an official position on the Ryan-Hunter bill.
“We have concerns about WTO consistency,” said Myron Brilliant, vice president for Asia affairs at the U.S. Chamber of Commerce, referring to how the law would conform to rules of the World Trade Organization. “We just don’t think this is the best way to address the concerns,” about Chinese currency, he said. “We continue to hope for capital market reform in China, and we continue to work for that,” he said.
The measure does enjoy the support of the AFL-CIO.
“Over the past decade we have listened to a series of U.S. Treasury secretaries deliver biannual currency reports that fail to find any technical violations of the law. However, they always admit there is a problem and follow that by announcing another series of meetings and strategic dialogues. What we have to show for it is an ever-escalating series of trade deficits with China and the rest of the world.” said Treasury Secretary Richard Trumka, who praised the bill in a statement.
There is evidence that some Democrats, at least, may be worried about the consequences of passing such legislation. Former Treasury Secretary Lawrence Summers under then-President Bill Clinton told lawmakers last week that he sympathized with their objective, but worried about the tactics. Congressional efforts to pressure China and other countries to revalue their currency could backfire.
“I believe it would be in our national interest, the global interest, and for a variety of reasons in China’s interest, that those rates be adjusted,” he said.
Summers warned that a bill that triggered duties against China could disrupt global financial markets.
“Markets are more than unusually fragile, given how long they have been stable and the complacency which has set in,” he said. Summers made the comments to the Senate Finance Committee during a question-and-answer session following testimony on the president’s trade agenda Thursday.
Sen. Carl Levin (D-Mich.) said the bill “recognized that American companies are competing not just against foreign companies, but against entire foreign countries, and it puts our government squarely on their side,” he said.
But by backing the American companies, the U.S. government could threaten market health, said Summers. “We would be at our peril if we tried to force a change. We might or we might not succeed. It’s possible we could live to rue our success if significant financial instability were to result,” said Summers.