The U.S. House of Representatives was set to pass a bill to put pressure on China to let its currency rise faster, fanning the flames of a long-running dispute over trade and jobs.
The House is expected to approve, with bipartisan support, a bill to treat China’s exchange rate as a subsidy, opening the door to extra duties on Chinese goods entering the United States, some of which are already subject to special levies.
But the measure must gain Senate approval and be signed into law by President Barack Obama—by no means a sure bet.
U.S. lawmakers have long brandished the sword of trade retaliation for what they see as China’s deliberate policy of undervaluing the yuan to give its exports an unfair advantage in global markets. But they have never sent the president any legislation to be signed into law.
“I think the main statement was made by the president—that they either act or we have other means—and this is one of the other means,” said Sander Levin, the Democratic chairman of House Ways and Means Committee.
Obama and Chinese Premier Wen Jiabao talked about China’s currency and huge trade surplus with the United States on the sidelines of the U.N. General Assembly, aides said, but they declined to discuss the sensitive issues with reporters after the meeting.
Ahead of the House vote, China’s central bank reaffirmed its pledge to increase the flexibility of the yuan and improve the way it manages the exchange rate.
Global Currancy War?
Slow growth in most advanced economies leaves them more reliant on exports, raising concerns that countries will intentionally weaken their currencies to gain an edge.
Japan intervened this month to weaken the yen for the first time in six years and a couple of emerging economies followed.
Brazil’s finance minister warned this week of a global “currency war.” The Brazilian currency, the real, recently hit its highest mark since December, threatening exports.
The U.S. dollar has shed 11 percent against a basket of currencies since early June as the Federal Reserve considers printing more money to prop up a sluggish economic recovery.
The House move, little more than a month before the U.S. congressional election, is certain to further roil relations with Beijing, which resents the criticism and says the decision about the speed of currency reforms is its alone.
Representative Tim Murphy, a Republican who helped craft the bill, said on Tuesday that patience has run out.
“We cannot rely on the Chinese government to voluntarily do the right thing,” Murphy said. “The expiration date for appeasement has long since past.”
The White House has not taken a position on the bill, although House Majority Leader Steny Hoyer said lawmakers had worked with the Obama administration to make sure the legislation did not violate World Trade Organization rules.
The outlook for Senate approval is uncertain but supporters are pushing for a vote when lawmakers return from the Nov. 2 election.
After holding the yuan steady against the dollar through the financial crisis, Beijing began to allow for an upward drift against the dollar on June 19.
Since then it has risen to its highest level against the dollar in more than five years but, at just over 2 percent, the gain is far short of what U.S. lawmakers want. (Reuters)
Treasury Secretary Timothy Geithner told Congress two weeks ago the United States would work with Group of 20 nations to push China for faster appreciation but several U.S. allies expressed reluctance to join the effort.
G20 leaders are set to meet in Seoul on Nov. 10-11. That would give U.S. senators time to gauge any further moves from China before deciding what to do with the legislation.
Mixed Views from Businesses
The House bill allows the Commerce Department to treat “fundamentally undervalued currencies” as an illegal export subsidy so that U.S. companies can request a countervailing duty to offset China’s price advantage.
Many lawmakers may believe a to