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Senate passes bill to sanction China over currency

By Jim Abrams

Associated Press

POSTED:
LAST UPDATED: 01:11 a.m. HST, Oct 12, 2011


WASHINGTON » The Senate voted Tuesday to threaten China with higher tariffs on Chinese products made cheap through an artificially undervalued currency, which lawmakers blame for destroying American jobs. The House, though, is unlikely to take up the bill, which some American businesses warn could trigger a trade war.

The 63-35 vote showed a broad bipartisan consensus that it is time to end diplomatic niceties with China and confront it over its aggressive trade policies.

"There are always people who don't want to stand up to China and I think they are, frankly, undercutting our ability to stop the hemorrhaging in our manufacturing jobs," said Sen. Sherrod Brown, D-Ohio.

Sen. Jeff Sessions, R-Ala., said the bill "is an important step towards defending American values, confronting China's abusive practices and preventing the liquidation of American manufacturing."

Still, the bill could die in the House, where a companion measure has the sponsorship of more than half the members but lacks the support of the GOP leadership.

House Speaker John Boehner, R-Ohio, like the many large multinational companies that oppose the legislation, has said it would be dangerous to dictate another country's currency policies, and he can prevent the bill from ever being considered.

House Majority Leader Eric Cantor, R-Va., said Tuesday that the White House should make its position clear before the House acts. The White House and President Barack Obama have not come out against the bill but have shown they are not comfortable with it, saying they are concerned about any legislation that might violate international trade rules.

Advocates for the bill say it will make American goods more competitive and support more than 1 million new jobs. Critics warn that it will provoke Chinese retaliation and hurt Americans in one of their fastest-growing markets.

Regardless of the outcome, the debate and the vote are giving senators a chance to make clear to the Chinese their frustrations over trade policies that have seen China's trade surplus with the United States go from $10 billion 20 years ago to $273 billion last year, delivering painful blows to U.S. manufacturers and their employees.

"This is a country manipulating its currency for an advantage in the export market," said Sen. Lindsey Graham, R-S.C. "The Chinese manipulation of the yuan has cost this country at least 2 million jobs — 41,000 in South Carolina — and it is an unfair trade practice in another name."

Chinese Foreign Ministry spokesman Ma Zhaoxu criticized the Senate vote on the currency issue in a statement posted to the ministry's website.

"Under the pretense of addressing the so-called 'exchange rate imbalance,' this resolution is in fact an act of protectionism, and seriously violates World Trade Organization rules," he said. "It not only cannot solve the problems in the U.S. economy or unemployment, but will seriously impede Sino-U.S. economic and trade ties and impede the joint efforts that China, the U.S. and the international community have made to enable a strong recovery and the growth of the global economy."

He called on "the U.S. government, Congress and the public to resolutely oppose the use of domestic legislation to hype and exert pressure over the renminbi exchange rate issue, and to resist protectionism, resist the erroneous politicizing of economic and trade issues, and maintain the sound development of the Sino-U.S. economic and trade relations."

The vote came as Congress prepared to complete work on a package of free trade agreements that is also seen by their backers as removing barriers to American exports and promoting job growth.

Both the House and Senate are expected to vote today on trade agreements with South Korea, Colombia and Panama.

The Chinese currency, the yuan, is undervalued against the dollar by 25 to 30 percent, according to most estimates, with some economists putting the difference at up to 40 percent. That means that Chinese goods sold in the United States have a 25 to 30 percent price advantage, while U.S. items sold in China become that much more expensive.

Brown, whose state of Ohio has been hit hard by Chinese competition, cited a tool and die shop in Brunswick, Ohio, that was about to sign a $1 million contract until the Chinese came in at the last moment with a bid 20 percent lower.

"That meant I don't know how many jobs that didn't stay in America but went to China and that 20 percent was given to them because of currency," he said.

The legislation would set in motion the imposition of higher tariffs on a country — China is not specifically mentioned in the bill — if Treasury decides that its currency is "misaligned" and the country does not act to correct it. Currently, Treasury must resolve that a country is willfully manipulating its currency, a higher bar to reach, before sanctions can be considered.

The bill also makes it easier for specific industries to petition the Commerce Department for redress if they believe an exchange rate is giving a foreign competitor the equivalent of an export subsidy.

The drive to punish China for its currency practices has been going on for years, led by conservatives such as Graham and Democratic liberals such as Brown and Chuck Schumer of New York. They have generally been discouraged by the Obama administration, and the Bush administration before it, which cautioned against unilateral sanctions and appealed for time to bring about Chinese cooperation through diplomatic channels.

There has been some appreciation of the yuan in the past year, but not enough to satisfy those who say it is still heavily undervalued in China's favor.

The Chinese have made their opposition to the Senate bill clear, saying in numerous statements that the trade imbalance is a result of U.S. economic policies and not the exchange rate, and that unilateral actions against China could damage the entirety of U.S.-China relations. Those range from efforts to better protect U.S. intellectual property rights in China, ending the theft of American technology, assuring the security of Taiwan and keeping the Korean Peninsula peaceful.

But Schumer said getting China to play by the rules "will not happen by persuasion, by multilateral talks, by wishing it were so, or even by the healing of time. It will only happen if America stands up for itself, for fairness, for equal treatment."

Opponents argue that the currency sanctions would do little to help the U.S. job market because more expensive Chinese goods would simply be replaced by goods from other low-wage countries such as Vietnam and Bangladesh. And they say companies such as Wal-Mart would continue buying Chinese items because they are deeply involved in investment in China, a fast-growing export market.

But the Alliance for American Manufacturing, a labor-management partnership that supports the bill, says a 28.5 percent appreciation in the yuan would create 2.25 million American jobs and reduce the annual trade deficit by $190.5 billion.

"A strong bipartisan majority has said to China, 'Stop the cheating on currency or face consequences,'" the group's executive director, Scott Paul, said after the vote.

___

Associated Press writer Alexa Olesen in Beijing contributed to this report.






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