The U.S. House of Representatives passed the Currency Reform for Fair Trade Act (H.R. 2378) by a vote of 349 -78 last week, increasing pressure on China to hasten the appreciation of its currency.
A stronger yuan would make Chinese goods more expensive in the U.S., helping out American manufacturers competing against Chinese suppliers. At the same time, American products would be cheaper for Chinese consumers, who would also have greater buying power with a stronger currency.
Amid still high unemployment, American lawmakers face rising pressure to create jobs ahead of November elections.
But major business groups representing a diverse array of trades lined up against the bill, saying it would do more harm than good for economic growth and job creation. Many members of these groups include importers but also multinational firms that have sharply boosted investments and production in China and fear retaliation from Beijing, which could hurt future sales and expansion in China’s huge market.
While organizations representing retailers expressed an understanding that imbalances exist, none supported the measure fearing that its passage would violate rules of the World Trade Organization (WTO), invite retaliation against goods produced in the U.S. and fail to persuade China to raise the yuan to a fair valuation level.
Steve Pfister, SVP for government relations at the National Retail Federation, said in a statement that WTO rules do not include currency exchange practices as a consideration in duty cases. There is also the question of the true value of the yuan, which remains a point of disagreement among economists and banking organizations.
“It makes little sense to give China a legitimate reason to retaliate against U.S. exports or an excuse to hassle U.S. businesses with no prospect that this legislation would be effective,” Mr. Pfister said in a statement.
“Lost in much of the debate on currency is the fact that China is one of the largest and fastest growing markets for American exports. Given our near stagnant economic growth, it makes no sense to provoke tension and erect trade barriers that could jeopardize thousands of American jobs and undermine the President's goal of doubling U.S. exports within five years,” said Stephanie Lester, vice president for international trade at the Retail Industry Leaders Association.
The Obama Administration, according to the Wall Street Journal, didn't endorse the bill and chose not to work with legislators on its language to avoid being seen as supportive of the measure in any way. The bill now heads to the Senate where it will likely remain until a new Congress convenes next year.