China is undeniably manipulating its currency. Countries around the world, including the United States, are losing jobs because their manufacturing industries cannot compete with artificially cheap Chinese goods. For the good of the world economy, and its own long-term economic development, China should stop.
Still, a Senate bill, with strong bipartisan support, to punish countries that manipulate their currencies is a bad idea. It could do even more damage to the American economy if — as is all too likely — China decides to retaliate.
Stiff retaliatory tariffs or other punishments are also very unlikely to persuade Beijing to swiftly abandon a policy that has been at the core of its economic strategy for two decades. Instead, it could add an explosive new conflict to an already heavy list of bilateral frictions.
The Senate bill is intended to limit the executive branch’s discretion. It would require the Treasury Department to identify countries whose currencies were grossly misaligned — with China everyone’s favorite culprit. If Beijing persisted, Washington would be required — with a delimited presidential waiver — to stop spending federal dollars on Chinese goods, and consider the renminbi’s undervaluation in antidumping cases against Chinese imports. The Treasury Department would also be required to ask the Federal Reserve to consider acting in currency markets to counteract the undervaluation of China’s currency. And the bill would increase the pressure on the Commerce Department to impose tariffs on undervalued Chinese products.
Given Beijing’s history of meeting fire with fire, many experts fear that China would retaliate on other fronts, like dragging its feet on customs inspections of American imports, opening new antidumping investigations against American goods or slowing its promised efforts to halt the stealing of American intellectual property.
Beijing is not immune to pressure. But the Senate bill is too blunt an instrument.
The New York Times (Oct. 5)