Congress Debates Bill To Pressure China On Yuan Value
Vol. 857 
October 6, 2011

In the latest effort to press China on the value of its currency, members of the U.S. Senate are considering legislation that would place additional taxes on Chinese products. The bill, titled the Currency Exchange Rate Oversight Reform Act of 2011, faces significant challenges, though, before it could pass both houses of Congress. "I think it's pretty dangerous to be moving legislation through the United States Congress forcing someone to deal with the value of their currency," said House Majority Leader John Boehner (R-OH). "While I've got concerns about how the Chinese have dealt with their currency, I'm not sure this is the way to fix it."

U.S. lawmakers have been threatening to punish Chinese exports with tariffs since 2005, but no legislative action has been taken. Despite recent appreciation of the yuan – which has risen more than 6% against the dollar since June of 2010 – economists widely agree China still undervalues its currency by as much as 30%. "For some inexplicable reason, the Republican leadership in the House is siding with the Chinese government," said Senator Chuck Schumer (D-NY). "This is not the time to go soft on Beijing."

For its part, China has quickly and sharply criticized the Exchange Rate Act, threatening a trade war with the U.S. if the bill becomes law. "By using the excuse of a so-called currency imbalance, this will escalate the exchange rate issue, adopting a protectionist measure that gravely violates WTO rules and seriously upsets Sino-U.S. trade and economic relations," said Ma Zhaoxu, a Chinese foreign ministry spokesperson. "China expresses its adamant opposition to this."

Supporters of the Exchange Rate Act say the measure has 225 co-sponsors in the U.S. House, including 61 Republicans. The bill could be voted on in the Democratic-led Senate this week, although Senate Republican leader Mitch McConnell said the current measure is "highly unlikely" to pass.