Correcting some misinformation about legislation to address China's currency peg
A bipartisan group of U.S. Senators recently introduced the Currency Exchange Rate Oversight Act of 2011 to provide recourse for U.S. manufacturers adversely affected by China's ongoing currency undervaluation.
In a letter to the Senate explaining the importance of this legislation, Alliance for American Manufacturing (AAM) Executive Director Scott Paul set the record straight regarding this new legislation:
Myth: Addressing currency manipulation should only be done through “coordinated and enhanced multilateral pressure through international organizations such as the G-20 and APEC” and not through action by Congress.
Fact: President Obama and world leaders from Brazil, India, Mexico and elsewhere have pressured Chinese leaders at international forums about the need for China to let the yuan’s value be determined by market forces rather than government interventions. However, these efforts have yielded little progress because they have not been backed by the threat of real consequences.
For example, in response to intense pressure from the international community leading up to the June 2010 G-20 meeting, China announced that it would allow “flexibility” in its exchange rate policy. A year has passed and the Peterson Institute for International Economics reports that the yuan is even more undervalued against the dollar today (28.5%) than it was a year ago (24.2%) and is also more undervalued against a basket of currencies (the “effective” exchange rate) than it was a year ago (17.6% vs. 15.3%).
Meanwhile, the Obama administration has refused to take the most step of simply labeling China as a currency manipulator in its required semiannual submissions to Congress on trading partners that manipulate their currency. President Obama has taken a pass in his first five submissions and the Treasury Department’s next submission is due on October 15th. The Senate bill would create a new framework, based on objective criteria, which will require the Administration to identify misaligned currencies and require action if countries fail to correct the misalignment.
In the absence of action by the administration, Congress has a vital role in protecting the interests of American workers and companies. If the United States took a leadership position by imposing defined, but reasonable remedies to remove such market distortions, the world would undoubtedly follow. The United States has more leverage than any of China’s trading partners, as China is overly dependent on access to the U.S. market to maintain its own exports and jobs.
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