Every six months, the Treasury issues a report declaring that China’s currency is undervalued, draining dollars and jobs out of the U.S. economy. And every six months, the Treasury defers action, saying the Beijing government is not manipulating its currency.
But with the prolonged slump in jobs, pressure is mounting among American politicians — as well as those in Europe, Brazil and emerging markets — to challenge China, even if that means imposing import tariffs to protect domestic industries and jobs.
The Senate voted 79 to 19 on Monday to bring to the floor a currency measure that would make it more difficult for the Treasury and Commerce departments to sidestep the need to retaliate against countries such as China. A similar bill passed the House by a large margin last year, and congressional leaders give the new measure a strong chance of passage, potentially putting both China and the Obama administration in an awkward position.
Congress is taking aim at China’s currency just as lawmakers appear to be uniting behind free-trade agreements with Panama, South Korea and Colombia. President Obama sent those deals to Congress on Monday, after House Speaker John A. Boehner (R-Ohio) pledged to swiftly move them, together with a worker retraining program the White House wants.
Obama said the trade deals “will make it easier for American companies to sell their products . . . and provide a major boost to our exports.” He said they would “support tens of thousands of jobs across the country for workers making products stamped with three proud words: Made in America.”
Obama said the South Korea deal would phase out its tariffs on 95 percent of U.S. exports over five years and give American automakers greater access to the South Korean market. He said two-thirds of U.S. agricultural products would also enter South Korea duty-free.
Yet China’s weak currency continues to loom over the U.S. trade debate. Economists say that even though China has gradually let the value of its currency rise over the past six years, the Chinese yuan is still undervalued by anywhere from 15 percent to 38.5 percent. They say that is costing the U.S. economy anywhere from a half-million to 2.25 million jobs. Although the Obama administration has been urging China to let its currency rise faster, China has been slow to respond, and the administration has avoided a full-fledged confrontation spiked with retaliatory tariffs.
“I regard China’s currency policy as the most protectionist measure taken by any major country since World War II,” said C. Fred Bergsten, head of the Peterson Institute for International Economics. “Its currency manipulation by our estimates has it undervalued by 20 percent to 30 percent. That’s equivalent to a 20 to 30 percent subsidy on all exports and a tariff on all imports by the largest trading country in the world.”
Republican presidential candidates, sensing which way the political winds are blowing, also are starting to line up in support of measures to push China into letting its currency increase in value. Former Massachusetts governor Mitt Romney said he would declare China a currency manipulator, which could lead to tariffs on Chinese imports.