Currency Wars: Should Countries that Undervalue Their Currency (Like China) Face Investigation? (S. 433)
Do you support or oppose this bill?
What is S. 433?
(Updated March 15, 2018)
This bill would require federal entities that manage trade laws to investigate currency undervaluations by foreign countries. These "countervailing duty" investigations would offer countervailable subsidies to a country's exporters or products at the request of an interested party. Countervailable subsidies are offered to countries whose products are hurt by unfair trade practices — and in this case, could lead to a duty being imposed on products imported from the country with the devalued currency.
Currency devaluation makes a country’s exports more competitive globally when compared to exports from countries with stronger currencies. Fears of a currency war among China, Vietnam, and other Asian countries have grown as those nations seek to boost the export-reliant manufacturing sectors of their economies. Announcements from central banks in China and Vietnam that they would devalue their currency fueled a contraction in the global financial markets in August 2015.
For the purposes of this bill, the fact that the subsidy caused by an undervalued currency is also provided to non-exporters in that foreign country would not preclude a countervailing duty and anti-dumping duty investigation from proceeding.
Argument in favor
Currency undervaluation hurts the American economy — especially manufacturers — and has resulted in millions of job losses. As a result the U.S. needs to do what it can to protect workers from foreign countries that engage in such unfair practices.
Argument opposed
If another country wants to devalue their currency, that just means American consumers will save money on that country’s exports. When American consumers save money, their spending goes elsewhere in the economy to support businesses and jobs.
Impact
American businesses, their employees, and consumers; companies importing goods from countries being investigated for currency undervaluation, countries that undervalue their currency, the Dept. of Commerce, and the U.S. International Trade Commission.
Cost of S. 433
A CBO cost estimate is unavailable.
Additional Info
In-Depth: Sponsoring Sen. Jeff Sessions (R-AL) believes the U.S. has a duty to defend American workers from unfair overseas competition:
“When one of our trading partners harms American workers by skirting the rules, we have an obligation to respond in their defense.”
The AFL-CIO has claimed that currency undervaluation has cost up to 5 million American jobs in its support for this legislation, and the Alliance for American Manufacturing noted that the trade deficit with China cost 3.2 million U.S. jobs between 2001 and 2013.
However, there has been opposition to this method of addressing currency manipulation by foreign governments, as the White House wants to deal with the issue through diplomacy in order to preserve pending trade agreements. Treasury Secretary Jack Lew has questioned the effectiveness of a legislative fix to dealing with foreign currency devaluation:“We remain concerned that an enforceable provision on currency could have a negative impact on our ability to protect American workers and firms and set back our international efforts."Currently, this bill has 12 cosponsors in the Senate, including eight Democrats and four Republicans. But the opposition to the proposal is also bipartisan in nature, as Rep. Paul Ryan (R-WI) has joined the White House in opposing legislation of this variety:
“With all damage such an approach would do to the United States and our standing in the world, it provides no real incentive for bad actors to change behavior.”
Of Note: In general, there are two types of exchange rates that countries can use to control their currency — fixed and floating. Fixed exchange rates
are pegged to a foreign government’s currency, and while they lack
flexibility for the government doing the pegging, they are predictable. Floating exchange rates
are determined by global currency markets through supply and demand
relative to other currencies, and a country’s central bank can intervene
to manipulate the currency.
Media:
- Sponsoring Sen. Jeff Sessions (R-AL) Press Release
- U.S. News and World Report
- Kelley Drye & Warren LLP
- King & Spalding Law
- AFL-CIO (In Favor)
- Alliance for American Manufacturing (In Favor)
(Photo Credit: Flickr user epSos .de)
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