Bipartisan Group of Senators Unveils New Legislation to Crack Down on Unfair Currency Manipulation by Countries like China

WASHINGTON, DC – Responding to the failure of both Republican and Democratic administrations to confront China’s currency manipulation, a bipartisan group of 14 U.S. senators announced new legislation Tuesday to vigorously address currency misalignments that unfairly and negatively impact U.S. trade. If passed, the legislation would provide less flexibility to the Treasury Department when it comes to citing countries for currency manipulation. It would also impose stiff new penalties on designated countries, including tariffs on the countries’ exports and a ban on any companies from those countries receiving U.S. government contracts.

The legislation was introduced by U.S. Senators Charles E. Schumer (D-NY), Lindsey Graham (R-SC), Debbie Stabenow (D-MI), Sam Brownback (R-KS), Sherrod Brown (D-OH), Olympia Snowe (R-ME), Evan Bayh (D-IN), Ben Cardin (D-MD), Robert Casey (D-PA), Russ Feingold (D-WI), Kirsten Gillibrand (D-NY), Carl Levin (D-MI), Jim Webb (D-VA), and Arlen Specter (D-PA). The bill comes two days after the Chinese Premier sternly rejected calls for China to float its currency, even though experts estimate it is undervalued by 25 to 40 percent compared to the dollar.

Senator Casey said: “China’s currency manipulation has had a profound negative effect on U.S. workers, industry and economy. China has been allowed to develop an unfair advantage while going virtually unchecked.  A comprehensive approach is required to level the playing field for Pennsylvania workers.”

Senator Schumer said: “We are sending a message to the Chinese government: if you refuse to play by the same rules as everyone else, we will force you to. China’s currency manipulation would be unacceptable even in good economic times. At a time of 10 percent unemployment, we simply will not stand for it. There is no bigger step we can take to promote U.S. job creation, particularly in the manufacturing sector, than to confront China’s currency manipulation. This is not about China bashing; it’s about defending the United States.”

Senator Stabenow said: “Our workers are losing their jobs because countries like China continue to place artificial discounts of up to 40% on their products and then sell them here in America. This unfair practice puts our manufacturers and businesses at an extreme disadvantage and hurts our economy. That’s why I have joined with my Democratic and Republican colleagues to introduce this bill to require the Departments of Treasury and Commerce to take action and stop these countries from cheating.” 
 
Senator Graham said:  “We want a good working relationship with China as a trading partner.  There are a lot of possibilities between the United States and China to do constructive things for both economies and for the world at large.  But one issue that looms large is currency manipulation.  China is too big of a player in the world economy to be allowed to manipulate their currency.  They just have too much impact, and the negative affects of Chinese currency manipulation is being felt by manufacturing and textile companies in South Carolina and across our nation.”

Senator Brown said: “U.S. manufacturers can compete with anyone. But when China and other countries manipulate currency, that’s not competition – it’s cheating. Currency manipulation gives Chinese manufacturers a 40 percent cost advantage. If we’re serious about boosting exports – and creating jobs in American manufacturing – we need to crack down on practices like currency manipulation. We owe it to American workers and American businesses. Trade distorted by currency manipulation isn’t fair or free -- it’s a sinkhole.”

Senator Brownback said: “After years of China refusing to be honest in its currency policy, I look forward to seeing the U.S. take a definitive stance to bring an end to Chinese currency manipulation.  I’m glad to join a bipartisan group of my colleagues to combat this issue that has very serious and very real consequences for the U.S. economy.” 

Senator Bayh said: “Currency manipulation costs American jobs and runs counter to fair trade practices. American companies and workers can compete with anybody and sell their products anywhere if they’re allowed to compete on a level playing field. This legislation puts an end to the massive, artificial advantage that countries engaging in currency manipulation give to their businesses.” 

Senator Snowe, a senior member of the Senate Finance Committee, which has jurisdiction over trade issues, said: “For too long, excessive currency market intervention has given unearned advantages to our foreign competitors at the expense of businesses and workers in the United States. Manufacturers and workers in trade-sensitive industries – such as paper production in Maine – have been harmed by China’s mercantilist trade practices and, unfortunately, the silence of our government on China’s currency manipulation has become the silence of our factories.  This legislation will ensure our government has the tools to adequately address these inequities and provide consequences for countries that violate our global trade rules by holding down the value of their currency.”

Senator Cardin said: “As we focus on strengthening our economy and creating jobs, we cannot lose sight of fair global trade practices – America cannot stand alone while our competitors break the rules. China’s level of economic growth and new capacity is a direct result of their currency manipulation. This puts good jobs in Maryland and around the country at risk. A local Maryland company, NewPage Paper, is just one example of the good American companies struggling to keep up with these types of unfair practices.”

Senator Levin said: “American companies are not just competing against foreign companies; they’re competing against foreign countries,” Levin said. “This is especially true when foreign governments like China and Japan manipulate the value of their currency to keep its value artificially low.  Currency manipulation makes Chinese and Japanese exports unfairly cheap and U.S. products more expensive in China and Japan, displacing U.S. production and jobs.  This is nothing short of a government subsidy and we should be doing all we can to fight back against such harmful unfair trade practices.”

Senator Feingold said: “Our trade agreements with China have been devastating for Wisconsin manufacturers and have contributed to tens of thousands of jobs leaving the state. China’s manipulation of its currency puts American manufacturers at a huge disadvantage. American businesses deserve a level playing field and our government needs to take seriously these unfair practices that have been hurting our national, state and local economies for years.”

Senator Gillibrand, a member of the Senate Foreign Relations Committee, said: “These tough economic times have made it clear that China’s artificially low exchange rate is hurting New York’s economy. Our manufacturers are being forced to compete on an unfair playing field. This bipartisan legislation is a comprehensive approach to address the situation and promote a fair exchange rate. I will continue to work with Senators Schumer and Stabenow and the Administration to press China to adopt trade policies that do not hurt New York workers or undermine the global economy.”

Senator Webb said: “China has been manipulating its currency for years, unfairly subsidizing its exports at the expense of not only jobs here in the United States, but also to the detriment of the world economy. This bill provides the tools to address these practices and properly level the playing field.”

Senator Specter said: “We have lost 2.3 million jobs from 2001 and 2007 as a result of the trade imbalance with China, due in no small part to the fact that China continues to manipulate its currency.  This legislation will help level the playing field and signals our determination to take a stand to stop this form of international banditry and help our domestic manufacturers.”

By manipulating its currency, countries can gain an unfair advantage over U.S. manufacturers by effectively lowering the price of their exports as compared to domestic goods. Currency manipulation also imposes a direct cost on U.S. exports, making American goods sold abroad more expensive. This creates an unfair trade advantage, which ultimately harms U.S. manufacturers, workers, and farmers, and contributes significantly to the U.S. trade imbalance.

Currency misalignment and the continuing trade imbalance with China have severely impacted the U.S. manufacturing sector in relation to both domestic sales and exports. The U.S. has lost over 5.3 million manufacturing jobs in the last decade.  Since the beginning of the recession, millions of Americans have lost their jobs and unemployment has been hovering around 10 percent for several months.
 
The debate about China’s currency manipulation has been going on in the Senate since 2004, when the U.S. trade deficit with China ballooned to the largest imbalance ever recorded with a single country, in part because China undervalued its currency by  pegging it to the U.S. dollar. In 2005, Schumer and Graham offered the first legislation to combat China’s currency manipulation by imposing 27.5 percent tariffs on Chinese goods. The bill helped put pressure on the China, which slowly began letting the yuan appreciate that same year. But today, according to the Peterson Institute for International Economics, China’s currency remains between 25 and 40 percent undervalued against the dollar. This is fundamentally the same level of undervaluation that existed in 2005.

In a written response to questions asked as part of his confirmation hearing last year, Treasury Secretary Timothy Geithner said that he believed China was manipulating its currency to create an unfair trade advantage. However, Treasury stopped short of listing China as a currency manipulator in its most recent report. While China has taken small steps to increase the value of the renminbi since they threatened legislative action in 2007, China has not done enough and is still keeping its currency misaligned in order to gain an unfair trade advantage.

The Currency Exchange Rate Oversight Reform Act of 2010 combines the best elements of the Schumer-Graham bill that was passed by the Senate Finance Committee in 2007 and a separate measure advanced by Senators Stabenow, Brown and Snowe. It would:

•    Create a new approach to identifying currency manipulators by requiring that the Treasury Department base its determination strictly on objective measures related to currency exchange rates. Under current law, Treasury also has to determine that the misalignment is a willful attempt to gain a trade advantage before it can cite the country. The new legislation would eliminate the need to show intent.
  
•    Establish important consequences immediately upon designation, moderately severe consequences if consultations have not resulted in appropriate policies and identifiable actions to eliminate misalignment after 90 days, and more severe consequences if consultations have not resulted in appropriate policies and identifiable actions to eliminate misalignment after 360 days.

•    Establish two tracks by which the Department of Commerce can take action should a foreign country refuse to float its currency.  One path would be to utilize anti-dumping laws to enable Commerce to counter the effect of misaligned currency, as outlined in the previous Schumer-Graham legislation.  The other path, originally contained in the Stabenow-Snowe-Brown legislation, would allow Commerce to apply countervailing duties to goods coming into the United States from nations that misalign their currency.

A full summary of the bill appears below.

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The Currency Exchange Rate Oversight Reform Act of 2010

Introduced on March 16, 2010, by Senators Schumer, Stabenow, Graham, Brownback, Brown (OH), Snowe, Feingold, Specter, Casey, Bayh, Levin, Cardin, Gillibrand and Webb

The Schumer-Stabenow-Graham Currency Exchange Rate Oversight Act of 2010 will reform and enhance oversight of currency exchange rates.  The bill provides consequences for countries that fail to adopt appropriate policies to eliminate currency misalignment and includes tools to address the impact of currency misalignment on U.S. industries. 

Under current law, Treasury is required to identify countries that manipulate their currency for purposes of gaining an unfair competitive trade advantage.  In recent years, Treasury has found that certain countries’ currencies were undervalued.  However, based on its interpretation of the law’s legal standard for a finding of “manipulation,” Treasury has refused to cite such countries as currency manipulators.  The Schumer-Stabenow bill repeals the currency provisions in current law and replaces them with a new framework, based on objective criteria, which will require Treasury to identify misaligned currencies and require action by the administration if countries fail to correct the misalignment.

Establishes New Objective Criteria.  The legislation requires Treasury to develop a biannual report to Congress that identifies two categories of currencies: (1) a general category of “fundamentally misaligned currencies” based on observed objective criteria and (2) a select category of “fundamentally misaligned currencies for priority action” that reflects misaligned currencies caused by clear policy actions by the relevant government.

Strengthens Existing Countervailing Duty Law to Address Currency Undervaluation.  The legislation clarifies that the Commerce Department already has authority under U.S. law to investigate whether currency undervaluation by a government provides a “countervailable subsidy” and must do so if a U.S. industry requests investigation.  In recent years, the Commerce Department has been reluctant to exercise its authority under the law.  This legislation, therefore, seeks to strengthen and reaffirm existing law and the Commerce Department’s obligations under the law.
 
The legislation also makes it clear that the Commerce Department is required to investigate currency undervaluation as a “countervailable subsidy” if Treasury designates a “priority” currency and a U.S. industry requests an investigation.  Under existing trade laws, if Commerce and the International Trade Commission find that subsidized imports are causing economic harm to a U.S. industry, the administration must impose duties on those imports to counter the effect of the subsidy.

Requires New Consultations.  The legislation requires Treasury to engage in immediate consultations with all countries cited in the report.  For “priority” currencies, Treasury would seek advice from the International Monetary Fund (IMF) as well as key trading partners. 

Triggers Tough Consequences.  For “priority” currencies, important consequences are triggered unless a country adopts policies to eliminate the misalignment.

Immediately upon designation of a “priority” currency, the administration must: 

•    Oppose any IMF governance changes that benefit a country whose currency is designated for priority action.
•    Determine whether to grant a country “market economy” status for purpose of U.S. antidumping law.

After 90 days of failure to adopt appropriate policies, the administration must:

•    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.

After 360 days of failure to adopt appropriate policies, the administration must:

•    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. 

Limits Presidential Waiver.  The President could initially waive the consequences that take effect after the first 90 days if such action would harm national security or the vital economic interest of the United States.  However, the President must explain to the Congress in writing how the adverse impact of taking an action would be greater than the potential benefits of such action.  Any subsequent economic waiver would require the President to explain how the adverse impact of taking an action would be substantially out of proportion to the benefits of such action.  Furthermore, any Member of Congress may thereafter introduce a joint resolution of disapproval concerning the President’s waiver.  Should the disapproval resolution be approved, the President may veto it, and the Congress would have the opportunity to override the veto.

Establishes New Consultative Body.  The bill would create a new body with which Treasury must consult during the development of its report.  Of the nine members, one would be selected by the President and the remainder by the Chairmen and Ranking Members of the Senate Finance and Banking Committees, as well and the House Ways and Means and Financial Services Committees.  The members must have demonstrated expertise in finance, economics, or currency exchange.