A new bill was introduced in the House today to fight currency manipulation, including China's. The bipartisan Currency Reform for Fair Trade Act was introduced by Representatives Sander Levin (D-MI), Tim Murphy (R-PA), Tim Ryan (D-OH), and Mo Brooks (R-AL). This bill would treat undervalued currency as a subsidy under U.S. trade law, meaning we could apply tariffs to goods from countries that do this.
A nearly identical bill passed the House overwhelmingly in the 111th Congress and had 234 bipartisan cosponsors in the recent 112th Congress after passing overwhelmingly in the Senate. But Speaker Boehner refused to allow a vote, and the bill did not become law.
Some countries go to great lengths to keep their currencies "weak" relative to where currency markets say they should be set. This means goods from these countries cost less than goods from countries with "stronger" currencies. This gives companies making things in these countries a competitive advantage in world markets, and the jobs and factories flow to those countries. It costs these countries money to accomplish this, but they get it back by gaining all those jobs and sales of goods and services.
Remember when Mitt Romney said he would do something about Chinese currency manipulation "on his first day in office?"
"I've watched year in and year out as companies have shut down and people have lost their jobs because China has not played by the same rules, in part by holding down artificially the value of their currency," Mr. Romney said.
The Harm Done to Jobs & Growth
At a time when budget deficits are the biggest topic in D.C., fixing currency would lower that deficit by between $78.8 billion and $165.8 billion over three years.
A report from the Economic Policy Institute (EPI), "Reducing U.S. trade deficit will generate a manufacturing-based recovery for the United States and Ohio," written by Robert E. Scott, Helene Jorgensen, and Doug Hall, shows that:
The U.S. goods trade deficit could be reduced by between about $190 billion and $400 billion over the course of three years (modeled in this paper as having started in 2011) by eliminating global currency manipulation. Without any increase in federal spending or taxation, the United States would reap enormous benefits. As this paper explains, over three years a reduction in the U.S. goods trade deficit of this magnitude would:
- Create between 2.2 million and 4.7 million U.S. jobs (equal to between 1.4 percent and 3.0 percent of total nonfarm employment)
- Reduce the national unemployment rate by between 1.0 and 2.1 percentage points
- Create about 620,000 to 1.3 million manufacturing jobs (27.5 percent of all jobs created by eliminating currency manipulation)
- Increase U.S. GDP by between $225.0 billion and $473.7 billion (an increase of between 1.4 percent and 3.1 percent)
- Shrink the federal budget deficit by between $78.8 billion and $165.8 billion (reductions that would continue as long as the trade balance remained stable), as growth in output expands tax receipts and reduces safety net payments
Polls Show the Public Wants This
Polls show that 62 percent of voters, including 68 percent of Republican voters, favor tough action on China's predatory trade practices and repeated violations of trade agreements.
And remember, Mitt Romney -- not one to ignore polls -- knew which way the public wind was blowing and promised to address this on his first day in office.
The Alliance for American Manufacturing (AAM) has a fact sheet, "China's yuan is pegged to political pressure. So why not apply pressure?", that shows how the Chinese government does respond to pressure to allow their currency to rise. However, as pressure eases the currency moves back down. This bill is important because it means the pressure would not ease until their currency returns to market levels.
AAM's Scott Paul issued this statement,
"The Currency Reform for Fair Trade Act is a common-sense bill and should be passed and signed into law. Congress has acted on China's currency in 2005, 2010, and 2011. I hope 2013 is the year that the stars align and both the House and Senate finally pass it.
"It's clear the Administration is not going to do enough to really press China on currency. That's why congressional action is so important.
"You'd be hard-pressed to find another job-creating bill with this level of bipartisan Congressional support. The China currency bill broke a filibuster in 2011, and a majority of the House cosponsored it last year in what is otherwise a deeply divided political environment.
"This is the year that Speaker Boehner and Chairman Camp should free the currency bill, or they will show they are completely out of step with the American people, Republicans in Congress, and the vast majority of Republican voters."
Michael Stumo of the Coalition for a Prosperous America said,
"Our members place a high priority on neutralizing the trade impact of foreign currency manipulation," said Michael Stumo, CEO of CPA. "This problem is not going away. An enforcement remedy is needed, not more talk. U.S. manufacturers, farmers, ranchers and workers face a currency tariff in many world markets. They also face predatory priced imports from companies in other countries benefitting from a currency subsidy."
"Legislators who believe in free trade should support this bill. Free traders must oppose foreign government intervention in currency markets which cause a trade advantage,"
"The U.S. trade deficit with China was $333.4 billion in 2012 and was caused, in substantial part, by that country's persistent currency undervaluation. Otherwise competitive companies have ceased operations, moved offshore and/or laid off workers because of this foreign government currency market rigging."
Thomas J. Gibson, president and CEO of the American Iron and Steel Institute said,
"Currency manipulation to gain an unfair competitive advantage is among the most destructive trade-distorting practices used today. While China has been the largest offender, in today's weak global economy an increasing number of governments are manipulating their currencies to insulate their domestic producers. This is devastating to U.S. domestic manufacturers - especially the steel industry -- and is contributing to the nation's inability to fully recover from the recession."
Please let your member of Congress know that you support efforts to stop currency manipulation and bring jobs, factories and industries back to the U.S.