Two powerful US Senators introduced legislation in the Senate on Thursday that will give the Obama Administration additional tools to address currency manipulation by China.
"By combating currency manipulation, we can help level the playing field for American manufacturers and speed up our economic recovery," said Senator Sherrod Brown after introducing the legislation in the Senate along with Senator Olympia Snowe.
The legislation introduced today is similar to the Currency Reform for Fair Trade Act of 2010, which was passed by the House of Representatives last September by a vote of 348-79.
The legislation, which directs the US Department of Commerce to treat currency undervaluation as a prohibited export subsidy, will ensure the government is equipped to respond on behalf of American workers and manufacturers by imposing countervailing duties on subsidised exports from countries like China.
"China's unfair currency manipulation has gone on for far too long. With factory doors continuing to close across my state, Ohio workers and small businesses can't afford to wait any more," Brown said.
"The Chinese government has taken small steps to allow the yuan to appreciate, but it is not enough. Congress must take action immediately to address Chinese currency manipulation and pass legislation that will empower our government to combat this illegal trade subsidy," he said.
"One significant contributing factor to the withering of our country's once-unparalleled manufacturing base is the fact that China's government deliberately suppresses the renminbi's value, making Chinese imports artificially cheaper when competing against US products," Senator Snowe said.
Paul Krugman, winner of the 2008 Nobel Prize in Economics, estimates that China's exchange rate policy reduces the US GDP by 1.4 to 1.5 percentage points annually and reduces US employment by 1.4 or 1.5 million jobs.
Fred Bergsten, the Director of the Peterson Institute for International Economics, estimates that a 20-40 per cent appreciation of the renminbi would result in a USD 100-150 billion improvement in the US trade deficit and would generate 700,000 to 1 million jobs in the United States.
"This is a straightforward piece of legislation. Currency manipulation, plain and simple, is a form of subsidy. US manufacturers, we know, can compete with anyone, but when China manipulates its currency, that's not competing, that's cheating," Brown told reporters at a news conference.
"It's clear that China's currency manipulation creates a substantial cost advantage for Chinese manufacturers over American manufacturers. While the administration recognises the threat of currency manipulation, it doesn't have all the tools necessary to stop it. That's why this bill is essential," Brown noted.
"It gives the administration a critical tool to stand up for workers and manufacturers in our country by combating manipulation of currency," he said.