U.S. Senators Turn Up the Heat on China

Posted by: Bruce Einhorn on February 25, 2010

While Democrats and Republicans squabbled about health care on Thursday at Blair House (corrected - I originally wrote White House but the meeting was at the president’s guest house across the street), 15 senators—from both sides of the aisle—managed to find common ground on a different issue: China. They even put a health-care spin on the problem. “China’s mercantilist policies are undermining the health of many U.S. industries,” the lawmakers said in a letter to Commerce Secretary Gary Locke. “There can be no doubt that China’s policy of large-scale intervention in the exchange markets and the significant undervaluation of its currency acts as a subsidy to Chinese exports.”

The senators include Democrat Chuck Schumer of New York and Republican Lindsay Graham of South Carolina, who in the past have sought to penalize Beijing for keeping the yuan undervalued. They are asking the Obama administration to rule that “China’s policy of large-scale intervention in the exchange markets and the significant undervaluation of its currency acts as a subsidy to Chinese exports.” Till now, Obama has rebuffed such calls. But with midterm elections in November and U.S.-China tensions rising on a host of issues - the Taiwan arms sale, Obama’s meeting with the Dalai Lama, Internet censorship, and allegations (by both sides) of protectionism -the Chinese government shouldn’t count much longer on the President’s forbearance.

For more on China’s currency, check out this Asia Insight column on BusinessWeek’s Asia channel by Shaun Rein, who argues Beijing should resist calls for an immediate change from its weak-yuan policy.

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Reader Comments

Strategery

February 25, 2010 9:59 PM

This is the most the senate has done all year. It's time for a 40% tariff on all Chinese goods until they let the yuan float.

Joe

February 25, 2010 11:01 PM

I am tired of hearing about China; how long are we going to keep pumping money into the communist China economy. We are essentially funding China's military buildup so that they can one day rival us as a super power. There has to be some other third world country who would be happy to manufacture cheap products for the U.S. consumer so we can break our China addiction before it's too late.

frank

February 26, 2010 12:16 AM

You can't say Chinese yuan is overvalued because we have a trade deficit. The main reason of trade deficit is that Chinese are willing to make razor thin profit on deals. You need to know pricing structures to understand currency values. Let me ask you this first: why we are not seeing people here complain that $1 would worth about 90 Japanese yan while all of our electronics industry and auto industry were decimated by Japanese imports. The answer is that a bowl of noodle in Tokyo costs about 2500 yan. Same reason if you really know the pricing structure in China, you will come to the conclusion that the Chinese yuan is way over valued. For those who have been to China know that if you stay in a five-star hotel, it will cost you at least 2000 yuan a night, about $300 with current exchange rate. A motel 6 type of hotel will cost you about 400 yuan a night, about $60. The price of a base model Honda Accord or a Buick LaCrosse in China is about 350,000 yuan, a whopping $54,000. Now you tell me what the right exchange rate should be. You really think the yuan should appreciate to a point that a Motel 6 type of hotel would cost $200 a night? A Buick LaCross will cost $100k? One-way air fare to China will cost about $5k. Imagine what will that mean for China? Would you rather keep yuan at current fair value? Or let it free flow so that it would appreciate sharply, and then crash to 20 yuan for $1? So the currency issue is a political issue. It is not going to solve trade deficit or unemployment. China’s attitude now seems: Let me cash out the treasury bills first before they become scrap paper, and then I will raise exchange rate to one yuan for two dollars. China wants to be the biggest economy and this will be the quickest way to achieve it. Anyway, my advice is that don’t listen to what Rush puts it the drive-by media. What Obama is doing is going to backfire.

frank

February 26, 2010 12:21 AM

The best way is to impose %40 tariff on all GM products in China market.

China says: Ok, we are going to change exchange rate to 1 yuan for $2, but we need to cash all of our treasury bills first.

jcage

February 26, 2010 12:24 AM

Let's see a two wars (Iraq and Afghanistan), world financial crisis, the USA in deep recession with a big trade and fiscal deficit especially after bailing out Wall Street so the solution would be a trade war with China.
I can imagine now that a year from now, hyper inflation will hit the USA and shopping at Wal-Mart would feel like shopping at Louis Vuitton! The Dollar would have probably lost its world reserve status. Then many of these people will say we did not see it coming like they did not see the housing bubble coming!

I guess that Congress should better stop bailing out Wall Street, let the housing price back to more affordable level and once the cost of living has gone down. Then encourage more industries to open in the USA.
This trade war will just make thing worst in the long term even though it would make a lot of people happy in the USA just at the beginning.

Dr Shao

February 26, 2010 12:29 AM

40% on Chinese goods? Can it pass the WTO hurdle?

Kenneth Phan

February 26, 2010 12:42 AM

I want to know how many American Economists with obtainng a Nobel Prize and how many China economists have? I feel very much dissapointed about our national interest/economy has been taken advanced from China for couple terms of US Presidents from "Democra" to "Republ" goverments. Let give me one year to be a head position of US commerce Department I will volunteer this job and will lay out serious plan to deal with issues from currency exchange rate, trading deficit to others priorities. Best Regards,

PRC

February 26, 2010 1:07 AM

The US senate is the problem of America. If all they can do is bitch and moan and think that that will make America better than America is already a lost cause. Trust me, whether you post what I write or not, America wont get any better by complaining and screaming like little girls. A country ONLY gets better when the folks work together and work hard. When they dont waste time opposing each other for all kinds of bullsh*t. America will NOT get any better with their current system in place. It may have worked for them in 20th century that made them great....for that time period. But if they wanna develop in the 21st century they MUST follow CHINA's lead, or risk falling further behind. Either way America IS on its way down, and MY COUNTRY....CHINA is on its way up. There is NOTHING that any American can do about that or America as a whole. To me....for the country of America it is a race for second place. Now show me and everybody that there is truly freedom of opinion and post mine.

realman

February 26, 2010 1:25 AM

American is loser? You guys screw up economy and complains other cause. Then you will be a real loser!

YX

February 26, 2010 2:35 AM

Who gives a s--- about what the mindless US politicians say. They are a bunch of barking dogs whose only reason of existence is to fool the american public which is known to be easily fooled by the fools.

Snoz

February 26, 2010 3:27 AM

Having caused the Great Recession, Congress and expedient politicians now seek to divert blame upon China. China neither caused the real estate bubble burst nor the subsequent collapse of Wall St financials, bankruptcy of GM and Chrysler, and wasteful trillion-dollar bailout. In fact, as the largest holder of US Treasury, China has mitigated some of the misery and suffering, a product of misguided monetary policy of the Federal Reserve and corrupt politicians who undermined principles of capitalism, upon the America. But for China's almost one trillion dollar loan to the US government, many Americans might go homeless, hungry or without a job. The high US unemployment rate, numerous bank failures, and economic malaise despite a trillion dollar "Stimulus," are the products of government wage and price control, borrow-and-spend mentality of Congress, and self-serving Federal Reserve monetary policy. Instead of accepting the blame for destroying America's economy strength, Senators Schumer, Grahm and other corrupt government officials who sold out America want to paint China as the villain. No amount of artistry or smoke and mirror trick by the incumbent politicians will dissuade voters from voting them out this coming re-elections.

There's Always an EasyTarget

February 26, 2010 3:35 AM

Back in the days of the Cold War, our US law markers were anti Soviet Block, then attention shifted to Japan in the mid 80s as it rose to prominence and there were talks about unfair trade, then against the Arab/Muslims for Sept 11, and now the bad guy is China. There's always someone else to blame. The current Mess in the US is a domestic doing caused by domestic real estate speculation. Law makers on both sides are wasting time squabbling and blaming China. They should get off their behinds and do something to revive the economy, make America more competitive, and create jobs.

Husin O'Bama

February 26, 2010 4:59 AM

Without the Chinese cheapos, the US growing army of unemployed and other homeless eg. those living in the Tent city just outside NY may be sinking into despairs. Anyway the Obama regime is only serving the well-off bankers and their backers.

DJC

February 26, 2010 8:49 AM

Any revaluation of the yuan would merely shift US multinational production to another developing nation. After the protectionist Obama imposed a 35% tariff on Chinese tires, production was merely shifted to Malaysia, Mexico, Indonesia, and Thailand.

john

February 26, 2010 10:05 AM

@Strategery: Yeah let's do that. Let's raise the prices on just about all possible goods (not just the stuff at walmart) by 40% and kill any chance of economic recovery. Those senators don't actually believe in doing that, they are just doing political posturing. It's suckers like you who actually believe in slapping tariffs.

wh

February 26, 2010 10:56 AM

40% tatiff on all Chinese goods means 40% higher price for toys, cloths, furniture, electronics you name it for American consumers as well. Take that pill and the U.S. economy will nose dive.

On the other hand the Chinese still remember how Japan crumbled 20 years ago after they were pressured to devaluate yen. Guess they'd rather take the "40% tariff" than killing their entire economy.

MCC

February 26, 2010 11:26 AM

China is not going to let the Yuan float. They will let the Yuan appreciate gradually. A sudden change in its currency policy will have devastating consequences, and history have proven that.

In long term, China will appreciate the Yuan. And don't count on all the manufacturing coming back to the US. They wouldn't. Just going to migrate to other cheaper countries. Secondly, many US companies set up manufacturing facilities to tap into the Chinese market. By letting the Yuan float, it is still that much cheaper to make things in China.

knife

February 26, 2010 11:41 AM

Just who the heck these so called senators think they are, God's only chosen people?! As far as I'm concerned they should stick to their own bloody business and stop meddling other countries' internal affairs. Stupid Yanks. I just love to live to the day when they all go to you know h_ll where they can play table tennis with all the big shots like Chairman Mao, the corporal Hitler, Uncle Joe and Reegain (ha..).

jim

February 26, 2010 12:35 PM

United States runs a trade deficit with almost every country we trade with, e.g. EU, Canada, Mexico, etc. China is not the only nation, but China is an easy target. U.S. can certainly increase tariff, but the jobs are long gone. Even China is thinking about out-sourcing. The only obvious result is inflation. The only people that would get hurt are the lower income population of United States. Jobs that don't need high level of sophistication are gone to Vietnam, Bangladesh, Africa, etc. We certainly don't want that kind of job for $2/hr. We need to do something else! Pointing a finger to China would only hurt companies such as Wartmart, K-mart, Costco, etc. We might hurt ourselves more than we hurt them.

ps

February 26, 2010 2:12 PM

The genie's out of the bottle already. Any actions against China will boomerang and hurt the US. Our 2 countries are totally interdependent on each other, the US as a market for China's goods and China as our factory financier, gobbling up US debt. There is no easy way out of this one, thanks to Global trade and freewheeling spending here.

WilliamL

February 26, 2010 2:24 PM

a trade war is going to bring sky high inflation in US as the multinationals have no way to find alternative source in a short period.

C. H. Ng

February 26, 2010 9:10 PM

Good.... you can impose a 40% tariff or trade sanction or whatever but I doubt it will make the Chinese government bow to the American's demand. Definitely all these actions will hurt China but so would be those countries who started the trade wars. Lets us wait and see who will ended up faring worse.

Sen Joe McCarthy

February 28, 2010 1:05 AM

Yes! McCarthyism and the Big Red Scare is alive and well again in America!

pathetic strategery

February 28, 2010 9:13 AM

to strategery,

no need to put tariffs on chinese goods. if you don't like to pay for chinese goods, then just don't buy it. no need to infringe on other people's freedom. if you like to pay for overpriced american products produced by fat, lazy, uneducated union workers and run by inept management then just do so but don't infringe on my rights to buy goods made elsewhere

jim

March 1, 2010 5:14 PM

Joe's comment: There has to be some other third world country who would be happy to manufacture cheap products for the U.S. consumer so we can break our China addiction ... Joe obviously is not in import/export business and he has never been to China. It needs tremendous amount of infrastructure to ship 'simple' items to anywhere. It takes highways, trucks, railroads, modern port facilities and container ships, all these China has, very modern in deed. Lots of people and many countries love to trade with us, but they can't get them here, so value your $2.00 toy.

Very Berry Wise Man

March 1, 2010 7:37 PM

Man everyday I hear people yapping about Chinsese products, yet go into any America house and you'll find 90% of everything they have is made from China.

I aint going to buy milk from China but I will by my stapler from the dollar store. You want to be a big shot and go buy your "american made" stapler(if you can find one) for more money then go so be it.

It is all threater and politics, The Dems have Obama is office now and they can't get anything done against the Yuan. All for show, the true power lies in coperate america.

Look at google making a big hoopla, now they are hiring more chinese.

C. H. Ng

March 4, 2010 8:46 PM

Politicians everywhere are the same...
when they screwed up the country, they blame everything & everybody else but themselves.
In the US & certain countries in Europe, China serves as their easy punching bag as their fear & anxiety of a growing powerful China are paramount; in fact I think more than their screwed-up economies.

The_Observer

March 5, 2010 4:35 AM

The Chinese will only raise the Yuan when they are good and ready. They will probably do so as one measure against inflation and not because of some professional political clowns in DC demand it.
The Democrats are "bricking it" because their president and party are losing in the polls. Not good when there are elections later on in the year. Both they and the Republicans find it easy to throw a few "China threat" bombs at a gullible US public.
In reality the current financial crisis can be laid at the doors of the Washington politicians, the Treasury and Federal Reserve. People in the US need to grow up and take responsibility for their own greed and ineptitude.

brad williams

March 9, 2010 1:43 AM

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Andrew Wilson

August 9, 2010 8:18 PM

The 40% artificial suppression of the Yuan is a non-tariff trade barrier.

The banking and real estate crises are symptoms of the longer term cause, i.e. the hollowing out of American (and western) industry, especially manufacturing.

Now, Manufacturing, the very engine that would pull the West out of their debt engulfed slump is in a poor state of repair and running on two cylinders.

USA and other nations are fully justified in putting a 40% tariff in place to redress this imbalance.

China knows that manufacturing is the Golden Goose of a developed nations prosperity and will protect thgeir artificial competitive advantage at all cost.

Their policy is a win-win, only for them in both cases. It grows their industrial base, while eroding the Wests.

Developed nations need to band together to pressure China into floating their exchange rate. They can't continue to get a free ride at the expense of Western wellbeing.

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