♠ Posted by Emmanuel in China,Currencies
at 10/12/2011 03:08:00 PM
On the occasion of one of the many China-bashing bills finally clearing the US Senate, we have the expected denunciation from PRC state media regarding the "protectionism" underlining this legislation as well as the usual objection of America passing the buck for its inability to create export-competitive industries. (Though I do appreciate the irony of the identity of the complainant ;-) To which I say it's a lot of hot air on both sides. Consider:1. The prospects of this legislation passing the Republican-majority House of Representatives is low. Leadership there is certainly not warming to it. At worst, a parallel bill will be devised that waters down the Senate version, though that will still be forthcoming.
2. Having been an election-time proponent of an earlier iteration of China-bashing legislation, Obama is now cool to it. Again, it's the two-step you must perform as a Democratic candidate keen on gaining influential union support during campaign time. Which you promptly ditch when in office provided that the pressures you face are now counting on export-led growth and employment. Accordingly, export lobbies gain priority over your erstwhile union buddies.
If this legislation clears the House too which appears improbable given objections by Republicans there--I wouldn't mind being mistaken, though--Obama would almost certainly veto it.
3. Jonathan Dingel over at Trade Diversion notes that across-the-board tariffs on Chinese imports as penalty for currency manipulation are not on the menu according to the provisions of the current bill. Rather, it refines the criteria by which other countries may be labelled as "currency manipulators" by Treasury. Such a designation has ramifications while preparing anti-dumping/countervailing duty (AD/CVD) actions against them. In other words, it is considerably watered down from earlier, more draconian legislation mooted by the likes of Charles Schumer (D-NY) that aimed to slap a 27.5% tariff against all PRC imports. (Those were the days.)
4. Press bellyaching aside, the People's Bank of China took the occasion as a minor affront in actually weakening the yuan fixing in the aftermath.
Why would the Chinese monetary authorities do that? To (a) spite American legislators; and (b) dare them to proceed with the expectation that (c) the bill will ultimately not pass. The Xinhua article linked to above also indicates as much.
5. After reading the text of the fantastically titled "Currency Exchange Rate Oversight Reform Act of 2011," the provision for taking a country with a "fundamentally misaligned" currency to the WTO is an interesting one. The important qualifier though is that the WTO Dispute Settlement Mechanism (DSM) has never heard any cases concerning currency undervaluation. As before, I believe that turning the WTO into an instrument for bashing a tried-and-tested development strategy in export promotion would only make it even more irrelevant--especially to developing countries who've always had a lingering suspicion about its ultimate servitude to American interests.
It's much ado about nothing all around, really.
