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Revaluation controversy rages on in
Washington
By Emad Mekay
WASHINGTON - Four influential Republican
members of Congress have introduced legislation to
pressure China to revalue its currency or face
higher tariffs on its exports to the United
States. The bill is the latest move by the United
States to curtail cheap Chinese imports, which
Washington views as threatening to US workers,
industries and corporations. Congress is concerned
that Chinese goods are made artificially more
attractive and US exports less appealing because
the Chinese currency is fixed at an undervalued
rate compared to the US dollar.
"Good
people are losing their jobs and our economy is
taking a big hit because of China's unfair trade
practices, and it's time we send them a strong
message," said Representative Mark Green of
Wisconsin, one of the co-sponsors of the bill.
Phil English of Pennsylvania, Chris Chocola of
Indiana, Robin Hayes of North Carolina and Green
announced the legislation, called the Currency
Harmonization Initiative through Neutralizing
Action (CHINA) Act of 2005.
The proposed
law charges that China's exchange rate may be
circumventing rules of the World Trade
Organization (WTO). It also says that Beijing
could be in contravention of Article IV of the
International Monetary Fund's Articles of
Agreement, which bars the use of currency
manipulation to prevent effective balance of
payments adjustment or to gain unfair trade
advantage.
But the consensus in Washington
is that the real reason for the move is the
mushrooming US trade deficit, which reached a
record US$195.1 billion in the first quarter of
this year. According to the US-China Economic and
Security Review Commission, the United States'
trade deficit with China increased 20-fold over
the last 14 years, rising from $6.2 billion in
1989 to $160 billion in 2004. As a result, the US
Treasury has made several public demands that
China float its currency, the yuan.
While
some progress has been reported by the Treasury in
engaging China on its exchange rate policy, the
lawmakers say far more needs to be done. According
to the Republican bill, China could face tariffs
equal to the percentage of alleged "manipulation
found in its currency". This would come in
addition to any existing tariffs on Chinese
imports.
The proposed law also requires
the Bush administration to clarify existing trade
remedies and WTO rules that deal with currency
manipulation. The lawmakers say they want to see
changes that would "reflect modern-day monetary
policy". "As a former manufacturer, I understand
the opportunities of free trade," Chocola said.
"Without a level playing field, our manufacturers
are at a significant disadvantage. This bill
results in not only free trade, but fair trade by
making sure China plays by the rules."
US
moves to pressure China to revalue its currency
include a report by the Treasury Department last
month which, for the first time, stated that China
now has the technical expertise to begin to take
steps to float its currency. The biannual report,
"International Economic and Exchange Rate
Policies", stated that China would likely be cited
for manipulating its currency in the November
report if it failed to take significant action to
alter its currency peg.
The majority of US
economists have backed official demands for a
currency revaluation by China. "The United States
has a very large trade deficit that is not
sustainable and China clearly is a big part of the
story, [although] not the whole story, and
exchange rate is the reason," said Dean Baker,
co-director of the Center for Economic and Policy
Research (CEPR). "So I think it's reasonable for
the United States to say we want a different
exchange rate." His analysis is based in part on
the view that it would probably be better for both
China and US consumers if Bejing revalues its
currency rather than face US tariffs. "With new
tariffs, it'll cost people in the US say, 40% more
to buy their goods. That additional 40% is going
to the US government as taxes, whereas if it costs
40% more because they revalued their currency,
then it's going, at least to some extent, to
producers in China," Baker said.
However,
other economists argue that blaming China for US
trade woes is misplaced and could open up the
United States to charges of protectionism, which
could carry a hefty cost in the long term. "China
should and probably will allow its currency to
readjust in the not-too-distant future, but
heavy-handed threats from Congress and the White
House are based on populist nonsense that, if
enacted into law, would inflict real damage on
American families," said Daniel Griswold, director
of the Center for Trade Policy Studies at the Cato
Institute in Washington.
Griswold argues
that China has a growing demand for imports that
includes a broad range of US products, from wheat,
soybeans, and cotton to plastics, semiconductors,
and industrial machinery. He notes that since
2000, US exports of goods to China have more than
doubled to $35 billion, while US exports to the
rest of the world have grown only 2%. "The dollars
the Chinese earn from selling in the US market are
not stuffed in mattresses," Griswold said. "They
come back to the United States, either to buy our
exports, or to invest in US Treasury bonds, which
help to keep US interest and mortgage rates lower
than they would be without Chinese investment."
Slapping tariffs on Chinese goods, he argues,
would disrupt "a mutually beneficial relationship"
with the world's most dynamic economy.
Others far more influential than Griswold
have made similar points. On Thursday, Federal
Reserve chairman Alan Greenspan and Treasury
Secretary John Snow told lawmakers that new
tariffs on imports would not effectively protect
US manufacturing jobs or cut the trade deficit.
"Some observers mistakenly believe that a marked
increase in the exchange value of the yuan
relative to the US dollar would significantly
increase manufacturing activity and jobs in the
United States," said Greenspan. "I am aware of no
credible evidence that supports such a
conclusion." Instead, Greenspan contended, Chinese
imports would simply be replaced by imports from
other Asian and possibly Latin American nations,
at higher prices, impacting the US standard of
living.
Snow said the US might be forced
to impose tariffs if the peg isn't loosened, and
pledged action of there is no revaluation by his
next currency report in October. But he added that
isolationist policies "would be ineffective,
disruptive to markets and damaging to America's
special role as the world's leading advocate for
open markets and free trade."
Snow and
Greenspan agreed, however, that revaluation is
needed in order for the Chinese currency to
reflect years of rapid economic growth. "China is
now ready and should move without delay in a
manner and magnitude that is sufficiently
reflective of underlying market conditions," Snow
said, noting his frustration at Beijing's
inaction.
(Inter Press
Service) |
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