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Senate Considers Sanctioning China Over Currency

Tue, 10/11/2011 - 6:25am
Manufacturing.net

WASHINGTON (AP) -- Senate legislation penalizing China for promoting exports by keeping its currency undervalued is headed for a final vote in the Senate, putting the Beijing government on notice that U.S. lawmakers are fed up with Chinese trade policies that undercut American manufacturers and take away jobs.

A bipartisan majority that supports the legislation coming to a vote Tuesday evening says forcing China to appreciate its currency could put large numbers of Americans back to work.

The theme of crafting trade policy to create jobs will also be played out Tuesday and Wednesday as the House and Senate vote to approve free trade agreements with South Korea, Colombia and Panama. The trade deals have been pending since the last Bush presidency, but the Obama administration and a majority of Congress are now in accord that the deals, particularly with Korea, will be a boon both to American exports and job growth.

The currency bill "has the potential to create or save around 2 million jobs, without cost to taxpayers, because it is simply standing up for American companies and American workers," said Sen. Sherrod Brown, D-Ohio, a chief sponsor of the currency measure.

Despite its popularity in the Senate, the bill faces an uncertain future: House Speaker John Boehner, R-Ohio, opposes it and may never bring it to the House floor. President Barack Obama and the White House, while avoiding a position on the bill, have warned against unilateral action that might violate international trading rules. American companies doing business in China say it could spark a trade war.

But with the trade deficit with China hitting $273 billion last year and heading toward $300 billion this year, senators said it was time to get tough.

"If China continues its predatory practices, the future for our children and grandchildren in this country will not be bright," said Sen. Chuck Schumer, D-N.Y., who has tried numerous times in past years to slap sanctions on the Chinese.

The legislation would make it easier for the Treasury Department to declare a currency misaligned -- the bill does not specifically mention China -- requiring action if the offending country does not take action, or for individual industries to petition the Commerce Department for redress if a competitor nation is using its currency as an export subsidy.

Economists say China's currency, the yuan, is undervalued by about 25-30 percent, and possibly by as much as 40 percent, against the dollar. That means that Chinese goods sold in the United States become 25-30 percent cheaper, and U.S. goods exported to China that much more expensive.

The Fair Currency Coalition, a group pushing for changes in China's exchange rate, gives the example of a steel mill that might cost 4 billion yuan to build in China. It says that at a fair currency rate that would mean about $900 million, but at current rates it would cost only $600 million, creating a bigger incentive to abandon American factories and relocate.

Brown, whose state of Ohio has been hit hard by Chinese competition, cited a tool and die shop in Brunswick, Ohio, that was about to sign a $1 million contract until the Chinese came in at the last moment with a bid 20 percent lower. "That meant I don't know how many jobs that didn't stay in America but went to China, and that 20 percent was given to them because of currency," he said.

The Chinese government has insisted that the trade imbalance is a result of U.S. economic policy and not the currency exchange, and warned that a unilateral U.S. move to punish China would damage economic relations. There's also concern about other aspects of U.S.-China relations, including China's massive buying of U.S. government bonds, continuing efforts to get China to protect intellectual property rights and China's importance in easing tensions on the Korean peninsula.

"In the end, such unilateral action would very likely cause retaliation by China and ultimately damage the U.S. economy, including exporters, investors, workers and consumers," Bruce Josten, U.S. Chamber of Commerce vice president for government affairs, wrote in a letter to senators.

Opponents argue that the currency sanctions would do little to help the U.S. job market because more expensive Chinese goods would simply be replaced by goods from other low-wage countries such as Vietnam and Bangladesh. And they say companies such as Wal-Mart would continue buying Chinese items because they are deeply involved in investment in China, a fast-growing export market.

But the Alliance for American Manufacturing, a labor-management partnership that supports the bill, says a 28.5 percent appreciation in the yuan would create 2.25 million American jobs and reduce the annual trade deficit by $190.5 billion. "China responds to consequences, and this legislation will make a real difference for American workers and businesses," said the group's executive director, Scott Paul.

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