Blog - Chinese Currency Bill Up Next

When Congress comes back next week, they’re not going to move directly to the Obama jobs bill. Instead, they’re going to take up a different measure that could potentially lead to U.S. job creation and is more likely to pass — the Currency Exchange Rate Oversight Reform Act of 2011.

The bill is designed to give the Administration authority to take corrective action against artificially undervalued foreign currencies, particularly the Chinese renminbi. It is widely believed that the fair market value of the renminbi is being suppressed by the Chinese government in order to give them an advantage in foreign trade. According to a new report from the Economic Policy Import, the U.S. trade deficit with China has killed 2.8 million American jobs since 2001. It’s likely that many of those job positions, which were in manufacturing, could be recreated if the renminbi were valued more fairly.

The bill already has bipartisan support from 19 Senate co-sponsors. It is being rushed passed the committee process, straight to the Senate floor under Rule XIV procedures, and is expected to pass the Senate without any real issues.

So what exactly will it do?

The bill would give the Treasury Department new guidelines for determining “priority” misaligned currencies. If the countries identified by Treasury to have priority misaligned currencies do not enact “appropriate” corrective policies within 90 days, the administration would be required to take the following corrective actions (via Sen. Brown’s summary):

• Reflect currency undervaluation in dumping calculations for products produced or manufactured in the designated country.
• Forbid federal procurement of goods and services from the designated country unless that country is a member of the WTO Government Procurement Agreement (“GPA”).
• Request the IMF to engage the designated country in special consultations over its misaligned currency.
• Forbid Overseas Private Investment Corporation (OPIC) financing or insurance for projects in the designated country.
• Oppose new multilateral bank financing for projects in the designated country.

And if that doesn’t do, after 360 days the administration would have to take further actions:

• Require the U.S. Trade Representative to request dispute settlement consultations in the World Trade Organization with the government responsible for the currency.
• Require the Department of Treasury to consult with the Federal Reserve Board and other central banks to consider remedial intervention in currency markets.

When you put all that together, these requirements could put some serious pressure on countries that are not playing fairly in the foreign trade market. If that leads to some currency realignment, it could give us a nice GDP boost and help American manufacturing be more competitive globally. That, in turn, could boost job growth. However, this does nothing for the people who are suffering right now. It’s not a stimulus or a direct jobs program, which is what’s probably needed to kick us out of this major cyclical jobs crisis any time soon.