House votes to slap tar­iffs on China

Law­mak­ers vote 348 to 79 to pun­ish Bei­jing for hold­ing down its cur­rency’s value.

Los Angeles Times - - Business - Don Lee re­port­ing from washington

With the po­lit­i­cally charged is­sue of un­em­ploy­ment weigh­ing heav­ily in midterm elec­tions, law­mak­ers took a big step Wed­nes­day to­ward pun­ish­ing China for hold­ing down the value of its cur­rency — a pol­icy the Obama ad­min­is­tra­tion and other crit­ics say hurts U.S. com­pa­nies and work­ers.

In one of their fi­nal ac­tions be­fore re­turn­ing to cam­paign in their dis­tricts, mem­bers of the House voted 348 to 79, with dozens of Repub­li­cans join­ing in sup­port, for a bill that would open the way for the U.S. to slap tar­iffs on Chi­nese goods.

But the bill faces an un­cer­tain fu­ture in the Se­nate and the White House be­cause — while of­fer­ing a tempt­ing po­lit­i­cal tar­get at a time when many vot­ers are un­happy with the still-trou­bled econ­omy — im­pos­ing sanc­tions on Bei­jing risks re­tal­i­a­tion that could add to the nation’s prob­lems.

And the fact that Chi­nese mon­e­tary pol­icy makes its prod­ucts rel­a­tively cheaper, and thus more com­pet­i­tive in the global econ­omy, is only one of many fac­tors con­tribut­ing to Amer­ica’s huge trade deficits and other prob­lems.

In Wed­nes­day’s House de­bate, sup­port­ers cast the mea­sure as a tonic for the weary U.S. econ­omy and be­lea­guered small man­u­fac­tur­ers, which have been among the most vo­cal crit­ics of China’s cur­rency and eco­nomic poli­cies.

“If we want to turn this coun­try around, we have to do things that are go­ing to re­sus­ci­tate the mid­dle class in the United States,” Rep. Tim Ryan of Ohio said at a Demo­cratic news con­fer­ence be­fore the vote.

House Speaker Nancy Pelosi (D-San Fran­cisco), in urg­ing the bill’s pas­sage, said it could help cre­ate 1 mil­lion Amer­i­can jobs. “So this is about Amer­ica’s work­ers. This is about mak­ing it in Amer­ica,” she said.

No­bel Prize-win­ning econ­o­mist Paul Krug­man has es­ti­mated that China’s cur­rency pol­icy — and re­sult­ing large trade sur­pluses — may cost 1.4 mil­lion U.S. jobs in the next cou­ple of years.

Threat­en­ing to im­pose higher tar­iffs on Chi­nese im­ports would give Washington greater lever­age in press­ing Bei­jing to lift the value of the yuan, sup­port­ers of the leg­is­la­tion ar­gued. And re­form­ing China’s mon­e­tary pol­icy would be a ma­jor tool to re­bal­ance a U.S. econ­omy that has long re­lied on Amer­i­can con­sump­tion of for­eign-made goods, they said.

A stronger yuan would make Chi­nese goods more ex­pen­sive in the U.S., help­ing out Amer­i­can man­u­fac­tur­ers com­pet­ing against Chi­nese sup­pli­ers, sup­port­ers said. At the same time, Amer­i­can prod­ucts would be cheaper for Chi­nese con­sumers, who would also have greater buy­ing power with a stronger cur­rency.

But ma­jor busi­ness groups rep­re­sent­ing a di­verse ar­ray of trades — in­clud­ing cat­tle ranch­ers, Los An­ge­les freight for­warders and Wall Street firms — lined up against the bill, say­ing it would do more harm than good for eco­nomic growth and job cre­ation.

De­spite bi­par­ti­san sup­port in the House, the bill faces a much tougher hur­dle in the Se­nate, which could take it up af­ter the Nov. 2 elec­tion.

And Pres­i­dent Obama would be hard-pressed to sign a mea­sure that would anger Bei­jing and fur­ther com­pli­cate a re­la­tion­ship with Amer­ica’s largest for­eign cred­i­tor — par­tic­u­larly when pe­nal­iz­ing Chi­nese im­ports might not yield sub­stan­tial ben­e­fits to the do­mes­tic econ­omy.

Al­though most ex­perts agree that China’s cur­rency, the yuan, would rise if freely traded, it’s far from clear by how much. An­a­lysts also point out that the U.S. has a trade short­fall with about 90 coun­tries, not just China, though the Asian nation ac­counts for about 40% of the $376-bil­lion trade deficit in goods through July of this year.

“We don’t have a bi­lat­eral prob­lem; we have a mul­ti­lat­eral prob­lem,” said Stephen Roach, a se­nior fel­low at Yale Uni­ver­sity and for­mer chair­man of Mor­gan Stan­ley Asia.

He said a big part of the prob­lem is the low Amer­i­can sav­ings rate, which makes the U.S. econ­omy heav­ily de­pen­dent on for­eign in­vestors.

Shang-Jin Wei, a fi­nance and eco­nom­ics pro­fes­sor at Columbia Uni­ver­sity, said that in ad­dress­ing eco­nomic im­bal­ances with China, Amer­i­can of­fi­cials would do bet­ter to fo­cus on how to boost Chi­nese con­sump­tion rather than its cur­rency value.

If the bill were to be­come law, Bei­jing would al­most cer­tainly chal­lenge its le­gal­ity with the World Trade Or­ga­ni­za­tion. In Bei­jing, China’s cen­tral bank posted a state­ment be­fore the House vote Wed­nes­day pledg­ing to in­crease the ex­change-rate flex­i­bil­ity of the yuan.

The Peo­ple’s Bank of China had is­sued a sim­i­lar state­ment June 19, sig­nal­ing its in­tent to let the value of the yuan drift up­ward af­ter about two years of peg­ging it tightly to the dol­lar. Since then, the yuan has risen 2.1% against the dol­lar.

Amer­i­can of­fi­cials have expressed frus­tra­tion at the slow pace of ap­pre­ci­a­tion, and Pres­i­dent Obama voiced con­cerns di­rectly to Chi­nese Premier Wen Ji­abao last week on the side­lines of the U.N. Gen­eral Assem­bly.

The Trea­sury Depart­ment is­sued a state­ment not­ing that the House vote shows that law­mak­ers have “se­ri­ous con­cerns about this is­sue,” adding that the pres­i­dent and Trea­sury Sec­re­tary Ti­mothy F. Gei­th­ner “share those con­cerns.”

But the Obama ad­min­is­tra­tion has been re­luc­tant to put heavy, overt pres­sure on the Chi­nese, pre­fer­ring in­stead to take a softer, more pa­tient ap­proach as it ne­go­ti­ates with China’s lead­ers and seeks sup­port not only on eco­nomic is­sues but also vi­tal re­gional and in­ter­na­tional po­lit­i­cal and se­cu­rity mat­ters, such as Iran and North Korea.

Ni­cholas Lardy, a China ex­pert at the Peter­son In­sti­tute for In­ter­na­tional Eco­nom­ics, said the White House was an­gling to get Chi­nese Pres­i­dent Hu Jin­tao in Washington for a state visit in Jan­uary.

“The pres­i­dent is not go­ing to want to sign this leg­is­la­tion just in ad­vance of that po­ten­tial trip. Hu would can­cel,” said Lardy, who doesn’t sup­port the bill. “Other coun­tries could take sim­i­lar mea­sures against us, so this could be the be­gin­ning of a slip­pery down­ward slope.”

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