Senate heads toward passage of China currency bill

WASHINGTON – The Senate is trying to slow China's economic juggernaut with threats of higher tariffs on Chinese products made cheap through an artificially undervalued currency, which lawmakers blame for destroying American jobs. The House, though, is unlikely to take up the bill, which some American businesses warn could trigger a trade war.

Congress is also on the final lap of completing legislation that could put some new life in the U.S. economy by approving free trade agreements with South Korea, Colombia and Panama.

The currency legislation, expected to pass the Senate easily on Tuesday, has both strong advocates, who say it will make American goods more competitive and support more than 1 million new jobs, and critics who warn that will provoke Chinese retaliation and hurt Americans in one of their fastest-growing markets.

The bill could die in the House, where a companion measure has the sponsorship of more than half the members but lacks the support of the GOP leadership.

House Speaker John Boehner, R-Ohio, like the many large multinational companies that oppose the legislation, has said it would be dangerous to dictate another country's currency policies, and he can prevent the bill from ever being considered.

Majority Leader Eric Cantor, R-Va., said Tuesday that the White House should make its position clear before the House acts. The White House and President Barack Obama have not come out against the bill but have shown they are not comfortable with it, saying they are concerned about any legislation that might violate international trade rules.

Regardless of the outcome, the debate and the vote are giving senators a chance to make clear to the Chinese their frustrations over trade policies that have seen China's trade surplus with the United States go from $10 billion 20 years ago to $273 billion last year, delivering painful blows to U.S. manufacturers and their employees.

"This is a country manipulating its currency for an advantage in the export market," said Sen. Lindsey Graham, R-S.C. "The Chinese manipulation of the yuan has cost this country at least 2 million jobs — 41,000 in South Carolina — and it is an unfair trade practice in another name."

The Chinese currency, the yuan, is undervalued against the dollar by 25 to 30 percent, according to most estimates, with some economists putting the difference at up to 40 percent. That means that Chinese goods sold in the United States have a 25 to 30 percent price advantage, while U.S. items sold in China become that much more expensive.

Democratic Sen. Sherrod 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 trade agreements with South Korea, Colombia and Panama are also intended to remove the disadvantages faced by U.S. exporters by eliminating or reducing the tariffs they must pay in those countries. Goods from the three countries already enter the United States with little or no tariff. Administration economists say the three deals could boost U.S. exports by $13 billion annually.

The House begins debate Tuesday on the bills and legislation to help workers displaced by foreign trade that the administration and Democrats insisted must be part of the trade agenda. The Senate Finance Committee considers the trade bills Tuesday and both chambers plan to vote on them on Wednesday.

The currency legislation would set in motion the imposition of higher tariffs on a country — China is not specifically mentioned in the bill — if Treasury decides that its currency is "misaligned" and the country does not act to correct it. Currently, Treasury must resolve that a country is willfully manipulating its currency, a higher bar to reach, before sanctions can be considered.

The bill also makes it easier for specific industries to petition the Commerce Department for redress if they believe an exchange rate is giving a foreign competitor the equivalent of an export subsidy.

The drive to punish China for its currency practices has been going on for years, led by conservatives such as Graham and Democratic liberals such as Brown and Chuck Schumer of New York. They have generally been discouraged by the Obama administration, and the Bush administration before it, which cautioned against unilateral sanctions and appealed for time to bring about Chinese cooperation through diplomatic channels.

There has been some appreciation of the yuan in the past year, but not enough to satisfy those who say it is still heavily undervalued in China's favor.

The Chinese have made their opposition to the Senate bill clear, saying in numerous statements that the trade imbalance is a result of U.S. economic policies and not the exchange rate, and that unilateral actions against China could damage the entirety of U.S.-China relations. Those range from efforts to better protect U.S. intellectual property rights in China, ending the theft of American technology, assuring the security of Taiwan and keeping the Korean Peninsula peaceful.

But Schumer said those warning that his bill will lead to a trade war miss the point. "When we see the trade deficit in 10 years triple with a country that is not playing by the rules, it is pretty clear there is a trade war going on and they are winning in so many ways," he said.

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 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.