Published: September 23, 2011
September 21, 2011
Dear Leaders Reid and McConnell:
We understand the Senate may take up legislation this fall that is intended to pressure China to accelerate the appreciation of its currency against the dollar. We urge you to oppose such a bill.
We agree with many in Congress and the Administration that China needs a yuan exchange rate that responds to trade flows and that China should move steadily towards a market-determined exchange rate. In addition to continuing U.S. government efforts, our organizations support strong, coordinated and enhanced multilateral pressure through international organizations such as the G-20 and APEC to promote China’s adoption of market-determined currency and exchange rate policies.
However, unilateral legislation on this issue would be counterproductive not only to the goals related to China’s exchange rate that we all share, but also to our nation’s broader objectives of addressing the many and growing challenges that we face in China. These issues include inadequate protection of intellectual property, restrictions on market access, the need for financial services liberalization, restrictions on the export of commodities such as rare earths, discriminatory indigenous innovation and other industrial policies. Above all, such legislation would threaten job creation and economic growth at a time when the United States dearly needs both.
Legislation that would increase tariffs on imports from China is unlikely to create any incentive for China to move expeditiously to modify its exchange policies. Rather, it would likely have the opposite effect and result in retaliation against U.S. exports into China – currently the fastest-growing market for U.S. exports. Tariff legislation would not get us closer to the goal of a market-driven exchange rate. Instead, it would highlight US unilateral action, thereby shifting the focus of the international community away from the core issue of China’s currency.
Moreover, it is doubtful that U.S. action to countervail undervalued currency could meet the WTO’s standards for the application of countervailing duties (CVDs). Any legislation that requires the Commerce Department to estimate the “true” exchange rate would create a process that will be highly subjective and potentially politicized.
Most importantly, such a measure will not create significant new jobs here at home. As many economists have noted and trends already show, cost increases in China due to RMB appreciation and other factors will shift production to other low-cost manufacturing countries, not back to the United States.
We urge you to oppose currency legislation and instead work with and vigorously call on the Administration to develop a robust bilateral and multilateral approach to achieve tangible results, not only on China’s exchange-rate policies, but also on other Chinese policies that are harming American economic interests.