China’s surprise decision to devalue its currency this week immediately led to new warnings that Congress may need to act. Some members fear a return to China’s export-led growth strategy, and want to be sure the U.S. is prepared.
China’s move also led to renewed demands from some members that the pending Trans-Pacific Partnership trade deal must include language that stops countries from adjusting the value of their currencies in order to gain a trade advantage.
After about a decade of maintaining a steady currency value, one that many said was artificially low, China finally lifted its firm peg against the dollar in mid-2005. The gradual appreciation of the renminbi that followed helped China avoid congressional action.
But Monday’s move to boost the renminbi by about 2 percent against the dollar led many members of Congress to once again warn that a legislative fix may be needed.
“China has manipulated its currency for a long time,” said Senate Judiciary Committee Chairman Chuck Grassley, R-Iowa, who led the Finance Committee for Republicans during the currency fights in the last decade. “This is just the latest example, and it’s past the time to do something about it.”
Grassley said the Obama administration needs to do all it can to manage the situation, and said if it can’t, legislation should be considered.
“For example, there are provisions in the customs bill that’s being negotiated that would give the United States new tools to use against trading partners that manipulate currencies,” he said. Earlier this year, the Senate passed a bill that would let the government impose duties on imports from countries that try to boost exports by devaluing their currencies.
Sen. Lindsey Graham, R-S.C., who is running for president, went further by saying China’s move is just more proof that the Obama administration has gone soft on China.
Graham didn’t offer any specific solution, but said China has long tried to game the system, and said it’s time to be tough on China again.
“Whether it is currency manipulation or cyber attacks, President Obama seems unwilling or incapable of standing up to the Chinese when they cheat,” he said. “As president, that’s exactly what I’ll do.”
But the issue is more than just an election-year issue for Republicans. Democrats have been just as vocal in calling for tough action against China, and Democrats in both chambers agreed that something needs to be done.
“Given China’s history of currency manipulation, this depreciation must be monitored closely,” said Sen. Sherrod Brown, D-Ohio.
Brown and other members said that not only should Congress pass the currency bill, but that the ongoing TPP negotiations need to be used to ensure the U.S. has more leverage to stop manipulation from happening.
“[T]he U.S. needs to ensure American businesses and workers have a backstop to fight back against currency manipulation,” he said. “That means passing our bipartisan bill to punish currency manipulation and demanding rigorous currency disciplines in TPP, which China may seek to join at a later date.”
Rep. Sandy Levin, D-Mich., agreed that the U.S. needs to closely watch China’s move, and said the U.S. can’t just trust China’s explanation that it’s move is a one-off event.
“There is reason to be skeptical of believing that the largest devaluation of the Chinese currency in over two decades is merely about moving to a market-based exchange rate,” he said. “Therefore, we need to continue to review the facts underlying today’s devaluation and will be closely watching the actions taken by the Chinese government in the coming days and weeks ahead.”
China’s announcement followed months of what most agree has been a stress-filled period in China’s huge economy. China’s equity market slid 30 percent starting in June, which eventually forced the government to limit the ability of people to sell shares.
Some experts said China’s growth could slow considerably as a result, which has China worried about maintaining and boosting its exports.
In the middle of the last decade, it took about 8.3 renminbi to buy a dollar. After China lifted its dollar peg, the value of the renminbi was allowed to strengthen over time to about 6 renminbi to the dollar by 2014.
Since then, the value has trended upward. Before China’s announcement this week, it took about 6.2 renminbi to buy a dollar, and after the move, it will take more than 6.3 renminbi.
