Last week marked a decisive victory for the Republicans in the midterm elections creating yet another roadblock to legislation for Democrats in both houses. The assumed Senate Majority Leader, Harry Reid and the undecided House Minority Leader are now faced with an uphill battle to propose legislation in the 2011-2012 Congress that will favor bipartisan support, such as energy, education and trade.
However, the Currency Reform for Fair Trade Act is one piece of legislation that may already be on a clear path to bipartisanship within the current lame-duck session of Congress. The House bill (H.R. 2378), a rare instance of common ground between Democrats and Republicans, was passed by the House in September with a roll call of 348 Ayes, 79 Nays and 6 Present/Not Voting – with 100 republicans voting Aye. The legislation has now been passed to the Senate (s.1027) for consideration, though uncertain how bipartisan it will remain once up for vote.
If passed, the legislation would allow the Commerce Department to impose tariffs on goods from countries considered to be manipulating currency. An important target of this legislation is China which has been criticized for keeping its currency weak by undervaluing the yuan by 20 – 40 percent against the U.S. dollar; thus creating an unfair price advantage and a more competitive world market for Beijing’s goods.
Both parties seem to acknowledge a growing frustration with China’s reluctance to play fair as their exchange-rate policy greatly impacts American businesses and jobs. Evidence of this claim comes from The Economic Policy Institute which estimated a loss of 1.8 million U.S. jobs since 2001 due to China’s market manipulation.
Many U.S. businesses and policy makers favor the legislation and the Obama administration’s efforts to influence Beijing on the issue; however, some critics fear retaliatory measures by China if the pressure is too great. The debate in Congress is only adding fuel to the fire in what is considered a very delicate negotiation between the competing economic powers.
It is unclear how the bill will fair in the wake of the midterm elections. Senator Chuck Schumer (D., N.Y.) who favors restrictions on China stated before the elections that he would continue to pursue the legislation in November, despite the leadership being uncertain. However, with a 53-47 Democratic majority win and the survival of Harry Reid as the expected Majority leader, the Senate seems poised to push this bill to the president for signature. The caveat, however, will be whether the Majority Leader and other Senators are willing to provoke Beijing’s already tenuous negotiations with the U.S. on trade.