Revaluing China's Currency is Crucial to Creating American Jobs

Less than one week after Chinese officials promised to allow the yuan to appreciate to appropriate levels, lawmakers are raising concerns that those promises were not sincere and are threatening to take matters into their own hand despite White House objections.

China’s central bank announced on Saturday that it would allow its currency, which has been pegged to the dollar for two years now, to float freely. In a statement, Chinese officials said that they would allow the yuan to gain 0.5 percent each day until it was properly valued.

However, lawmakers believe that China is already deserting that commitment. In a Senate Finance Committee hearing Wednesday, Schumer said that China’s currency rose just 0.02 percent on that particular day. That, he said, is an indication of China’s commitment to reforming its mercantilist currency policy.

“They took back half the gains on Tuesday that they had allowed to occur on Monday,” he said. “So they take a step forward, and then a step back. It’s the same pattern we have seen for years. Nothing ever changes unless we force the Chinese to act.”

Schumer indicated that he would be open to doing just that. He and other lawmakers have introduced legislation that would punish China for not allowing its currency to float freely.

“The Chinese will keep treating us like they have us on a yo-yo unless we make a serious push for our legislation,” said Schumer.

The White House is reportedly trying to rein Schumer and his allies in, fearing that if the legislation is moved to the Senate floor it will pass overwhelmingly and damage U.S.-China relations.

The bill, which would allow currency manipulation to be considered when assessing anti-subsidy duties, is extremely popular in the upper chamber where its has garner 18 co-sponsors, both Republican and Democrat.

Lawmakers are eager to take on China in an election year. But, beyond the political implications, taking on China’s currency manipulation could have positive impact on the nation’s economy.

For the past two years, China currency has been pegged to the dollar. Some economists believe that the undervaluation is by as much as 40 percent. An undervalued currency makes China’s exports to America much cheaper and causes the price of America’s goods sold to China to be overvalued and therefore less attractive.

The practice has allowed China to gain a competitive advantage on the U.S. in international trade. The last time the U.S. and China had a balanced trading relationship was in 1985. Since 2005, Americans have spent $1.1 trillion on Chinese products; Chinese consumers have bought just $272 billion worth of goods over that same time.

The trade deficit has cost America 2.4 million jobs between 2001 and 2008. According to the Economic Policy Institute, at least one million of those were the result of currency manipulation.

“The world economy cannot afford to wait another three years for China to revalue, nor can we depend on China’s central bank to act responsibly,” Robert Scott of the EPI wrote. “Congress must set a firm target and deadline for China to achieve a 40 percent revaluation of its currency.”