A congressional report issued November 17 reinforced U.S. accusations that China deliberately keeps its currency weak against the dollar to make its exports cheaper, leading to a huge trade imbalance with the United States. (See “China Currency Policy,” International Debates, November 2010.)
In its annual report, the U.S.–China Security Review Commission called on the Obama Administration to do more to force China to increase the value of its currency, saying that Beijing’s policy is a “major drag” on the U.S. economy. The Chinese Foreign Ministry responded that such pressure constituted interference with Beijing’s internal affairs and accused the commission of having a “Cold War mentality.”
In September, the House voted 348 to 79 to direct the U.S. Department of Commerce to treat currency undervaluation as a prohibited export subsidy. Such a move would enable the United States to impose countervailing duties on Chinese goods to neutralize the subsidy’s negative effects. The bill is one of many that may be considered during the current lame-duck session of Congress.
Fed Chairman Weighs In
Chairman of the Federal Reserve Ben Bernanke so far has kept his distance from the debate. In a recent speech before the European Central Bank conference, however, Bernanke implicitly blamed China’s currency policy for global trade imbalances and the slow economic recovery.
“Currency undervaluation by surplus countries is inhibiting needed international adjustment and creating spillover effects that would not exist if exchange rates better reflected market fundamentals,” Bernanke said, without naming China specifically.
China shot back by criticizing the Fed’s recent decision to purchase $600 billion in U.S. Treasury bonds, saying that it could give U.S. exporters a competitive price edge and cause inflation in developing countries.
Stay Tuned
Watch this space for further updates on this and other major controversies that remain unresolved during the transition to the 112th Congress.
