Schumer, Graham Urge Action Against China's Unfair Currency Manipulation

Date: May 13, 2005
Issues: Monetary Policy


Long Overdue Treasury Report Is a Contradiction: No Currency Manipulation by Chinese, BUT China's Poses a Risk to Global Economic Growth

New Bipartisan Measure Will Define Currency Manipulation for Next Treasury Department Report

Schumer: Congressional Intent Is Clear, Administration Must Engage China in Talks to Revalue Currency Immediately, Not Wait to See

Today, the Treasury Department submitted its twice annual currency exchange report to the Senate Banking Committee. The report, two months overdue, does not say that China is guilty of currency manipulation, which is contrary to what most economists and the U.S. Congress, including Senators Charles E. Schumer (D-N.Y.) and Lindsey Graham (R-SC) have argued for years. On the heels of this report, Senators Schumer and Graham will introduce the Currency Manipulation Definition Bill.

This bipartisan bill would amend the Exchange Rates and International Economic Policy Coordination Act of 1988 to clarify the definition of manipulation with respect to currency, reduce the global account surplus requirement necessary for the United States to take action (only requires bilateral account surplus), and establish additional reporting guidelines for Treasury to include in their bi-annual reports to Congress.

"Teddy Roosevelt once advised that the best negotiating strategy was to, 'speak softly and carry a big stick'," Sen. Schumer said. "Taking that advice, Senator Graham and I have relied on the Administration to use quiet encouragement in an effort to help China's leadership see the light."

"It is clear from this report that something is wrong in our trade relationship with China, but the Treasury Department seems to be unwilling to say that in plain English. While the report states that China's policies are 'highly distortionary,' it does not address the protracted time period that the Chinese have been engaging in this anti-free trade practice."

By rigging its currency between 15 and 40 percent below its appropriate value, China is giving a subsidy to its imports to the United States and imposing a direct cost on U.S. exporters to China. This unfair advantage has hurt U.S. manufacturers, workers, and farmers and contributed to the U.S. trade imbalance with China growing by 50% since 2001, to a record $120 billion.

Currency Manipulation Definition Bill Facts:
1. This bill mandates a definition for currency manipulation in an effort to reduce the export advantage provided by China and other Asian countries that unfairly and illegally undervalue their currency.

The legislation would amend the International Economic Policy Coordination Act of 1988 by mandating that the Treasury Department use a specific definition for currency manipulation. The bill would define manipulation as "protracted large-scale intervention in one direction in the exchange market."

2. Requires the Treasury Department to only require a bilateral surplus as a condition to take action against a country that is found to be manipulating their currency.

The bill would amend the International Economic Policy Coordination Act of 1988 by removing the requirement that the US can only take action against a country that manipulates its currency if the offending country is running a material global current surplus in addition to a bilateral surplus. This legislation would only require a country to have a bilateral surplus.

3. Requires the Administration to explicitly address the test used to determine currency manipulation and explain the reasons a country was found or not found to be guilty of manipulation.

The bill would mandate that the Treasury Department explain in their bi-annual reports to Congress, why they were able or unable to find evidence of currency manipulation. The bill would require the Treasury Department to explicitly address this test in its required reports and testimonies before the Congress.

4. Co-Sponsors: Schumer, Graham, Stabenow, and others to be announced.

Another bill, introduced by Schumer and Graham is the China Free Trade Bill, received an overwhelmingly supportive vote as an amendment to the State Department Authorization bill in the Senate on April 6, 2005. That bill allows for a 180 day negotiation period between the U.S. and China to revalue its currency, if the negotiations are not successful, a temporary across the board tariff of 27.5% will be applied to all Chinese products entering the United States - a penalty that corresponds to their estimated currency advantage. Since economists estimate that China undervalues its currency between 15 percent and 40 percent, 27.5% represents the midpoint range. Furthermore, if the President determines that at the end of the negotiation period that China has developed and started actual implementation of a plan to revalue its currency, he may delay imposition of the tariff for another 12 months.