U.S. Congress Once Again Lifts the Exchange Rate "Big Stick"

The slow economic recovery, continuing high unemployment and spreading danger of a debt crisis have caused Capitol Hill to look for a scapegoat from overseas. On the 3rd, the U.S. Senate will vote on a bill concerning the Chinese Yuan’s exchange rate, in order to “punish” China’s so-called currency manipulation.

The global economy has entered “dangerous territory”; the European and American debt crises show no signs of improving and have already become a burden for rising economies. Experts point out that some American senators using the Yuan exchange rate as an excuse to put pressure on China neither resolves U.S. domestic problems nor benefits the global economy’s recovery. At the same time, they recommend that China accelerate adjustments to its domestic economic structure, to further increase China’s ability to deal with risk.

According to the Xinhua news agency, one of the authors of the proposed bill, Senate Majority Leader Harry Reid, says he is confident that the bill will pass.

A Desire to Impose Punitive Tariffs

If the bill is passed, the U.S. Treasury Department will be required to treat “currency manipulating countries” lowering the exchange rate as an export subsidy. As soon as any American industry can prove that because of this it suffered “substantial harm,” a punitive tariff can be imposed on that kind of commodity. The bill also advocates linking exchange rate reform and the IMF’s management reform together, so as to possibly deny that country’s market economy status.

The proposed bill’s participant, Michigan Senator Debbie Stabenow (D), said, “China’s illegal currency manipulation directly translates to lost American jobs and suffering for families, especially in Michigan. Effectively addressing this problem would create American jobs and it wouldn’t cost a dime.”

After two weeks of silence on the issue of this bill, White House spokesman Jay Carney recently stated that the White House is currently “reviewing” this bill. “China has moved some in terms of appreciating its currency... But it’s substantially undervalued and we need to see continued progress.”

A few participating senators said that the Yuan has been undervalued by 25 to 40 percent. This gives China an “unfair competitive price advantage” in international trade. The Yuan’s appreciation is there for all to see. Since the beginning of the year, the Yuan’s cumulative appreciation against the dollar has reached about 4 percent. On Sept. 30, the Yuan-Dollar exchange rate passed 6.36, the Yuan’s strength reached a record high.

“The U.S. Should Self-reflect”

“This is a facade,” said the Director of the China Forex Investment Research Institute, Yaling Tan. “The employment rate is a domestic issue, related to salary and employment structure. The Yuan’s exchange rate isn’t the reason that the U.S. unemployment rate remains high. America should self-reflect.”

IMF Resident Representative Office in China Chief Representative Yiheng Li, while being interviewed by a “Xinhua Viewpoint” reporter, said that America’s high unemployment and depressed economy are to a certain degree the “lingering complications” from the financial crisis and the sub-prime mortgage crisis. One of the IMF assessment reports shows that a fast rise in value of the Yuan would not only have a negative effect on China’s economy, it also wouldn’t benefit the global economy.

The U.S. Senate’s bill addressing the Yuan’s exchange rate has aroused deep concern in China. China’s Foreign Affairs Ministry spokesperson said that China urges the U.S. not to politicize the issue of the Yuan exchange rate because of its internal problems; don’t look for an excuse to implement protectionism against China.

American Industry Concerned About Triggering a Trade War

America’s recurring exchange rate “gun-smoke” has also caused concern at the Department of Commerce. 51 U.S. industry groups, including the American Association of Exporters and Importers, joined together to send the Senate a letter opposing this bill and warning it will trigger an “unconstructive” trade war.

The “Father of the Euro,” Robert A. Mundell, said during one interview: “In 2005 China began allowing the Yuan to rise. It can no longer be said that China is manipulating the Yuan exchange rate. If you must say China is a currency manipulating country, maybe one reason is that China’s trade surplus is still relatively large.”*

Expert Insights

“It mostly stems from political games, using exchange rates and trade fairness as excuses to express political desires. The Obama administration faces many domestic dilemmas: medical reform, employment and, most importantly, the unresolved economic problems.”

--Bin Zhang, Chinese Academy of Social Sciences

“America’s fundamental problem is ‘eating tomorrow’s food today,’ relying on financial tricks and excessive debt. When they run into a challenge they immediately look for a ‘scapegoat,’ instead of looking for their own problem and solving it. It’s not a sensible way to behave.”

--Honghui Cao, Finance Department, Chinese Academy of Social Sciences

“For a long time America has been importing from China low-added-value, labor intensive commodities, but solely exporting high-added-value, advanced technology and products to China. This is equivalent to actively increasing one’s trade deficit. There’s a lot of pressure to raise the Yuan’s exchange rate. Some countries constantly use ‘exchange rate theory’ to impede China, which shows China is excessively dependent on exports and needs to further boost its internal demand.”

--Fengying Chen, Head of the Institute of World Economy, China’s Academy of Contemporary International Relations

“In 2005 China began allowing the Yuan to rise. It can no longer be said that China is manipulating the Yuan exchange rate. If you must say China is a currency manipulating country, maybe one reason is that China’s trade surplus is still relatively large.”

--“Father of the Euro” Robert A. Mundell*

*Editor’s Note: This quotation, accurately translated, could not be verified.