WASHINGTON -- U.S. Senators Debbie Stabenow (D-MI), Jim Bunning (R-KY) and Evan Bayh (D-IN) today introduced the China Currency Manipulation Act of 2008, which will put a stop to currency manipulation by China that is distorting international trade and creating a threat to the global economy. All three Senators also expect to work together in the near future to strengthen the trade remedies in Senate currency legislation reported by the Senate Finance and Banking Committees.
“Currency manipulation is a clear-cut form of unfair trade that is costing us jobs,” said Stabenow. “Our trade deficit with China continues to grow, hitting $256 billion last year, thanks in no small part to China’s manipulation of their currency. The solution is simple - we must hold countries that cheat accountable. America can compete with anyone when the playing field is level, and this bill is a much needed step in the fight for fair trade.”
In 1988, President Ronald Reagan signed legislation enacted by Congress that requires the Treasury Department to monitor the exchange rate policies of foreign nations, including China, and to report to Congress when any country intervenes to gain an advantage in trade with the United States by artificially depreciating the value of its currency.
Secretary Lloyd Bentsen cited China in 1994, but in the face of overwhelming evidence to the contrary, including a historic trade deficit, Secretary Henry Paulson maintains that China’s actions are unrelated to the obvious trade advantage that it gains by undervaluing its currency. The very recent nominal increase in the value of the yuan still leaves the Chinese currency undervalued by between 30 percent and 40 percent, according to trade economists who have testified before Congress. Last year, the United States trade deficit with China was a record $256 billion, the largest with any nation.
The Bunning-Stabenow-Bayh bill that is supported by the China Currency Coalition would require the Secretary of the Treasury to make a finding under the 1988 Act that China is manipulating its currency to gain an unfair trade advantage. It would require the Secretary of the Treasury to establish a plan of action within 30 days on its enactment with specific time frames and benchmarks to remedy China’s currency manipulation and to submit a report to Congress describing the plan. The legislation would also require the Secretary to seek consultations in the IMF under Article IV of the IMF charter with respect to China. The provisions in the bill are similar to those outlined in the currency legislation that was approved by the Banking Committee last July.
Here is the text of the bill
China Currency Manipulation Act of 2008 (Introduced in Senate)
To require the Secretary of the Treasury to take action with respect to currency manipulation by the People's Republic of China and for other purposes.
Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the `China Currency Manipulation Act of 2008'.
SEC. 2. FINDINGS.
Congress makes the following findings:
(1) The People's Republic of China has a material global current account surplus.
(2) The People's Republic of China has, since the beginning of 2000, accumulated a current account surplus with the United States of nearly $1,200,000,000,000, more than twice the size of the cumulative current account surplus of any other United States trading partner during the same period.
(3) The People's Republic of China has engaged in protracted large-scale intervention in currency markets, thereby subsidizing Chinese-made products and erecting a formidable nontariff barrier to trade for United States exports to the People's Republic of China, in contravention of the spirit and intent of the General Agreement on Tariffs and Trade and the Articles of Agreement of the International Monetary Fund.
SEC. 3. ACTION TO ACHIEVE FAIR CURRENCY.
(a) Determination- Notwithstanding any other provision of law, the Secretary of the Treasury shall--
(1) make an affirmative determination that the People's Republic of China is manipulating the rate of exchange between its currency and the United States dollar within the meaning of section 3004(b) of the Exchange Rates and International Economic Policies Coordination Act of 1988 (22 U.S.C. 5304(b)); and
(2) take the action described in subsections (b), (c), and (d) of this section.
(1) IN GENERAL- The Secretary of the Treasury shall, not later than 30 days after the date of the enactment of this Act, establish a plan of action to remedy currency manipulation by the People's Republic of China, and submit a report regarding that plan, to the Committee on Banking, Housing, and Urban Affairs and the Committee on Finance of the Senate and the Committee on Financial Services and the Committee on Ways and Means of the House of Representatives.
(2) BENCHMARKS- The report described in paragraph (1) shall include specific benchmarks and timeframes for correcting the currency manipulation.
(c) Initial Negotiations- The Secretary shall initiate, on an expedited basis, bilateral negotiations with the People's Republic of China for the purpose of ensuring that the country regularly and promptly adjusts the rate of exchange between its currency and the United States dollar to permit effective balance of payment adjustments and to eliminate the unfair competitive advantage.
(d) Coordination With the International Monetary Fund- The Secretary of the Treasury shall, not later than 30 days after the date of the enactment of this Act, instruct the Executive Director to the International Monetary Fund to use the voice and vote of the United States, including requesting consultations under Article IV of the Articles of Agreement of the International Monetary Fund, for the purpose of ensuring the People's Republic of China regularly and promptly adjusts the rate of exchange between its currency and the United States dollar to permit effective balance of payments adjustments and to eliminate the unfair competitive advantage in trade.
This bill could work given a Secretary of the Treasury and a President who were determined to reduce the Chinese trade surplus with the United States. However, given the fact that the US Treasury Department is usually dominated by a banking industry that benefits from the loans that are a byproduct of Chinese currency manipulations and given the likelihood that the President will need Chinese government cooperation on international issues, it is unlikely to accomplish anything, except to give those Senators who sponsor it some political cover.
An effective bill would announce to the Chinese that they have to reduce their trade surplus with the United States by 20% each year (about $50 billion) and that failure to do so would result in the imposition of Import Certificates tied to their imports from us that would gradually eliminate their trade surplus with the United States over a five year period.