U.S. Senators Charles Schumer (D, New York) and Lindsey Graham (R, South Carolina) have announced plans to introduce a bill allowing the Commerce Department to take account of currency undervaluation when calculating anti-dumping duties.
The target is clearly China. It threatens to inflame the already rancorous and dangerously escalating dispute with Beijing over exchange rate policy to no good purpose.
Legislative pressure will not make China’s government any more likely to accelerate the renminbi’s revaluation. If anything it will cause the government to postpone a revaluation most officials concede will eventually be necessary.
China’s government cannot afford to show weakness in succumbing to pressure from “western devils” (“gwai lo”) without losing face in the eyes of its own public. China’s Premier Wen Jiabao has already branded U.S. pressure on the currency issue as a form of “protectionism.” The Schumer-Graham bill is likely to draw an even more angry response.
So the Schumer-Graham bill is a piece of election year theatre, but a counterproductive one. It threatens to worsen already poor relations between two countries that need to be friends but are currently experiencing a steady escalation in tensions on everything from economics to Tibet and weapons sales to Taiwan.
Trading insults is not going to bring the currency dispute any closer to resolution. The only constructive way forward is to take the issue out of the headlines, allowing China to appreciate the renminbi in its own time, prodded by a domestic inflation problem and the need to control inflows of hot money.
The U.S. Treasury Department is already required to analyze the exchange rate policies of foreign currencies and consider whether they manipulate their currencies to gain an unfair trade advantage, reporting the findings to Congress annually, under the terms of the 1988 Omnibus Trade and Competitiveness Act. The law also mandates separate six-monthly reviews of specific aspects of exchange rate and economic policy.