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While Treasury Sleeps, Congress Stirs on China’s Currency

By Scott N. Paul
Director, AAM

For millions of Americans, April 15 is a day of dread. Taxes are due, and long lines at the post office beckon.

But in some circles, that date has a whole other meaning entirely. April 15 also happens to be one of the days this year that the Treasury Department releases its semiannual exchange rate report. This is the document in which our government has the opportunity to assign the label of “currency manipulator” to a foreign country.

Designating another government a deliberate trade cheat is a serious charge. Doing so would be the first step in formal action by Washington to addressing the problem, as it would initiate formal negotiations on the issue of currency between the accused government and our own. And if those talks broke down, it would allow our government to seek redress through direct sanctions.

But if you’re an entrenched interest that finds the idea of Treasury applying the currency manipulator label a little worrisome, don’t worry: At the Obama administration’s Treasury Department, they’re cautious. So cautious, in fact, that they’ve let one of the world’s most egregious trade cheats — the Chinese government — slide despite eight opportunities do something about it since the start of the president’s first term.

Currency manipulation is pretty simple: A country keeps the value of its currency deliberately low versus the U.S. dollar. This makes the country’s exports artificially cheap when entering the U.S. market while simultaneously acting as a tax on U.S. exports entering their market.

China does this.

And who is China’s biggest trading partner? You guessed it: The United States of America.

Last year, trade in goods between China and the United States totaled more than $536 billion. But it is unequal trade; we bought $315 billion in 2012 more than we sold to the Chinese, which makes for the largest trade deficit between two nations in recorded history. We’re already on pace to surpass that total in 2013.

That total is pushed along — in part — by China’s standing policy of currency manipulation, which is directed — by default — at American businesses and the workers they employ. Beijing keeps the renminbi below market value by hoarding U.S. dollars (to the tune of $191 billion in 2012). China now has foreign exchange reserves valued at a staggering $3.26 trillion.

In the absence of any action from Treasury, Congress is trying to do something about it. Despite being less popular than a 1040 form and about as functional as our trading relationship with Beijing, the fact that China manipulates its currency and the notion that we should do something about it are among the few things a House majority can agree on. And a House bill designed to do that has more than 100 co-sponsors from both sides of the aisle.

If the bill passes, you can expect real results, because there’s clear evidence that China responds to political pressure.

A Senate procedural vote in 2005 that marked the first step toward addressing Beijing’s currency manipulation provoked an immediate rise in the renminbi. When then-Treasury Secretary Timothy Geithner threatened action on currency ahead of a G-20 meeting in 2010, the renminbi rose again. It rose following House and Senate votes on currency legislation in 2010 and 2011. And when President Obama and Mitt Romney promised to combat Chinese trade practices during the 2012 campaign, the renminbi budged another time.

The takeaway? Pressure on China’s currency works.

Now, you would be pressed to find a member of Congress who doesn’t believe our businesses and workforce deserve a guarantee of fair play in the marketplace. You will, however, find a few on Capitol Hill who balk at the notion of prodding the Chinese on currency because they claim we risk a trade war by doing so. That was House Speaker John Boehner’s excuse when he shelved an overwhelmingly bipartisan currency bill in 2010.

That trade war hasn’t happened yet, despite the aforementioned attempts at congressional action.

And while we wait for our political leaders to stand up to a country that is clearly cheating at trade, American producers suffer from the hidden tax of currency manipulation, our unemployment rate remains frustratingly high, and our trade deficit with China grows a little wider each day.

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Scott N. Paul is the founding executive director of the Alliance for American Manufacturing (AAM), which was launched in April 2007. AAM is a non-profit, non-partisan partnership established by some of America’s leading manufacturers and the United Steelworkers (USW) to explore common solutions to challenging public policy topics such as job creation, infrastructure investment, international trade, and global competitiveness. Prior to forming AAM, Mr. Paul was the principal lobbyist for the Industrial Union Council and was a trade lobbyist at the AFL-CIO, where he led the labor movement’s legislative initiatives on international trade, manufacturing, and foreign policy issues.

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Follow Scott Paul on Twitter: www.twitter.com/ScottPaulAAM

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This is republished from The Huffington Post.

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