The U.S. Senate has voted 63 to 35 to penalize China for its currency practices after two weeks of heated debate in which many lawmakers accused Beijing of predatory export promotion policies that have cost American jobs. The bill faces an uncertain future in the House of Representatives and has not been endorsed by President Barack Obama, but it already has provoked strong reactions from the Chinese government.
For years, Democratic Senator Charles Schumer of New York has championed efforts to force the U.S. government to take action against China’s undervalued currency. The Currency Exchange Rate Oversight Reform Act would do that by treating currency manipulation as a foreign subsidy, triggering U.S. tariffs on Chinese goods.
Schumer said the stakes are high. “If we continue to lose wealth and jobs to China, we may never recover [economically] as a country. This is serious stuff," he said.
Also backing the bill is Republican Senator Lindsey Graham of South Carolina, who accused Beijing of a host of unfair economic practices. “The institution I need to be protecting is the American workforce, which is having their clock cleaned [is being beaten] by a communist dictatorship that cheats. They [the Chinese government] do not outwork us. They do not outperform us. They steal our intellectual property. They manipulate their currency. They subsidize their industries. So enough is enough," he said.
Opponents of the bill label it misguided and dangerous.
Republican Senator Orrin Hatch of Utah said, “We are telling the world community that the U.S. is turning inward once again, seeking protectionist solutions to global problems. At the same time, we would be injecting further uncertainty into our own economic recovery as our exporters and workers face potential retaliation from one of our leading trading partners [i.e., China].”
Chinese officials have warned against politicizing trade issues, pointing out that the yuan has appreciated relative to the dollar in recent years. Editorials by China’s state-run news media accuse U.S. lawmakers of scapegoating China for America's economic shortcomings.
Some analysts say the World Trade Organization would reject a U.S. bid to treat currency manipulation as a government subsidy. Last month, 50 trade groups representing many of America’s most vibrant export industries argued that the legislation would invite Chinese retaliation and should be rejected.
That concern was echoed by Republican Senator Jim DeMint of South Carolina. “We do not need to start a trade war with China. We need to stop the class warfare that is preventing jobs from being created right here in America," he said.
Senator Schumer had a sharp response. “To those who say it will cause a trade war, we [already] are in a trade war, to those who say China will retaliate, China has far more to lose in this than we do. They will not retaliate big time because it will do even more damage to the Chinese economy. When they are faced with the hard reality [of U.S. tariffs], they then adjust and play fairer," he said.
Last week, President Obama said China has been “gaming” their currency to benefit their exports and disadvantage U.S.-made products sold in China. But he urged caution when it comes to U.S. legislation that might have unintended consequences.
The Republican-controlled House of Representatives has given no indication that it will hold a vote on the currency bill, without which it cannot become law. House Speaker John Boehner says the legislation inappropriately attempts to force countries to alter their handling of their currencies.