The Senate voted Monday to advance legislation pressuring the Chinese government to stop undervaluing its currency, a practice most economists agree is giving the country an unfair trade advantage and is costing the U.S. jobs.
The Senate voted 79-19 to end debate on a motion to proceed to the bill, the Currency Exchange Rate Oversight Reform Act of 2011. While the vote does not mean the bill has passed, the strong show of support suggests it could well be approved in the upper chamber by the week’s end. Passage through the House is less clear, however, and GOP leaders have given no indication they will move forward with it.
“China is by far the biggest exploiter of predatory currency practices,” Sen. Charles Schumer (D-N.Y.) said Monday. “[T]hese currency policies artificially raise the price of U.S. exports and suppress the price of imports into the United States, undermining the economic health of American manufacturers and their ability to compete at home and around the globe.”
Senate Majority Leader Harry Reid (D-Nev.) defended his decision to call up the bill after he was attacked by Republicans on his timing, arguing it is an important part of Democrats’ job-creating agenda.
“That massive trade deficit is one reason for our unsustainable unemployment rate,” Reid said.
But some Republicans continued to question Reid’s timing, as well as the tension its passage would likely create with China, the U.S.’s most important trading partner.
Sen. Bob Corker (R-Tenn.) said he feared the legislation would create a dangerous “trade war” with China at a time when the U.S. economy is already unhealthy. Sen. John McCain (R-Ariz.) blasted Senate leadership for side-stepping other basic responsibilities, like creating a federal budget, in order to take up the currency bill, which he said ought to be discussed in “happier times.”
“China currency may be part of the problem ... but the majority of jobs have been lost for other reasons,” McCain said. “I have to express amazement that the issue of China currency is taking precedence over the myriad of other issues we should be acting on.”
If signed into law S. 1619, would work by creating a system under which the Treasury Department would have to determine whether any foreign currencies are in fundamental misalignment, and set up a process of negotiating to correct the imbalance with countries that are named.
That’s a change from current law, which requires Treasury to cite countries that are intentionally manipulating their currencies. Treasury has cited countries in years past, but has not cited anyone for about a decade; the department has argued it cannot easily determine whether countries are manipulating their currency for the purpose of gaining a trade advantage, as the law requires.
Under the bill moved forward by the Senate on Monday, countries that fail to fix their currencies would be subject to higher anti-dumping duties and other penalties, such as a procurement ban, not receiving financing from the Overseas Private Investment Corporation, and U.S. opposition to multilateral bank financing for the targeted countries.
Now that the legislation has cleared its first hurdle in the upper chamber, however, its future remains far from certain.
Several Republicans who joined Democrats to move the bill forward expressed their wish to see it heavily amended later this week. Although the House already passed a similar piece of legislation last year, H.R. 2378, by a resounding 348-79 margin, McCain all but assured his fellow senators that this version would not see the light of day in the Republican-controlled House.
Updated at 7:45 p.m.