At a hearing last week, House Ways and Means Chairman Sander M. Levin (D-Mich.) expressed his concern that “the large and persistent U.S. trade imbalance with China” are “costing the United States jobs and economic growth.”
Levin wants China’s alleged manipulation of its currency to be “resolved” by action from the Congress and the Obama Administration. Several Congressmembers and monetary and financial experts supported Levin’s view, increasing the likelihood of congressional action targeting China for pegging its currency to the dollar, as the mood of the country worries over the bleak economy.
Treasury Secretary Timothy Geithner said that China’s exchange rate policy negatively impacts American businesses and workers.
“There has been essentially no movement of the renminbi against the dollar over the past two-plus years,” Geithner said, who said that the renminbi was “significantly undervalued,” and its undervaluation needs to be addressed.
Dr. C. Fred Bergsten, Director of the nonpartisan Peterson Institute for International Economics, testified at the hearing: “To lead this effort credibly, the Administration must of course designate China as a currency manipulator—as it has been for at least seven years,” said Dr. Bergsten, who has authored 40 books on international economics and trade policy.
Experts agree that China allowed the renminbi to appreciate over time against the dollar from mid-2005 through mid-2008, but then intervened again, pegging their currency to the dollar. Geithner lamented the fact that “China’s real trade-weighted exchange rate is now only 4.9 percent stronger than it was on average from 1998-2002, an unjustifiably small change given that China’s productivity doubled during that time.”
In other words, until the onset of the global recession in 2008, China’s currency did appreciate about 20 percent, but then China re-established controls, and now the gap is widening again.
Currency Reform for Fair Trade Act
On June 19, one week before the G-20 Summit in Toronto, China announced that it would allow flexibility in its exchange rate, giving new hope that its currency would appreciate again.
However, the Chinese have allowed their currency to appreciate against the dollar by only 1 percent, and the currency has actually depreciated against a basket of other foreign currencies. During this three-month period, China has aggressively intervened in the foreign exchange market to head off the upward pressure of market forces on the Chinese currency, Geithner testified.
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