House votes to punish China for currency policy

McClatchy NewspapersSeptember 29, 2010 

WASHINGTON — The House of Representatives voted 348 to 79 Wednesday to send a strong pre-election, bipartisan message to China: Stop manipulating your currency to keep it artificially low or the U.S. will get tough and move against you.

The vote, among the strongest ever threatening retaliation against China for its currency policy — which benefits Chinese exporters and burdens U.S. producers — was intended largely as a political stand that lawmakers in hard-hit economic areas could trumpet back home before the Nov. 2 congressional elections.

However, experts warned, Congress also could look to the outside world like it's willing to risk triggering a trade war that could badly wound an already weakened U.S. economy.

"This is a stronger message than any previous one," said Nicholas Lardy, a China expert at the Peterson Institute of International Economics, an economic research group. "So the question is 'What is China's perception?' If they say the bill is unlikely to go anywhere, nothing will come of it.

"But if they think it will become law, there could be significant retaliation. You could see contracts that go to Boeing go to Airbus, for example." Boeing is based in Chicago, while Airbus is a European consortium. Both manufacture aircraft.

The bill is unlikely to become law. The Senate won't consider the measure before mid-November. The Obama administration has taken no position on the bill. Still, by failing to oppose such a measure, as previous presidents have, silence could signal to the world that the administration's open to tough trade retaliation.

President Barack Obama met for two hours with Chinese Premier Wen Jiabao on Sept. 23 and pressed him to deal with the currency issue. Wen said China would continue to revamp its currency rules, but analysts saw little progress.

Obama talked tough during a Wednesday visit to Iowa.

"The reason that I'm pushing China about their currency is because their currency is undervalued," he said bluntly in response to a question.

The Wednesday vote is expected to give Obama important political ammunition to use against China's policy when the world's 20 most industrialized nations meet in November for the G-20 summit.

China, now the world's second-largest economy, is a crucial market for American goods. China had a $226.8 billion trade surplus with the U.S. last year, meaning the U.S. bought far more from China than U.S. firms sold there. So far this year, China's U.S.-trade surplus is $145.3 billion.

Critics say the undervalued Chinese yuan allows them to sell their products at artificially low prices here. Obama agreed Wednesday: "I think people generally think they are managing their currency in ways that make our goods more expensive to sell and their goods cheaper to sell here."

The House measure would permit the U.S. to consider China's currency policy an illegal export subsidy, which would allow the U.S. government to take retaliatory steps, such as imposing tariffs on Chinese products entering this country.

"We believe in free and open markets _but we also believe in markets that come with a fair set of rules," said House Majority Leader Steny Hoyer of Maryland. Added Rep. Dave Camp of Michigan, the top Republican on the House Ways and Means Committee: "We all agree that China's currency is fundamentally misaligned."

However, if the Chinese see the measure as a serious threat, critics warned, it could trigger all kinds of trade-related problems. Not only might China make it more difficult to sell U.S. products there, other countries might feel compelled to devalue their own currencies, which would make U.S. products more expensive in those countries. In fact, that's already happening in Japan, South Korea and Taiwan.

Or suppose, critics suggested, China pressures other nations, particularly in Asia, to pull back their business with the U.S.?

Such a cycle of trade-policy rivalries helped deepen the Great Depression of the 1930s, and some analysts see the House vote as building pressure for a global turn toward trade-restricting protectionism.

"While the bill is unlikely to pass, it certainly shows that protectionist sentiments are mounting," said Wall Street analyst Ed Yardeni in a Wednesday note to investors.

Business groups opposed the bill. Some 36 groups, including the U.S. Chamber of Commerce, wrote in a letter to House leaders that the bill "could engender retaliation against U.S. exports into the Chinese market," adding that "counterproductive tariff legislation will not get us closer to the goal of a market-driven exchange rate, and will shift the focus away from the core issue of China's currency and onto U.S. unilateral action."

Union officials, as well as liberal groups, though, saw a need for a long-overdue message to a stubborn nation.

"Talk hasn't worked," said House Ways and Means Committee Chairman Sander Levin, D-Mich.

ON THE WEB

U.S.-China trade data

McClatchy-Marist poll on economic issues

Congressional re-election rates

Cook Political Report Senate race ratings

Larry Sabato's Crystal Ball

MORE FROM MCCLATCHY

Chinese currency is cheap, but so is U.S. talk about it

Congress is back, but until Nov. 2, it's all about elections

Could tariffs force China to play fair with its currency?

For more McClatchy politics coverage visit Planet Washington

To ask a question about this story or any economic question, go to McClatchy's economy Q&A

McClatchy Newspapers 2010

McClatchy Washington Bureau is pleased to provide this opportunity to share information, experiences and observations about what's in the news. Some of the comments may be reprinted elsewhere in the site or in the newspaper. We encourage lively, open debate on the issues of the day, and ask that you refrain from profanity, hate speech, personal comments and remarks that are off point. Thank you for taking the time to offer your thoughts.

Commenting FAQs | Terms of Service