Chinese Currency Manipulation

[toastywombel]

So those who have kept up with the news lately might have noticed that today the United States senate approved a measure that would impose duties on goods imported from Nations who manipulate their currency. The main target of the legislation was China. As you know China has consistently devalued their currency in order to compete with emerging economies by selling products for much cheaper than other competitors. The legislation can be summed up fairly well here in a Washington Times piece,

 

Legislation designed to punish China for its currency valuation passed the Senate on Tuesday with bipartisan support, though the top Republican in the House has vowed to kill the bill.

 

the article later goes onto say,

 

The measure, sponsored by Democrats and Republicans, would allow compensatory tariffs to be imposed on goods from countries that are deemed to be undervaluing their currency. While the bill doesn’t name China directly, it is aimed at the Asian giant.

 

Now while many here might agree with the proposed legislation I remain somewhat stand offish. You see this legislation reminded me of something I had learned in an economics class a couple semesters back. The Smoot Hawley Tariff Act, often considered to be one of the worse pieces of economic legislation in American history, is described very well by the self-titled Wikipedia article here,

 

The Tariff Act of 1930, otherwise known as the Smoot–Hawley Tariff was an act, sponsored by United States Senator Reed Smoot and Representative Willis C. Hawley, and signed into law on June 17, 1930, that raised U.S. tariffs on over 20,000 imported goods to record levels.

 

If you continue to read the Wiki article you will find that the other countries of the world likewise raised tariffs on products from the United States. This led to economic isolation.

Now seeing as about 35% of products purchased by US households had the made in China sticker on it (according to the 2010 USBLS, look it up yourself), What are the possible implications if such legislation passes the senate? China has already fired back at United States lawmakers,

 

 

 

Will there be a trade war between the United States and China?

Will these costs be passed down to consumers?

Will this effect United States' exports?

Will it even become a law?

 

Just some food for thought. And please read some articles to get the general understanding of the legislation before jumping on the topic with ideology. I could list all the information I think is relevant to this post, but consolidating some links to information is more than sufficient and allows one to see the issue independent from the author of the original post.

 

http://www.washingtontimes.com/news/2011/oct/11/senate-oks-measure-to-hit-china-on-valuation/

http://www.frbsf.org/publications/economics/letter/2011/el2011-25.html

http://en.wikipedia.org/wiki/Smoot%E2%80%93Hawley_Tariff_Act

***http://en.wikipedia.org/wiki/Smoot%E2%80%93Hawley_Tariff_Act#End_of_the_tariffs***

http://www.commodityonline.com/news/US-to-take-Chinas-currency-devaluation-seriously-25416-3-1.html

http://www.reuters.com/article/2011/10/12/china-usa-yuan-idUSL3E7LC02V20111012

[imatfaal]

Nice post and thanks for the links (read most of them) . I would have thought that the WTO would have a great deal to say about this - I will have a trawl and see what I can find.