House Committee Approves China Currency Bill

The House Ways and Means Committee just approved a bill that pushes China to raise the value of its currency. It looks like the bill will go to a vote on the House floor next week. This is a very big deal because it is a "second front" pushing China to bring its currency to market rates. President Obama met with Chinese Premier Wen yesterday [1] and most of their 2-hour meeting was taken up discussing this issue, and today he gets backing from the House. This tells China that we are serious, that it is more than just the administration talking, and they have to start doing the right thing.

China has been manipulating its currency to keep it low, which means goods made in China cost less in world markets. This, combined with other trade manipulations [2], has created a huge imbalance in world markets. It moves industries, jobs, expertise, money and power to China, and has created a huge "bubble" of imbalance that threatens the world's economy. Currently the interests in China and elsewhere, including here [3], that benefit from the imbalance have the upper hand. But this vote demonstrates that the rest of us, here, in China and around the world, that would benefit from a rebalancing are rallying and challenging the current policies.

Bloomberg: China Currency Measure Heads for House Vote After Panel Approval [4]

The measure would let companies petition for higher duties on imports from China to compensate for the effect of a weak currency. President Barack Obama “does not take a position on this specific legislation,” Jeff Bader, his director of Asian affairs, said yesterday.

“China’s exchange-rate policy has a major impact on American businesses, and American jobs, which is what this is all about,” Levin said before the vote.

The U.S. trade deficit with China widened to $145 billion in the first seven months of this year, from $123 billion for the same period in 2009. The expanding deficit, the unemployment rate lingering at almost 10 percent and polls showing Democrats’ seats at risk heading into the elections have added support for the bill, which has been discussed since 2005.

China had agreed to start rebalancing its currency, but the currency has moved only 1 percent since the agreement - nothing near the 40% some claim it needs to move. Meanwhile our trade deficit with China has increased. China's Wen claims [5] that China is still a poor country and needs this protection to help it build the industries that will help its people rise out of poverty,

China might now be the second largest economy in the world, but Premier Wen insisted at the UN General Assembly that the "real China" was still in the "primary stage of socialism" and remains a developing country.

Pointing out that 150 million Chinese people still live in poverty, Wen said many regions in central and western China were still very poor and this is the "real China".

"Taken as a whole, China is still in the primary stage of socialism and remains a developing country... These are our basic national conditions. This is the real China," he said.

The way to bring China, now the second largest manufacturer in the world, out of poverty is to trade fairly and work with its trade partners, not to manipulate the rules and create a huge imbalance that threatens the economy of the entire world.