Lawmakers unhappy after China devalues yuan

China’s surprise move on Tuesday to lower the value of its currency is roiling already inflamed tempers on Capitol Hill over Beijing’s exchange-rate policies.  

House and Senate lawmakers renewed their calls for adding enforceable currency manipulation provisions into trade agreements like the Trans-Pacific Partnership (TPP).

{mosads}The People’s Bank of China said the 1.9 percent devaluation — the largest drop in a day since 1994 — is a one-time correction that would shift the heavily controlled yuan to a more market-determined exchange rate.

A spokesman for the Treasury Department urged China to continue with its economic reforms.

“We will continue to monitor how these changes are implemented and continue to press China on the pace of its reforms, including additional measures to transition to a market-oriented exchange rate and its stated desire to move toward an economy that is more dependent on domestic demand, which is in China and America’s best interests,” the official said. 

“Any reversal in reforms would be a troubling development.”

Lawmakers criticized China’s move, using it to push for currency provisions in the TPP.

“This action highlights the need to include a strong and effective obligation on currency manipulation in TPP, and to include a provision to impose countervailing duties to address currency manipulation in the Customs legislation that is expected to be negotiated in a House-Senate conference in September,” said Rep. Sandy Levin (D-Mich.), ranking member on the House Ways and Means Committee. 

Sen. Rob Portman (R-Ohio), a member of the Senate Finance Committee, called the news “another harsh reminder that we cannot afford to sit idly by as China refuses to play by the rules; any negotiations on the Trans-Pacific Partnership must prioritize combating currency manipulation by our foreign competitors.”

For the past several years, lawmakers have pressed U.S. trade officials to shore up currency policies in trade agreements like the TPP. 

Lawmakers argue that reducing or eliminating global currency manipulation would dramatically reduce the U.S. trade deficit, spurring a faster pace of growth while creating millions of jobs.

The move could raise tensions between the two countries when President Obama meets next month with Chinese President Xi Jinping in Washington. 

The Obama administration has stopped short of deeming China a currency manipulator, but Treasury Secretary Jack Lew has said that the yuan still remains “significantly undervalued.”

Joseph Gagnon, an economist at the Peterson Institute for International Economics, said China is doing exactly what the United States has asked — keeping the value of the yuan flexible.

But he said that the move is only acceptable if Chinese officials make a commitment to permanently stop intervening in the yuan’s value.

China is the world’s second-largest economy, but its exports have dropped and some interpreted the government’s move as a last-ditch effort to boost the economy.

The yuan is pegged to the dollar, whose value is up 15 percent year-over-year.

Roberto Perli, chief economist at Cornerstone Macro, said that “some U.S. politicians are likely to say that China is again manipulating the currency, but from an economic perspective it’s hard to argue the move is misaligned with market forces.” 

He said markets were pushing down the yuan’s value while Chinese policymakers are keeping it artificially high. 

But while Perli said the devaluation might help China, “it will not be a game-changer for the economy.”