A warning to China

last updated 8 January 2015

Amid charges that China’s currency and trade policies are undermining the U.S. economy, the Senate advanced legislation this week that would impose duties on imports from America’s largest trading partner. The bill’s co-sponsor, Sen. Charles Schumer (D-N.Y.), asserted that the undervalued yuan lets China flood the world’s markets with cheap exports, which steals U.S. jobs and adds to our nation’s ballooning trade deficit. “The jig is up,” he said this week. “It’s time to stop gaming the system or face severe consequences.” China responded sharply, charging that by “politicizing” its economic problems, the U.S. could set off a disastrous trade war.

With our unemployment rate stuck at about 9 percent, that’s a risk worth taking, said Paul Krugman in The New York Times. China keeps its currency 20 to 30 percent below its actual value; as a result, its products are so cheap that American factories can’t compete. U.S. companies also can’t compete fairly in China because our products are relatively too expensive. “Holding China accountable won’t solve our economic problems on its own,” but it could create 1.5 million American jobs.

Actually, this is “the most dangerous trade legislation in many years,” said The Wall Street Journal in an editorial. It would not raise tariffs across the board, but would permit U.S. companies to demand “countervailing duties” on any nations with undervalued currencies, unleashing a wave of protectionist tariffs. China would retaliate, and “both countries would lose.” In 1930, a well-intentioned Congress passed the Smoot-Hawley bill to impose tariffs on imports, and it helped to worsen the Great Depression. There’s no need for worry, since this bill is mostly a symbolic protest, said The Washington Post. House Republicans have said they have no intention of bringing it to the floor. Besides, China is already gradually revaluing its currency because of U.S. pressure and inflation at home. So why poke Beijing in the eye? “The world economy has enough problems without adding a U.S.-China trade rift to the list.”