WASHINGTON — After a personal plea from President Bush, Senators Charles Schumer and Lindsey Graham on Thursday withdrew legislation to impose a 27.5 percent tariff on Chinese imports in an effort to pressure that country to revalue its currency.
Schumer (D., N.Y.) and Graham (R., S.C.) said they will work with Charles Grassley (R., Iowa), chairman of the Senate Finance Committee, and Max Baucus (D., Montana), a member of the committee, to develop new legislation next year. They did not provide details.
“This was a hard decision for me,” Graham said during a news conference on Capitol Hill. “I met with President Bush today, and [he] personally asked me and Sen. Schumer not to take a vote but to work with [Treasury] Secretary [Henry] Paulson to give him a chance to start a new engagement strategy with the Chinese. He shares our goal and our purpose of requiring the Chinese to reform their currency practices. He believes the Chinese currency is grossly undervalued, creating an unfair trading situation.”
Schumer and Graham had an agreement with Senate Republican leaders to bring their bill for a vote by today but abandoned the effort at the behest of Bush, Paulson and other officials concerned that the measure could damage the U.S.-China relationship and invite retaliation.
A growing number of critics of China’s currency policies, including manufacturers, economists and lawmakers, charge that China’s undervalued currency lowers the price of Chinese goods by 15 percent to 40 percent on the world market. They say 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 trade deficit with China that hit $202 billion last year.
China raised the value of its currency by 2.1 percent in July 2005 in a move to change the peg of the yuan to a basket of currencies rather than just the dollar. It has raised the yuan another 2 percent this year.
“The bottom line is, we feel that our bill has done its job’’ in focusing attention on the issue, Schumer said. “Now it’s time to pass the baton, in a sense, to another vehicle, which the four of us will be a part of, that will actually become law and force the Chinese to move forward.”
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Paulson held discussions in Beijing this month with Chinese officials. They agreed to meet twice annually to talk about economic relations.
The senators said only that the new legislation would be consistent with World Trade Organization rules and address China’s currency. It was unclear whether the measure would include provisions from the Schumer-Graham bill or from a bill Grassley and Baucus introduced as a countermeasure.
The Grassley and Baucus proposal calls for the treasury secretary to identify “fundamentally misaligned” currency adversely affecting the economy. It also would disallow non-market economies with such currencies from achieving market economy status, create a Senate-confirmed official within the U.S. Trade Representative’s office to enforce trade agreements and provide remedies for countries employing harmful currency policies.
The remedies would have included opposing multilateral bank financing for the countries, disapproving loans from the Overseas Private Investment Corp. and refusing to increase an offending country’s voting share in the International Monetary Fund. OPIC helps U.S. businesses invest overseas and promotes economic development in new and emerging markets. The IMF fosters global monetary cooperation and international trade.
The reaction from domestic textile associations and importers was predictable.
“While [the American Manufacturing Trade Action Coalition] is disappointed that no vote will occur this week…we will continue to work with those committed to solving the currency manipulation problem,” said Auggie Tantillo, executive director of AMTAC. “It is imperative that the U.S. Congress not drag out action on the currency manipulation crisis next year.”
Julia Hughes, senior vice president at the U.S. Association of Importers of Textiles and Apparel, which opposed the Schumer-Graham bill, said, “We’re very pleased they pulled [the bill], which would have had a detrimental effect on the U.S. economy and U.S. consumers.”