FOR IMMEDIATE RELEASE: February 3, 2005
Schumer-Graham Announce Bipartisan Bill To Level Playing Field On China Trade
New Tough Approach to Force China to Stop Currency Manipulation or Risk Being Slapped with Large Tariffs on its Exports
As China continues to peg its currency and the US trade deficit with China reaches record levels, a bipartisan group of lawmakers comprised of US Senators Charles Schumer (D-NY) and Lindsey Graham (R-SC) today unveiled new legislation, to impose an across-the board tariff on Chinese imports in an effort to reduce China's unfairly undervalued currency advantage. The Senators said the Chinese undervaluation of its Yuan has played a major role in the loss of 3 million US manufacturing jobs over the last five years and is contributing to the migration of service and engineering jobs to China.
"The Chinese want to have it both ways: On one hand they want free trade and want membership in the WTO and other international trade organizations. But on the other hand, they don't want to play by the rules of those organizations. The Chinese actions endanger American and world commitment to free trade and weaken the support in Congress for free trade," Schumer said. "This legislation is a tough-love effort to get the Chinese to stop playing games with their currency in order to level the playing field for American companies trying to compete with goods and service coming from China."
Specifically, the bill allows for a 180 day negotiation period between the US and China to revalue its currency, if the negotiations are not successful, a temporary across the board tariff of 27.5% will be applied to all Chinese products entering the United States - a penalty that corresponds to their estimated currency advantage. Since economists estimate that China undervalues its currency between 15 percent and 40 percent, 27.5% represents the midpoint range. Furthermore, if the President determines that at the end of the negotiation period that China has developed and started actual implementation of a plan to revalue its currency, he may delay imposition of the tariff for another 12 months.
The Yuan -- sometimes known as renminbi -- has been tightly pegged to the U.S. dollar since 1994 (approximately 8.28 Yuan to the dollar). During that period of time, China’s economy has grown dramatically, averaging over 8% per year. If China’s currency freely floated in the market, as is the case with virtually all major world currencies, it would have appreciated substantially reflecting China's underlying economic strength. However, it has remained at the same pegged value, and the result is that many economists estimate that the yuan is now undervalued by between 15 and 40 percent.
China’s currency, the Yuan or renminbi, has been tightly pegged to the U.S. dollar since 1994 at a rate of approximately 8.28 Yuan to the dollar. During the past ten years, China’s economy has grown dramatically. In 2004, China’s GDP growth was approximately 9.5%, and has averaged over 8% per annually for the past two decades.
Because China continues to peg its currency, in 2004 we saw record trade deficits with China. Last November it was reported that our trade deficit with China grew by 25 percent. This number represents one quarter of our national trade deficit. Today, China’s foreign reserves are estimated to be over $609 billion. The trade deficit numbers will be released on Monday, February 7th and are expected to be closer to $650 billion.
As the United States largest export industry, manufacturing has felt the impact of the Yuan’s undervaluation most dramatically. The United States has lost close to 3 million manufacturing jobs - 90 percent of all the jobs lost in the last five years. New York alone has lost approximately 100,000 manufacturing jobs.
In order to hold the value of the Yuan within its tight and artificial trading band, the Chinese government has intervened in its foreign exchange markets. The practice of “currency manipulation” to gain a trade or competitive advantage violates World Trade Organization and International Monetary Fund agreements, of which China is now party. China’s emergence as a manufacturing powerhouse at the expense of the United States raises significant economic security concerns and the question of whether a country that loses its ability to produce tangible products will long remain an economic power.