China knows how to play us. In the days leading up to Vice President Biden’s visit to Beijing, China’s Central Bank took the Yuan to an all-time high against the dollar, just in time to fend off serious criticism of its ongoing currency manipulation. Let’s be charitable and call it the “Biden Effect.” Thanks, Mr. Vice President.
China’s action seems to confirm two things. First, there is a strong correlation between U.S. political pressure and the Yuan-dollar exchange rate. Second, we may need to send more high-ranking Administration officials to China on a regular basis. That way we could test the theory more thoroughly.
China’s currency peg has been a decade-long problem for U.S. manufacturers and workers, artificially cheapening Chinese exports while simultaneously raising the cost of products shipped to China. Prominent economists with free trade credentials–Paul Krugman and Fred Bergsten–have called for sanctions on China unless it revalues the Yuan.
Still, the Yuan by most estimates is at least 30 to 40 percent undervalued because those sanctions have never materialized. China began to float the Yuan in 2005 after an overwhelming Senate vote to sanction it, and began to float it again last year in the face of possible humiliation at the G20 meeting.
On the campaign trail in 2008, President Obama promised to get tough with China on currency. Five times the Obama Administration had the opportunity to designate China as a currency manipulator (which it clearly is), and five times the Obama Administration has failed to do so. The Senate passed a bill in 2005, the House passed a bill last year, but Congress has never sent a bill to the President giving our workers and businesses a new trade law tool to fight back against this unfair trade practice.
The “Biden Effect” will only last a few weeks. Meanwhile, the wrecking ball that comes in the form of China’s cheating will continue to destroy good American manufacturing jobs. The lesson is clear: we must stop currency manipulation by deterring it. If China has an incentive to freely float the Yuan, it will do so. That incentive must be continued access to our market. China has no substitute for the American consumer market and depends on U.S. consumption to support a sizable portion of its manufacturing employment. The choice for China would be an easy one to make, as they could adjust to a higher-valued Yuan, but they could not adjust to life without access to our market.
So, it’s well past time to call China’s bluff on its currency manipulation. Congress should swiftly pass bipartisan legislation to tackle illegal currency subsidization. A House bill received overwhelming support in the last Congress, including cosponsorships from key Republicans such as House Ways and Means Committee Chair Dave Camp. A companion bill should pass easily in the Senate.
The Administration must do its part, as well. Citing China as a currency manipulator would send China a clear signal: no more business as usual. The Administration could also threaten to put the earnings owed to China on its U.S. government bond purchases in escrow until China floats the Yuan. Why pay back a thief?
Rather than tolerate the silly charade of China raising the value of the Yuan just enough to avoid serious consequences, it’s time to install a permanent deterrent. Ending the Yuan’s peg would mean shipping U.S. products to China, instead of our jobs. Plus, we’re running out of high-ranking Administration officials to send to Beijing.