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Chinese Currency Bill: A No-Cost, Bipartisan, Long-Term Jobs Measure

Detail from a 20 Yuan note (photo: Sharon Drummond)

Yesterday, we learned that Harry Reid moved up a vote on a bill targeting China’s alleged currency manipulation ahead of the American Jobs Act. Improving the balance of trade with China, which forcing a revaluation of the yuan would accomplish as a kind of monetary stimulus, would have a greater economic and jobs impact than the short-term stimulus efforts that have been proposed, and based on past experience, it would have a more likely chance of passing Congress. Yet the Obama Administration has eschewed this more aggressive approach toward China’s currency manipulation. They now say they are “reviewing” the bill, and that they share its goals. Here’s specifically what Press Secretary Jay Carney said yesterday:

MR. CARNEY: We’re reviewing the bill. (Laughter.) No, seriously, we are reviewing the bill and we share the goal of achieving further appreciation of China’s currency. As you know, and those who — in the financially oriented press know, the — China has moved some in terms of appreciating its currency. I believe it’s appreciated about 10 percent, adjusted for inflation, since June of 2010. But it’s substantially undervalued, and we need to see continued progress, and we’ve made that clear publicly and privately.

Q: But you’re not sure whether you’re going to support this?

MR. CARNEY: We’re reviewing the bill.

Q: And do you have any idea when you might have a conclusion to that review?

MR. CARNEY: Not that I could offer today.

Let’s review the bill together! The legislation is an amalgam of two different efforts. A bill co-sponsored by Sherrod Brown (D-OH) and Olympia Snowe (R-ME) would give unions and industries greater ability to file claims against illegal Chinese trade practices on a case-by-case basis, and would allow the Commerce Department to factor in currency manipulation into any tariffs the US puts up as a result. This would increase duties against Chinese products, which are being effectively subsidized by currency manipulation. The Congressional Budget Office estimated last year that such a measure would collect $125 million in new tariff revenues, but the main impact would be to put political pressure on China to revalue its currency.  [cont’d.]

Chuck Schumer (D-NY) had a bill that encompasses that measure, and also would impact a biannual report put out by the Treasury Department that brandishes countries as currency manipulators, and imposes penalties on those countries charged. The Treasury Department has substantial discretion on naming a currency manipulator in that report, which comes out every April and October, and the Schumer bill would take that leeway away from the Treasury. “It essentially says, if an apple is an apple, you’ve got to call it an apple,” said Scott Paul of the Alliance for American Manufacturing, a key supporter of the bill. This would force negotiations with China over revaluing their currency.

Similar and even stronger bills have passed each house of Congress in the past. In 2005, a bill that labeled China a currency manipulator and imposed a flat 27.5% duty on Chinese imports passed the Senate on a bipartisan basis with 67 votes. In 2010, a bill similar to the Brown/Snowe bill passed the House with 347 votes, including 99 Republicans. The bill in front of the Senate, S.1619, would basically combine Brown/Snowe with Schumer’s bill on the Treasury report. Brown is the lead co-sponsor.

The bill got to the Senate calendar ahead of the American Jobs Act, but also ahead of three so-called “free trade” deals being pushed by the Administration. If you want to increase American exports, you clearly would want to ensure a level playing field without currency manipulation from one of the leading exporters in the world. Not to mention the fact that the bill has a strong chance to get out of the Senate with bipartisan support, a rare sight in Washington these days.

“We’ve been laying the groundwork for 3-4 years,” said Paul of AAM. “It’s a good bill and a good message that will have positive economic effects. It won’t happen overnight, but it would start to achieve the rebalancing of trade with China that we need to achieve. It’s one small step in that process.”

But if Senate passage looks bright, the House is another matter. The House leadership by and large voted against the currency bill in 2010, despite the fact that the majority of the rank and file supported it. They are not committed to move the bill to the floor, and Democrats have responded by filing a discharge petition, which would force a House vote if a majority of members sign it. But even though 60 Republicans have co-sponsored the bill in the House (which is basically the old Brown/Snowe bill that got 347 House votes last year), none of them have signed the discharge petition. The petition has 174 signatures, all from Democrats.

“Last year, Republicans joined Democrats in passing this bill and it has strong support today,” Pelosi spokesman Nadeam Elshami tells me. “Republican leaders who continue to stand in the way must explain to American workers why they must pay the price for inaction in the House.”

Asked why no Republicans have signed the discharge petition despite previous support, a House GOP leadership aide would only say: “I suspect we share the White House’s concerns.”

“(The bill) would get majority support in the GOP caucus,” said Scott Paul. “No Republicans have signed the discharge petition because that’s like an act of war against your leadership.” But if the Senate passes the bill and Obama punts on the October currency report, that will add a little more pressure to Republicans who support the bill and to the leadership, Paul argues. “There are a lot of industrial state Republicans now, in Pennsylvania, Ohio and Michigan. Will the leadership be responsible to majority of their own caucus?” The fact that Republican Presidential candidate Mitt Romney supported branding China a currency manipulator in his economic plan also makes it harder for Republicans to stop a vote.

Business groups who oppose the legislation have argued recently that China is already moving the renminbi in the right direction. One story yesterday argued that the renminbi has increased 21% since 2005.

Paul responded in a couple ways. First, the renminbi was pegged to the dollar from 1994 to 2005. China began to appreciate their currency only after the Senate passed that bill to lay a major tariff on Chinese goods. “I ask economists, what changed in the Chinese economy in 2005 that they changed their currency policy? They say inflationary pressure or something,” said Paul. “But it’s clear that they responded to political pressure.”

Second, Paul said that commentators fail to recognize the difference between nominal and real appreciation. According to economist C. Fred Bergsten of the Peterson Institute for International Economics, who has a must-read New York Times op-ed today supporting the goal of forcing the renminbi to appreciate to reduce America’s trade deficit, while the renminbi has appreciated in nominal terms by about 9% since last June, when you consider additional factors like inflation, productivity and the like, the renminbi is MORE undervalued today than it was last year. “When Jay Carney says it has appreciated, in nominal terms that’s accurate,” said Paul. “In real terms, it’s actually worth less. It’s a kabuki dance.”

Paul wanted to downplay the immediate impact of this legislation. “It’s not going to cause China to revalue overnight,” he said. But it would put pressure on them to reform their practices, and over time it could rebalance the trade relationship, which would add 1.5% to GDP, Paul estimated. It would also make it easier to file cases of illegal trade practices with China, something the Obama Administration actually has a good record on.

This would take several years, but over time, US trade in a global context would come more into balance. As a job creation measure, “It’s certainly the only thing that doesn’t cost money,” Paul said. “It would have a positive effect on manufacturing and make us more competitive. And also, there are countries like Brazil and South Africa who hate China’s currency policies more than we do. The US would actually look like a leader on world economic issues.”

…more info from AAM here.

CommunityThe Bullpen

Chinese Currency Bill: A No-Cost, Bipartisan, Long-Term Jobs Measure

Yesterday, we learned that Harry Reid moved up a vote on a bill targeting China’s alleged currency manipulation ahead of the American Jobs Act. Improving the balance of trade with China, which forcing a revaluation of the yuan would accomplish as a kind of monetary stimulus, would have a greater economic and jobs impact than the short-term stimulus efforts that have been proposed, and based on past experience, it would have a more likely chance of passing Congress. Yet the Obama Administration has eschewed this more aggressive approach toward China’s currency manipulation. They now say they are “reviewing” the bill, and that they share its goals. Here’s specifically what Press Secretary Jay Carney said yesterday:

MR. CARNEY: We’re reviewing the bill. (Laughter.) No, seriously, we are reviewing the bill and we share the goal of achieving further appreciation of China’s currency. As you know, and those who — in the financially oriented press know, the — China has moved some in terms of appreciating its currency. I believe it’s appreciated about 10 percent, adjusted for inflation, since June of 2010. But it’s substantially undervalued, and we need to see continued progress, and we’ve made that clear publicly and privately.

Q: But you’re not sure whether you’re going to support this?

MR. CARNEY: We’re reviewing the bill.

Q: And do you have any idea when you might have a conclusion to that review?

MR. CARNEY: Not that I could offer today.

Let’s review the bill together! The legislation is an amalgam of two different efforts. A bill co-sponsored by Sherrod Brown (D-OH) and Olympia Snowe (R-ME) would give unions and industries greater ability to file claims against illegal Chinese trade practices on a case-by-case basis, and would allow the Commerce Department to factor in currency manipulation into any tariffs the US puts up as a result. This would increase duties against Chinese products, which are being effectively subsidized by currency manipulation. The Congressional Budget Office estimated last year that such a measure would collect $125 million in new tariff revenues, but the main impact would be to put political pressure on China to revalue its currency.

Chuck Schumer (D-NY) had a bill that encompasses that measure, and also would impact a biannual report put out by the Treasury Department that brandishes countries as currency manipulators, and imposes penalties on those countries charged. The Treasury Department has substantial discretion on naming a currency manipulator in that report, which comes out every April and October, and the Schumer bill would take that leeway away from the Treasury. “It essentially says, if an apple is an apple, you’ve got to call it an apple,” said Scott Paul of the Alliance for American Manufacturing, a key supporter of the bill. This would force negotiations with China over revaluing their currency.

Similar and even stronger bills have passed each house of Congress in the past. In 2005, a bill that labeled China a currency manipulator and imposed a flat 27.5% duty on Chinese imports passed the Senate on a bipartisan basis with 67 votes. In 2010, a bill similar to the Brown/Snowe bill passed the House with 347 votes, including 99 Republicans. The bill in front of the Senate, S.1619, would basically combine Brown/Snowe with Schumer’s bill on the Treasury report. Brown is the lead co-sponsor.

The bill got to the Senate calendar ahead of the American Jobs Act, but also ahead of three so-called “free trade” deals being pushed by the Administration. If you want to increase American exports, you clearly would want to ensure a level playing field without currency manipulation from one of the leading exporters in the world. Not to mention the fact that the bill has a strong chance to get out of the Senate with bipartisan support, a rare sight in Washington these days.

“We’ve been laying the groundwork for 3-4 years,” said Paul of AAM. “It’s a good bill and a good message that will have positive economic effects. It won’t happen overnight, but it would start to achieve the rebalancing of trade with China that we need to achieve. It’s one small step in that process.”

But if Senate passage looks bright, the House is another matter. The House leadership by and large voted against the currency bill in 2010, despite the fact that the majority of the rank and file supported it. They are not committed to move the bill to the floor, and Democrats have responded by filing a discharge petition, which would force a House vote if a majority of members sign it. But even though 60 Republicans have co-sponsored the bill in the House (which is basically the old Brown/Snowe bill that got 347 House votes last year), none of them have signed the discharge petition. The petition has 174 signatures, all from Democrats.

“Last year, Republicans joined Democrats in passing this bill and it has strong support today,” Pelosi spokesman Nadeam Elshami tells me. “Republican leaders who continue to stand in the way must explain to American workers why they must pay the price for inaction in the House.”

Asked why no Republicans have signed the discharge petition despite previous support, a House GOP leadership aide would only say: “I suspect we share the White House’s concerns.”

“(The bill) would get majority support in the GOP caucus,” said Scott Paul. “No Republicans have signed the discharge petition because that’s like an act of war against your leadership.” But if the Senate passes the bill and Obama punts on the October currency report, that will add a little more pressure to Republicans who support the bill and to the leadership, Paul argues. “There are a lot of industrial state Republicans now, in Pennsylvania, Ohio and Michigan. Will the leadership be responsible to majority of their own caucus?” The fact that Republican Presidential candidate Mitt Romney supported branding China a currency manipulator in his economic plan also makes it harder for Republicans to stop a vote.

Business groups who oppose the legislation have argued recently that China is already moving the renminbi in the right direction. One story yesterday argued that the renminbi has increased 21% since 2005.

Paul responded in a couple ways. First, the renminbi was pegged to the dollar from 1994 to 2005. China began to appreciate their currency only after the Senate passed that bill to lay a major tariff on Chinese goods. “I ask economists, what changed in the Chinese economy in 2005 that they changed their currency policy? They say inflationary pressure or something,” said Paul. “But it’s clear that they responded to political pressure.”

Second, Paul said that commentators fail to recognize the difference between nominal and real appreciation. According to economist C. Fred Bergsten of the Peterson Institute for International Economics, who has a must-read New York Times op-ed today supporting the goal of forcing the renminbi to appreciate to reduce America’s trade deficit, while the renminbi has appreciated in nominal terms by about 9% since last June, when you consider additional factors like inflation, productivity and the like, the renminbi is MORE undervalued today than it was last year. “When Jay Carney says it has appreciated, in nominal terms that’s accurate,” said Paul. “In real terms, it’s actually worth less. It’s a kabuki dance.”

Paul wanted to downplay the immediate impact of this legislation. “It’s not going to cause China to revalue overnight,” he said. But it would put pressure on them to reform their practices, and over time it could rebalance the trade relationship, which would add 1.5% to GDP, Paul estimated. It would also make it easier to file cases of illegal trade practices with China, something the Obama Administration actually has a good record on.

This would take several years, but over time, US trade in a global context would come more into balance. As a job creation measure, “It’s certainly the only thing that doesn’t cost money,” Paul said. “It would have a positive effect on manufacturing and make us more competitive. And also, there are countries like Brazil and South Africa who hate China’s currency policies more than we do. The US would actually look like a leader on world economic issues.”

…more info from AAM here.

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David Dayen

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