WASHINGTON — Congressional pressure to force China to reform its currency policies intensified Wednesday at a Senate Finance Committee hearing where Republicans and Democrats vowed to pass legislation this year to give U.S. manufacturers a better chance of competing with undervalued Chinese imports.
“China can and must do more to let its currency appreciate and begin to allow market forces to determine its exchange rate,” said the committee chairman, Sen. Max Baucus (D., Mont.), one of four senators who is collaborating on drafting a bill targeting China’s currency policies.
The committee hearing exuded a resolve that Congress will pass legislation this year aimed at prodding China to reform its currency practices. Critics of China’s currency exchange rate charge that its yuan is undervalued and therefore lowers the price of its exports by 15 percent to 40 percent on the world market. They claim depressing the value of the yuan acts as an export subsidy, putting U.S. companies at a disadvantage and leading to American job losses and a record trade deficit with China that hit $232.5 billion last year.
What form the legislation will take is still unclear. Several bills have been introduced in this session, and those gaining early traction have focused on reforms of U.S. trade remedy laws that would ease the way for American manufacturers to file currency or subsidy complaints against China and seek sanctions against its imports.
A key focus is on a bill being drafted by Baucus and Sens. Chuck Grassley (R., Iowa), Lindsey Graham (R., S.C.) and Charles Schumer (D., N.Y.). Schumer and Graham pushed a bill last year that would have imposed a 27.5 percent across-the-board tariff on Chinese imports if the Asian nation did not revalue its currency by a certain deadline.
But the two senators withdrew the bill in December at the urging of Treasury Secretary Henry Paulson Jr., the Bush administration’s point person on China.
The country has raised its currency by about 6.6 percent since July 2005, when it first began to peg the yuan to a basket of currencies rather than just the dollar. The Bush administration has shied away from declaring China a currency manipulator, and Paulson has opted to pursue a “strategic economic dialogue” with Chinese officials to prod them into reforming their policies.
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Schumer and Graham, who testified at Wednesday’s hearing, said Paulson’s approach has not been effective enough and insisted the Senate will take matters into its own hands and pass a bill this year.
“I think it’s pretty clear that we’ve given up on the administration,” Schumer told reporters.
While declining to reveal any details of the legislation he is helping draft, Schumer said he was confident it would pass.
“Our new legislation is going to work,” he said. “It’s going to pass, and it’s going to pass with a veto-proof majority.”
Graham pointed to the swelling trade deficit with China and said it is one of the biggest catalysts behind the momentum in Congress to act.
“You better understand this is one issue where Republicans and Democrats are together,” said Graham. “We’re going to act because this affects all Americans.”