Photo: AP images
The U.S. Senate will vote on a China currency bill tomorrow, according to a White House press briefing. The bill even got precedence over President Obama’s $447 billion jobs act.The bill aimed at hitting back at China for manipulating its currency, would impose tariffs on Chinese imports and allow for easier investigations into currency manipulation.
China officially de-pegged from the U.S. dollar back in June but the yuan has appreciated only 10% against the dollar since, a pace not quick enough for many American officials. U.S. senator Charles Schumer (via The Wall Street Journal) said New York state alone has lost 160,000 jobs to China since 2001.
In his New York Times blog, Paul Krugman wrote that Chinese currency manipulation has a huge impact on U.S. manufacturing. Firstly, wage inflation in China has seen manufacturing jobs return to America, then, he argues of competition in global manufacturing between regional complexes like Asia consisting of Japan and China, versus North America consisting of U.S. and Mexico among others. A move in manufacturing from China to Mexico could also be significant. Most importantly:
“Chinese appreciation, while it directly tends to raise their net exports, will probably show up in matching appreciation in their currencies, setting in motion a series of domino effects that end up pushing the adjustment onto countries that are in liquidity traps, namely the US, Japan, and Europe.”
Not everyone is in favour of the legislation though. about 51 U.S. industry groups have ramped up efforts to block the bill, according to AFP. The White House has not endorsed the bill either. At a press briefing last week, White House press secretary John Carney said the White House was reviewing the bill:
“We share the goal of achieving further appreciation of China’s currency. As you know, and those who — in the financially oriented press know, the — China has moved some in terms of appreciating its currency. I believe it’s appreciated about 10 per cent, adjusted for inflation, since June of 2010. But it’s substantially undervalued, and we need to see continued progress, and we’ve made that clear publicly and privately.”
The U.S. isn’t the only country looking to punish countries that manipulate their currency. Brazilian president Dilma Rousseff is trying to protect her manufacturing industry from cheap Chinese imports and urged the World Trade organisation to allow member states to protect themselves from unfair trade practices.
The biggest concern at this point is some sort of retaliation from China. In 2010, American exports to China and Hong Kong reached $118 billion. A petty trade war could affect American exports to China and American jobs that stem rely on such trade.
The Chinese government news agency Xinhua has made its views perfectly clear:
“It’s generally agreed, too, that structural problems in America rather than the Chinese currency are responsible for America’s economic difficulties.
…To put it simply, current anti-yuan moves in the U.S. Senate are more like a publicity attempt to attract voters and distract attention from the real problems facing the U.S. economy.”