Senators Calling Commerce Out on Currency Manipulation

A bipartisan group of 15 U.S. Senators representing 11 different states is calling on the Obama administration and the Commerce Department to do more than pay lip service to combating China’s well-known practice of systematically undervaluing its currency.

In an unusually harsh letter addressed to Commerce Secretary Gary Locke, the group of nine Democrats and six Republicans bashed the department head for his failure to seriously investigate numerous charges of Beijing currency manipulation. 

In the letter, they claim that the Commerce Department has  “prejudged the outcome of a subsidy investigation it has yet to do, rather than assessed the sufficiency of the allegation on the basis of ‘information reasonably available’ to petitioners to determine whether to launch an investigation.”

They point out that the Locke-led Commerce Department has received at least 12 complaints filed by U.S. manufacturers alleging that China’s currency manipulation amounted to an illegal subsidy aimed at undermining competitors, but have yet to properly investigate even one.  

“This is troubling and suggests that the Department is treating allegations involving China’s actions on currency differently than it has treated other allegations, including other currency-related allegations involving other countries,” they write.   

In the past, the Commerce Department has investigated allegations of currency manipulation involving Mexico, Germany, Uruguay and Canada, the letter points out.

The Senators, most of whom hail from paper producing states, point out that China’s paper and paperboard exports to the U.S. increased 21 percent, to $2.3 billion worth, between 2006 and 2008, mainly due to Beijing’s artificially low currency.  

China is the world’s most well-known practitioner of currency manipulation.  A recent study by the U.S.-China Economic and Security Review Commission found that China’s currency may be undervalued by as much as 40 percent.

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 Obama administration and its Treasury and Commerce Departments have repeatedly failed to properly tackle the issue despite often issued vows to get tough on China for the practice.

During the campaign, Obama slammed Beijing for currency manipulation, and as a U.S. Senator supported a bill that would define currency manipulation as a subsidy under U.S. trade law, making it easier to crack down on the practice. Yet, given the chance to take action, his administration failed to even name China as a currency manipulator in its most recent report on the issue.  

Treasury Secretary Tim Geithner has been just as duplicitous, telling members of congress that China’s currency manipulation was of great concern to him, but failing to act when given the chance.

This is an ongoing pattern with the Obama administration. Officials will readily admit that China’s currency practices are illegal and hurt U.S. businesses, yet they offer excuses as to why they cannot address the issue. 

Addressing a similar letter last month, Locke said “China's currency practices should be assessed no differently than any other subsidy allegation," but he then went on to offer excuses as to why his agency could not properly address China‘s currency practices.  

"Before investigating an alleged subsidy, the Department has an obligation to establish whether the allegation meets the requirements prescribed under U.S. law; that is, whether there is a financial contribution that is specific to an industry or group of industries," Locke said. "When the subsidy allegation fails to meet these requirements, the department cannot initiate an investigation."

But the group of Senators alleges that the Commerce Department’s “failure to investigate China’s actions regarding its currency derives from a flawed interpretation of the legal standard.”  According to the letter, the Commerce Department has the authority to investigate such an allegation without definitive proof of financial harm caused by undervalued currencies. 
 
“China’s mercantilist policies are undermining the health of many U.S. industries — industries that inject billions of dollars into the U.S. economy and employ hundreds of thousands of American workers. In the face of China’s actions to subsidize its exports at the expense of U.S. manufacturers and workers, the Department needs to act,” the letter concludes.