Combating currency misalignment

The overall U.S. trade deficit was a record-setting $763.6 billion in 2006, with the China portion being nearly $233 billion, also setting a record. In the past six years, our country has run up a $2.6 trillion deficit in manufactured goods, which translates into the loss of 3 million high-paying jobs. Congress and the president have a responsibility to act now to reverse this trend.

Over the years, various nations have taken advantage of currency exchange markets in order to create or expand a positive trade balance with the United States. In one of the latest and most egregious cases, China has financed its unprecedented growth by artificially fixing the value of its currency to the dollar at an unrealistically low level. This direct government intervention has enabled Chinese exporters to sell their products in the United States approximately 40 percent cheaper than their domestic counterparts. Currency misalignment is wreaking havoc on domestic manufacturing industries throughout the country, costing our economy high-quality, good paying jobs. The Fair Currency Act of 2007 is an important first step in addressing our nation’s ailing trade policies.

American workers are the most skilled, productive and dynamic producers in the world. Our ability to compete effectively in the global marketplace is being unfairly compromised by currency tricks that violate international trade law. In response to this problem, I have joined with my Republican colleague Congressman Duncan Hunter of California in reintroducing legislation to provide domestic manufacturing companies recourse through U.S. trade laws when they are injured by foreign currency misalignment.

The Fair Currency Act of 2007 contains a number of provisions that would protect American businesses from foreign currency misalignment, but the single most important action our bill takes is to define currency misalignment as an export subsidy. This definition will allow the Department of Commerce to take action, in the form of a countervailing duty, against nations that are found to have a misaligned currency resulting in an unfair trade balance.

Countervailing duties are not a new concept. The first U.S. countervailing-duty law was passed in 1897. That bill allowed
the government to counteract any unfair competitive advantage that foreign manufacturers or exporters enjoyed due to subsidies bestowed by the foreign government. It is important to note that our bill applies equally to any country found to have misaligned currency. This is not a “beat up on China bill,” as some have claimed. Our goal, rather, is to dissuade any nation from using the currency markets in this way and allow currency markets and currency exchange rates to follow free-market principles.

Countervailing duties are a reasonable response to protracted large-scale intervention by or at the direction of a governmental authority in the currency exchange by a free-market or a non-market economy. A specific business or industry group will still have to file a claim against the offending nation to prove it is being hurt by currency misalignment.

Furthermore, nations like China are fully responsible for the size of the countervailing duty. The duty we would impose would be in direct correlation to how much the offending country’s currency is misaligned.

Finally, the Fair Currency Act and countervailing duties are World Trade Organization (WTO) compliant. We apply countervailing duties in a non-discriminatory manner to any WTO member state that has undervalued exchange rates and target only specific industries proven to be hurt. In fact, we are only asking WTO member nations to live up to the agreements they signed when they joined the WTO and create a level playing field where the market determines demand for product.

We must be clear in our calls for currency revaluation and we must be able to back those calls up with action. It is wrong for us to think that nations that are currently benefiting from trade imbalances caused by currency misalignment would just take it upon themselves to do something about it.

Passage of the Fair Currency Act will give the Department of Commerce the tools it needs to fix this problem, which has far-reaching implications to the future of our manufacturing sector and the health of our nation’s economy.

Ryan is a member of the House Appropriations Committee.

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