China Steps Up Criticism of U.S. Currency Bill

October 11, 2011 03:02 AM
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China currency bill has value to some, trade war concerns for others

NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.

As the U.S. Senate is poised to vote on a bill this evening that would impose trade restrictions on countries whose currency is undervalued – a bill most see aimed at China – China has continued its criticism of the plan.

Officials earlier this week warned of a trade war erupting between the two countries should the measure become law.

The latest effort by China is to conjure up of the Smoot-Hawley Act put in place in 1930. The Xinhua News Agency offered a commentary today which implores the U.S. not to follow what they say is the same path via the currency bill.

“Comparing the current political and social situation with that of 80 years ago, we can find stark similarities: an economic downturn, a high unemployment rate, marked popular discontent, and growing political conflicts, especially when presidential politics is getting hot,” Xinhua stated. “Lessons drawn from the Smoot-Hawley Tariff have exposed obvious problems in the U.S. political party system. Lawmakers focus mostly on the economic interests of their own electoral districts but fail to consider major political and economic issues from an international perspective.”

Their conclusion: “U.S. lawmakers who unreasonably advocate the appreciation of the Chinese currency is the panacea for American woes need to steer clear of the path to a no-win destination and refrain from any steps that may stir up waves of trade war.”

In an op-ed item in today's Wall Street Journal, Sen. Bob Corker (R-Tenn.) wrote that the bill “seeks to create U.S. jobs by imposing tariffs on imports from China in the amount that China undervalues its currency. The bill's actual effect, though, won't be to bring production from China to the U.S. – only to make the things that we buy from China more expensive. Why? Because China is unlikely to respond to a tariff on all imports by doing what we demand they do. More likely, China would retaliate with tariffs of its own and by cutting off business with U.S. companies...In 2010, the U.S. imported $365 billion worth of goods from China. This bill would potentially inflate the price U.S. consumers and businesses paid for those items by 20 to 30 percent. That's about $60 billion to $100 billion in extra costs taken from the U.S. economy in the middle of a recession."

Chinese Vice President Xi Jinping, the man pegged to be China's next president, will visit the U.S. early next year.

The bill's supporters note that Federal Reserve Chairman Ben Bernanke on Oct. 4 said, “Chinese currency policy is blocking what might be a normal recovery process in the global economy.”

Wrong focus. Other lawmakers believe the currency debate should focus instead on what some experts signal as the bigger issue: eliminating Chinese barriers to U.S. investment there.

The House Republican leadership has indicated that the legislation is a bad idea and has no plans to bring the bill to the House floor.

At a news conference last Thursday, President Obama declined to answer whether he would sign or veto the bill should it reach his desk, but he noted concern with the legislation. “China has been very aggressive in gaming the trading system to its advantage and to the disadvantage of other countries, particularly the United States,” including through its currency practices, Obama said. But he said he had concerns with the bill. “Whatever tools we put in place, let’s make sure that these are tools that can actually work, that they’re consistent with our international treaties and obligations,” Obama said. “I think we’ve got a strong case to make, but we’ve just got to make sure that we do it in a way that’s going to be effective.”

NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.






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