WASHINGTON — The House of Representatives is to vote Wednesday on legislation that aims to help U.S. firms that claim harm from China's low currency exchange rate, which benefits Chinese exports and hurts its competitors, including America.
The legislation enjoys rare bipartisan support, as lawmakers in both parties appeal to voter anger about the sour economy by blaming China.
Should Congress and the administration agree to take punitive action against China over it's currency policy, a trade war probably would follow, as both the U.S. and China have their own domestic politics to navigate.
"It's like the two need a marriage counselor," said Timothy P. Stratford, a former U.S. trade negotiator with China, now in Beijing with the law firm Covington & Burling LLP.
The House measure may prove symbolic at best, however. It's unclear if either the Senate or President Barack Obama would let the measure become law and risk rupturing relations with the world's No. 2 economy — and major U.S. lender. In addition, U.S. firms manufacturing in China are lobbying against it.
The legislation appears to be a mix of political pressure and theater. The version before the House doesn't enjoy much support in the Senate, where there's no consensus among Democratic leaders on the China currency issue, and where there are several competing bills, each with strong support. That effectively gives House members a freebie — a chance to look like they're getting tough with China, even as they know their measure won't ever really bite.
At issue is China's peg of its currency, the yuan, to the dollar. Most nations allow financial markets to determine the value of their currencies relative to the U.S. dollar, but China artificially pegs its exchange rate in a way that critics say makes its exports to the U.S. cheaper and U.S. products more expensive in China.
The House bill, which has 155 co-sponsors, would make it easier for the U.S. government to consider China's currency peg an illegal export subsidy, and to take punitive steps in response. However, effective tough action would require the Obama administration to go along. Candidate Barack Obama vowed to get tough with China for its currency manipulation, but as president he has no official position on the House bill.
"The House vote allows the candidate to say, 'I tried to make more jobs,''' said former Minnesota GOP Rep. Bill Frenzel, a guest scholar at Brookings Institution, a center-left policy research group. "But it strikes me that this bill has very dubious value" economically or politically.
The House bill is being pushed by lawmakers from hard-hit industrial areas, led by Rep. Tim Ryan, D-Ohio. Rep. Sander Levin, D-Mich., chairman of the House Ways and Means Committee, who represents a Detroit-area district, said the bill "signals an important advance in U.S. trade policy."
The man who would replace Levin if Republicans gain control of the House in November, Rep. Dave Camp, also hails from Michigan and called the bill "a clear signal to China that Congress' patience is running out."
While the rhetoric could grow louder, both sides are unlikely to let relations deteriorate into a trade war, Stratford said.
"I don't think we're going to go to a worst-case scenario," Stratford told reporters at a National Foreign Trade Council luncheon in Washington on Monday, adding that "the word 'war' is the right word, because you're trying to inflict damage until the other cries uncle."
The Obama administration neither supports nor opposes the Levin legislation, which would give it another tool to build pressure against China's peg when the 20 most industrialized nations hold their annual G-20 summit in November.
By not taking a stand, however, the administration is actually sending a strong signal to China that it's open to the idea. That's a big switch from the Bush administration's active opposition to earlier legislation that threatened to change the terms of U.S.-China trade.
"What they're hoping is it never gets tested," said Nic Lardy, a China expert at the Peterson Institute of International Economics, a leading pro-trade policy research organization.
The threat of legislation is unlikely to change China's posture, he said.
"The Chinese have played several rounds of this game over the last five or six years, and they don't take the 'good cop, bad cop' approach very seriously," Lardy said.
There are subtle differences in Levin's bipartisan legislation compared to similar bipartisan efforts in September 2006. A bill then would have allowed steep trade penalties to be imposed on imported goods from China because of the currency manipulation. That legislation also flourished ahead of congressional elections, and was widely viewed as contrary to global rules established by the World Trade Organization. The new legislation was crafted to fit within the legal framework for global trade rules.
More than four years of trade talks with China have diffused tension, but have done little to address a range of business issues, include the currency flap.
Robert Roche, the chairman of the American Chamber of Commerce in Shanghai, China's bustling financial capital, said that U.S. lawmakers would do better to ask why Germany, Japan and other nations are capturing a larger share of China's growing imports and what the U.S. could do differently to promote its exports.
U.S. exports to China have grown from a low base by more than 330 percent during the past decade. However, the U.S. has seen its share of China's imports drop from 10.7 percent in 2001 to 7.18 percent in 2008. Thus any realignment of China's currency likely would benefit China's other trading partners too, said Roche.
"Every country that's already (there) . . . is going to benefit," he said.
For U.S. labor unions, however, the China currency debate remains one about protecting U.S. jobs.
"Taking action to end currency manipulation will generate jobs and investments in the U.S. economy," said William Samuel, director of the AFL-CIO's government affairs department, in a letter to the Ways and Means Committee. "We can create jobs by enforcing our trade laws consistently and proactively. The time for talk is over."
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