A New Move To Attack China's Currency Policy, Tied To Deficit Debate

The powerful senior Senator from New York State, Charles Schumer (D), has begun to revive legislation which would require China to no longer keep its currency, the yuan, artificiality low. There have been battles for years about whether China’s currency policies have hurt its trading partners. Schumer comes by his position because he believes the value of the yuan has taken away American manufacturing jobs. His actions and those of his colleagues could certainly start a trade war whether their economic theories are right or not.

Schumer’s plan resurrects one which started in the House more than a year ago. It had the support of more than 100 members. The legislation did not advance. This was partly due to a belief that the President and Treasury Department would take up the cause. This never happened entirely. China was never designated as a “currency manipulator,” a decision which could have been made at any six month interval as the Treasury sends a report on trade to Congress.

The yuan valuation issue has moved mostly off the Congressional agenda. The American economy seemed in the stages of a strong recovery late last year and early this one as the recession ended. The focus of politicians has recently moved to the deficit, the debt cap, and whether the US may default on its sovereign financial obligations.

Interest in China may return because that interest is related to the deficit, at least as many economists would argue. A China yuan policy that undermines America’s ability to have its exports be competitive in global markets and one which hurts the US manufacturing industry is one that by its nature helps drive down federal government receipts.

The fight over whether China is a currency manipulator and if the American government would start a trade war with the People’s Republic has received renewed interest. Correct or not, China’s currency policies have become integral to the budget debate. Schumer, usually a master of timing, is counting on that.

Douglas A. McIntyre