Currency Bill Passes Over Retail’s Objections
A majority of Democrats and Republicans serving in the House
of Representatives voted yesterday to give the government the option of levying
tariffs on countries, specifically China, that undervalue their currencies
as a means to gain a competitive trade advantage. H.R. 2378, also known as
the Currency Exchange Rate Oversight Reform Act, passed the House by a vote
of 348 to 79.
Congressional leaders, according to a Wall Street Journal report,
have been lobbying for action against China for at least 10 years. Earlier
this year, Treasury Secretary Timothy Geithner warned the Chinese of potential
congressional action in an effort to get them to raise the value of the yuan.
While
organizations representing retailers expressed an understanding that imbalances
exist, none supported the measure fearing that its passage would violate rules
of the World Trade Organization (WTO), invite retaliation against goods produced
in the U.S. and fail to persuade China to raise the yuan to a fair valuation
level.
Steve Pfister, senior vice president for government relations at the
National Retail Federation, said WTO rules do not include currency exchange
practices as a consideration in duty cases. There is also the question of the
true value of the yuan, which remains a point of disagreement among economists
and banking organizations.
"It makes little sense to give China a legitimate reason to retaliate against
U.S. exports or an excuse to hassle U.S. businesses with no prospect that this
legislation would be effective," Mr. Pfister said in a statement.
"Lost in much of the debate on currency is the fact that China is one
of the largest and fastest growing markets for American exports. Given our
near stagnant economic growth, it makes no sense to provoke tension and erect
trade barriers that could jeopardize thousands of American jobs and undermine
the President’s
goal of doubling U.S. exports within five years," said Stephanie Lester,
vice president for international trade at the Retail Industry Leaders Association.
The Obama Administration, according to the Journal, didn’t endorse
the bill and chose not to work with legislators on its language to avoid being
seen as supportive of the measure in any way.
The bill now heads to the Senate
where it will likely remain until a new Congress convenes next year.
Discussion Questions: On balance, do you see the Currency Exchange Rate Oversight
Reform Act as positive or negative for America’s economic interests? What
effect do you think it will have on the retail industry and related businesses?
[Editor’s Note] Dow Jones Newswires reported that China’s yuan weakened for the first time in three weeks following the passage of H.R. 2378. According to analysts who spoke with the news service, “Beijing may allow further yuan gains against the dollar in the near term because political pressure from the U.S. will likely continue to build until the mid-term elections in November.”
- House Lashes Out at China – The Wall Street Journal
- NRF Urges House to Reject China Currency Bill – National Retail Federation
- RILA
to Congress: Tread Carefully on Currency, Escalating Trade Tensions Will
– Retail Industry Leaders Association - China Yuan Falls For 1st Time In 3 Weeks On US Bill – Dow Jones Newswires/The Wall Street Journal
Trade war with China? Just what we need. If you have any doubts that protectionist legislation has the opposite effect of its intentions, see the Foundation for Economic Education web site (www.thefreemanonline.org).
Another example of the political class posturing for the upcoming election at the expense of the economy in general, retailers specifically, and, ultimately, the consumer. This act invites retaliation by our largest trade partner (and holder of our debt). Potential outcomes include driving incremental costs and retail prices into the majority of our imports (lowering sales), lowering our exports (reducing employment), and cooling the appetite for American debt (raising interest rates). What a great idea.
Have none of these geniuses ever heard of Smoot-Hawley?
While not generally a supporter of trade punishment legislation there is a bit of genius in this particular act because it doesn’t require the government to do anything. As for China choosing to start a trade war as a result of this, I think that is being overplayed. We need them and they need us. A trade war, both parties know, would lead to mutually-assured economic destruction.
Simply, this is awful. Tariffs are effectively a tax on our own citizens. They raise our prices. But, also be aware, an increase in the relative value of the Chinese currency, also increases our prices.
In particular, think about the price of technology going up 20%. That is good for no one. The problem with the Chinese currency is not on the Chinese side of the ocean. Most simply U.S. buyers want goods at Chinese prices.
Commerce is now global. Tariffs are an old idea that assumes a country can provide the goods the citizens need within their borders. Countries are now like companies. They operate in an environment where the competition is other countries and they are making commercial decisions.
Today, countries, like companies, cut prices to gain a bigger share of the market. Companies don’t rile their biggest potential customer, like this country is on the verge of doing.
(Side note: A large portion of the components of the new Boeing 787 are being produced in China. Actually a larger percentage than in the U.S. Boeing’s rationale is not cost. It is that China will be their biggest customer over the next decade.)
I see this primarily as leverage as these currency conversations and negotiations continue with the Chinese. My impression is that there’s been a growing recognition on their part that they need to moderate their currency policies. I don’t really see this leading to a trade war of any kind, although there may be some raised voices for a period of time.
I’ve seen this movie before living in Australia in the ’90s–“We can’t produce as efficiently as we can import, so let’s add tariffs.” It ended poorly there of course.
There were significant differences there versus the U.S. A smaller, more isolated economy. Much closer physical proximity to Asia–and therefore lower shipping costs. A much more European society and style of government with the accompanying social program costs and labor protections.
But does that really sound all that different from where the U.S. is heading today, except on a much larger scale that makes us harder to move in any direction at all?
And there is one key difference between the Australian experience and our own. The Australians literally could not produce as cheaply as other countries for some very legitimate reasons. In the U.S. we have many of the same foreign companies we rail against locating their factories here because they can produce for the U.S. market more efficiently by being in the U.S than by importing. Think Toyota, Nissan, BMW, Michelin, Hyundai, etc.
So is the issue really labor costs? Currency values? Or U.S. companies and management?
Politically motivated protectionist legislation is plain bad for our country, our businesses and our global standing. This type of law does nothing to strengthen the competitiveness of America’s products in the global marketplace. It is anti-productive by nature–unless one counts the hot air it generates.
Legislators who support this type of action betray the nation in pursuit of their own narrow goals and those of their patrons. If they had vision and courage, they would devote their energies instead toward programs that foster true economic development here in the USA. We could start with the alternative energy and transportation sectors–quickly, before the Chinese take over the lead in those areas too.
Bill Emerson really nails the issue, above. Nice job. Aside from his spot-on points, I just have to ask, when are the populist politics going to stop? Are we ever going to get out of the issues of the immediate and into something sustainable and long term?? I feel like we’re locked into an irrational behavior mode that we just can’t get out of, like children with a disorder–where’s the meds?
Anyway, back on topic, does Congress really think that the American consumer wants higher prices at retail? When’s the last time they went to a mall? Have they ever heard of something called “The Dollar Store”? Wow, that bill’s a dumb idea.
Cliches abound–what about ye olde golden rule about doing unto others? Or the one about being careful what you wish for? I will not go on, having made my point. For many years the American consumer and economy have been in thrall, not to mention debt, to China. Is this really the way to achieve parity or more a temptation to have those debts called in? Hasn’t the US made enough enemies in the last decade? Surely it would be better to compete–and win–fairly.
Tariffs are a dangerous game to play, especially with your largest trading partner. However, I agree with a couple of earlier posters who said the measure merely gives the US a potential threat it can use in negotiations with China. As far as not upsetting China goes, I think since Obama came into office, China has been posturing in a number of areas and finding our response lackluster, this may shake them a little without having to actually impose tariffs, which would probably hurt both sides.
The old axiom is that two wrongs don’t make a right, but one wrong doesn’t make a right either: only the delusional think America’s trade problems are (solely) the result of (foreign) government manipulation(s), but only the truly delusional think such things don’t exist, or that they have no impact whatsover. But what to do about it? Is this the answer?…probably not.
It may be politically motivated, but it’s not necessarily bad as it could give us leverage in future negotiations (I don’t expect any meaningful tariffs as a result of this legislation). Although the US and China are each others largest trade partner, it is important (from a Chinese perspective) to remember that China has a trade deficit with most of its other trade partners, so it has a reason to relax its value slowly.
Also, what I don’t think is taken into consideration is the fact that many products are ultimately sold by US companies that have their parts “assembled” in China. Take a PC, the value of the chip and other parts, perhaps created in the US, shipped to China where the plastic exterior and other parts are assembled, and then shipped out of China and back to the US at its full wholesale value, even though China may only capture a minor percentage of the value of the actual goods.