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The Daily Wildcat

The Daily Wildcat

 

    House votes to pressure China on currency

    WASHINGTON — With the politically charged issue of jobs weighing heavily in midterm elections, lawmakers took a big step Wednesday toward punishing China for holding down the value of its currency — a policy the Obama administration and other critics say hurts U.S. companies and workers.

    In one of their final actions before returning to campaign in their districts, members of the House voted 348-79, with dozens of Republicans joining in support of a bill that would open the way for the United States to slap retaliatory tariffs on Chinese goods.

    But the bill faces an uncertain future both in the Senate and at the White House, because — while offering a tempting political target at a time when many voters are unhappy with the still-trouble economy — imposing sanctions on Beijing risks retaliation that could add to the nation’s problems.

    And the fact that Chinese monetary policy makes its products relatively cheaper — and thus more competitive in the global economy — is only one of many factors contributing to America’s huge trade deficits and other problems.

    In Wednesday’s House debate, supporters cast the measure as a tonic for the weary U.S. economy and beleaguered small manufacturers, who have been among the most vocal critics of China’s currency and economic policies.

    “”If we want to turn this country around, we have to do things that are going to resuscitate the middle class in the United States.”” Rep. Tim Ryan of Ohio said at a Democratic press conference before the vote.

    House Speaker Nancy Pelosi, in urging the bill’s passage, said the bill could help create a million American jobs. “”So this is about America’s workers. This is about making it in America,”” she said.

    Nobel Prize-winning economist Paul Krugman has estimated that China’s currency policy — and resulting large trade surpluses — may cost 1.4 million U.S. jobs in the next couple of years.

    Threatening to impose higher tariffs on Chinese imports would give Washington greater leverage in pressing Beijing to lift the value of the yuan, supporters of the legislation argued. And reforming China’s monetary policy would be a major tool to rebalance a U.S. economy that has long relied on American consumption of foreign-made goods, they said.

    A stronger yuan would make Chinese goods more expensive in the U.S., helping out American manufacturers competing against Chinese suppliers, in this view. At the same time, American products would be cheaper for Chinese consumers, who would also have greater buying power with a stronger currency.

    But major business groups representing a diverse array of trades — from cattlemen to Los Angeles freight forwarders to Wall Street firms — lined up against the bill, saying it would do more harm than good for economic growth and job creation.

    Many members of these groups include importers but also multinational firms that have sharply boosted investments and production in China and fear retaliation from Beijing that could hurt future sales and expansion in China’s huge market.

    Despite bipartisan support in the House, the bill faces a much tougher hurdle in the Senate, which could take it up after the Nov. 2 election. Even if it clears both chambers, President Barack Obama will be hard-pressed to sign a measure that would anger Beijing and further complicate a relationship with America’s largest foreign creditor — particularly when penalizing Chinese imports might not yield substantial benefits to the domestic economy.

    Although most experts agree that China’s currency, the yuan, would rise if freely traded, it’s far from clear by how much. Analysts also point out that the U.S. has a trade shortfall with some 90 countries, not just China, although it accounts for about 40 percent of the $376 billion trade deficit in goods through July of this year.

    “”We don’t have a bilateral problem, we have a multilateral problem,”” said Stephen Roach, a senior fellow at Yale and formerly chairman of Morgan Stanley Asia, who says a big part of the problem is the low American savings rate, which makes the U.S. economy heavily dependent on foreign investors.

    Shang-Jin Wei, a finance and economics professor at Columbia University, says that in addressing economic imbalances with China, American officials would do better to focus on how to boost Chinese consumption rather than its currency value.

    “”There are structural factors that explain the high savings rate that underlie the high trade surplus that doesn’t have anything directly to do with exchange rates,”” he said.

    If the bill were to become law, Beijing would almost certainly challenge its legality with the World Trade Organization. Experts are divided on whether the measure would meet WTO compliance. Chinese officials also could counter by imposing duties or onerous inspections on American imports.

    In Beijing, China’s central bank posted a statement ahead of the House vote Wednesday, pledging to increase the exchange rate flexibility of the yuan, also known as the renminbi.

    The People’s Bank of China issued a similar statement June 19, signaling its intent to let the value of the yuan drift upward after about two years of pegging it tightly to the dollar. Since then, the yuan has risen 2.1 percent against the dollar.

    American officials have expressed frustration at the slow pace of appreciation, and Obama voiced concerns directly to Chinese Premier Wen Jiabao last week on the sidelines of the U.N. General Assembly.

    Obama has not publicly opined on the House bill, and there was no immediate comment from the White House or the Treasury Department after its passage late Wednesday afternoon.

    But the Obama administration has been reluctant to put heavy overt pressure on the Chinese, preferring instead to take a softer, more patient approach as it negotiates with and seeks support not only on economic issues but vital regional and international political and security matters such as Iran and North Korea.

    Nicholas Lardy, a China expert at the Peterson Institute for International Economics, says the White House is angling to get Chinese President Hu Jintao in Washington for a state visit in January.

    “”The president is not going to want to sign this legislation just in advance of that potential trip. Hu would cancel,”” said Lardy, who doesn’t support the bill. “”Other countries could take similar measures against us, so this could be the beginning of a slippery downward slope.””

    What’s more, China is hardly the only country to aggressively manage its exchange rate. Many others, including major export nations in Asia, control the float or adhere to some kind of pegging system. And recently a number of countries have sought weaker currencies to boost exports, prompting Brazil’s finance minister to warn of a possible “”international currency war.””

    In that climate, analysts say, the Obama administration will find it harder to push others in the region to adjust their currency value in tandem with the Chinese. So even a large-scale appreciation of the yuan may do little for job growth in the United States, as production of goods such as electronics, textiles and toys shift to other countries in Asia or elsewhere with cheap labor and currencies before returning to the U.S.

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