Senators unveil long-awaited bill on China

Four key senators yesterday unveiled legislation designed to make it more difficult for the Department of Treasury to avoid finding that China is artificially lowering the value of its currency, which the lawmakers said contributes to the U.S. trade deficit.

The long-awaited bill sponsored by Finance Committee Chairman Max Baucus (D-Mont.), ranking member Chuck Grassley (R-Iowa) and Sens. Charles Schumer (D-N.Y.) and Lindsey Graham (R-S.C.) could lead to significant consequences for China or any other country found to have a misaligned currency.

{mosads}The bill was announced the same day the Department of Treasury released a report that once again found China was not manipulating its currency, drawing criticism from Schumer, House Ways and Means Committee Chairman Charles Rangel (D-N.Y.) and even administration allies such as former Michigan Gov. John Engler (R), the president of the National Association of Manufacturers.

“It is difficult to understand why Treasury chooses not to say that currency manipulation is taking place, when everyone knows it is,” Engler said in a statement.

Schumer insisted it would be almost impossible for Treasury to find that China is not misaligning its currency if the new bill becomes law. The department would “have to twist [itself] into a pretzel” to avoid such a finding under the bill, said Schumer, who predicted it would be approved by both the Senate and House with veto-proof majorities.

The Office of the U.S. Trade Representative yesterday also rejected a petition from Rangel and other House members that it bring a World Trade Organization (WTO) case against China’s currency policies. In a statement, U.S. Trade Representative Susan Schwab said firm engagement with China was the best way to address the currency issue.

Baucus said he would seek to bring the bill to the floor by September. Ways and Means is expected to take up a China bill in the coming weeks.

While Engler complimented the Senate bill but stopped short of endorsing it, other groups on both sides of the China currency debate attacked the Senate measure.

The Club for Growth, which earlier this week warned it would subtract points on its congressional scorecard from any members that sponsored or cosponsored “protectionist” China legislation, denounced the Senate bill and compared Baucus and Grassley to the sponsors of the Smoot-Hawley tariffs of the 1930s.

“History was not kind to Senator Smoot and Representative Hawley, and it will not be kind to Senators Baucus and Grassley if this legislation is passed,” Club for Growth President Pat Toomey said.

Grassley told The Hill the Senate bill should not be considered protectionist because its provisions would be compliant with WTO rules.

Supporters of taking tough action against China also harshly criticized the Senate bill. “It failed to meet our very low expectations,” said Alan Tonelson of the U.S. Business and Industrial Council, which represents small manufacturers in the U.S.

Tonelson said the bill gives Treasury too much discretion to determine whether a country’s currency is misaligned, and also said it likely violates WTO rules. He said that’s because the bill would appear to allow the U.S. to impose higher anti-dumping duties on countries found to have misaligned currencies.

“The idea that the U.S. is going to unilaterally find a new way to calculate anti-dumping duties and this will be endorsed by the WTO is a fantasy,” he said.

He said members should offer support for separate legislation, such as a Senate bill sponsored by Reps. Tim Ryan (D-Ohio) and Duncan Hunter (R-Calif.) that would allow currency misalignment to be treated as a subsidy, which could be addressed with increased duties on imports.

Besides the possibility of higher anti-dumping duties, countries found to be misaligning their currencies could face other penalties, such as a prohibition on Overseas Private Investment Corporation funding and U.S. opposition to financing by multilateral banks.

However, the bill does allow the president to waive such consequences if he determines that such action would harm national security or the vital economic interest of the U.S.