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Committee Hearing reveals that Currency Bill is Too Weak
Howard Richman, 9/16/2010

On September 15, the House Ways and Means Committee held hearings about Chinese currency manipulations. The committee was remarkably united. One representative after another took shots at China’s trade manipulations.

They were almost all agreed that something had to be done, that President Obama’s policy was failing, that Secretary Geithner was not helping, and that China was not playing by the international rules. But they were not united about Rep. Tim Ryan’s bipartisan Currency Exchange Rate Reform Act (HR 2378), designed to end the trade manipulations that put American goods at a competitive disadvantage in U.S. and world markets.

If China were to really stop manipulating its currency, it would have to balance trade, which would result in more American exports to China as well as fewer American imports from China. But the opposition to Ryan’s bill claimed that the bill would hurt American exporters.

For example, Rep. Dave Camp (Republican from Michigan) perceptively pointed out that China is increasingly turning to socialism as a way to keep out American products. He said: “(W)e cannot lose sight of more fundamental problems with China's economy that affect our trade balance, including the increasingly blatant and disturbing increase in the economic dominance of state-owned enterprises and the proliferation of non-tariff barriers preventing U.S. companies from exporting to China." In short, he didn’t see the bill doing anything to counteract China’s increasing barriers to American products.

Similarly, two state representatives from Kansas and Nebraska claimed that the bill could hurt American agricultural exports to China. Rep. Dave Reichert of Washington, a state with Boeing and many other big exporters, didn’t express an opinion, but he wanted to know, “What would be the effect on increasing US exports in China?”

Why is there any question about a bill designed to stop currency manipulations? After all, if Ryan's bill worked as designed, trade would balance. American exporters would gain, not just American companies that compete with imports.

Unfortunately, the Currency Exchange Rate Reform Act is not tough enough. Instead of a hard-striking across-the-board tariff on Chinese products, the bill provides for industry-by-industry countervailing tariffs to be phased in over time by the Commerce Department, giving China time to fight the tariffs with its own tit-for-tat tariffs accompanied by its own WTO suits.

The bill completely misses the innovation of our scaled tariff proposal, that the tariff rate be adjusted quarterly in order to take in as U.S. government revenue half of our trade deficit with China. China would want to import Boeing Aircraft and Kansas wheat, in order to lower our tariff rate on their computers and windmills.

Ryan's bill is well-intentioned, but it is too tepid. The same is true of Senator Schumer’s bipartisan Currency Exchange Rate Oversight Reform Bill (S. 3134). The time has come for a strong enough bill to balance trade, not just help those American companies that complete with imports.

With just the few significant changes that we noted in our written testimony to the committee, Ryan's bill or Schumer's bill could take the profit out of currency manipulation, help balance the federal budget, reduce American imports, increase American exports, and resume America’s economic growth.

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  • [An] extensive argument for balanced trade, and a program to achieve balanced trade is presented in Trading Away Our Future, by Raymond Richman, Howard Richman and Jesse Richman. “A minimum standard for ensuring that trade does benefit all is that trade should be relatively in balance.” [Balanced Trade entry]

    Journal of Economic Literature:

  • [Trading Away Our Future] Examines the costs and benefits of U.S. trade and tax policies. Discusses why trade deficits matter; root of the trade deficit; the “ostrich” and “eagles” attitudes; how to balance trade; taxation of capital gains; the real estate tax; the corporate income tax; solving the low savings problem; how to protect one’s assets; and a program for a strong America....

    Atlantic Economic Journal:

  • In Trading Away Our Future   Richman ... advocates the immediate adoption of a set of public policy proposal designed to reduce the trade deficit and increase domestic savings.... the set of public policy proposals is a wake-up call... [February 17, 2009 review by T.H. Cate]