FOR IMMEDIATE RELEASE: April 6, 2005
Schumer-Graham Aim To Level Playing Field On China Trade, Attach Amendment To State Dept. Bill
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 U.S. Senators Charles Schumer (D-NY) and Lindsey Graham (R-SC) today introduced an amendment 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 amendment will be offered to the Foreign Affairs Authorization Act (S. 600). The amendment is identical to the text of S. 295, which Senators Schumer and Graham introduced on February 3, 2005.
"The Chinese want to have it both ways: On one hand they want free trade and 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. China can’t reap the full benefits of international trade and trade with the United States when they thumb their nose," Schumer said.
“This amendment says to the Chinese, enough already. It says to the Chinese that their unfair trade policies have got to end,” Schumer continued. “It says to the Chinese, this is a shot across your bow. Reform -- because, if you don't, there are going to be dramatic consequences throughout the world, in our country, and in your country as well.”
Specifically, the amendment 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.
The Commerce Department reported in February that the trade deficit with China hit $162 billion in February, up over 30% from 2003, and is the largest imbalance ever recorded with a single country. The overall trade deficit for all of last year soared to a record of $617.7 billion, 24.4 percent above the previous record. For all of 2004, imports also rose 16.3 percent, setting a new record of $1.76 trillion. Many economists believe that the highly devalued Chinese currency, the Yuan, has helped make this possible.
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.