The House’s passage this week of the Currency Reform for Fair Trade Act has sparked talk of a “trade war” between the U.S. and China. What’s not getting as much attention is the rift it’s created between America’s manufacturers and retailers, who while they have to continue to work together, stand on opposing sides of the issue.
Manufacturers view the bill as a move to level the playing field between American and Chinese manufacturing by deterring China from manipulating its currency, which allows it to produce products more cheaply. U.S. retailers contend the law would violate World Trade Organization rules and expose U.S. exports to retaliation while doing little to persuade China to change.
The bill, if passed by the Senate and signed into law, would allow the United States to impose sanctions against its trade partners for allegedly manipulating their currency, a move Chinese officials say indicates rising U.S. trade protectionism.
It could also stand to make it more difficult for American retailers to sell Chinese-made products for the rock-bottom prices American consumers have come to expect.
Manufacturers applaud the House’s passage of the bill and this week encouraged the Senate to do the same.
“The House of Representatives sent a clear message to Beijing: Stop your cheating,” Scott Paul, executive director of the Alliance for American Manufacturing (AAM), said in a statement Wed. (Sept. 29). “America's workers and businesses deserve a level playing field, and passing this bipartisan bill is a significant step in that direction.”
The bill passed by a strong, bipartisan vote of 348-79.
The AAM argues that the United States has lost 2.4 million jobs since 2001 due to the trade deficit with China, and contends the proposed law would force fairer competition between American and Chinese manufacturers.
“It's never been more clear that China responds to pressure,” Paul said. “The yuan is the one currency in the world that's pegged to political pressure. The lesson is clear: We need to keep the heat on.”
On the other side of the issue is the National Retail Federation (NRF), which had implored the House to reject the China currency bill, saying it would only hurt U.S. exporters.
“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,” said Steve Pfister, NRF senior vice president for government relations.
“While we agree that the Chinese currency needs to move toward a market-determined exchange rate, H.R. 2378 would be ineffective in addressing the currency issue and would create significant costs for U.S. companies and workers in retail and other industries,” Pfister said in a statement. “This bill cannot provide effective leverage over China to resolve the currency issue or have any positive impact on either the trade deficit or U.S. jobs.”
The bill, which would allow the Commerce Department to impose higher duties on imported Chinese products than it does under existing rules, “is simply the wrong tool to address a large, macroeconomic issue such as currency policy in a trading relationship worth hundreds of billions of dollars,” Pfister said.
NRF, the retail group, wants the currency issue to be resolved through multilateral and diplomatic channels such as the G-20, the IMF and the U.S.-China Strategic and Economic Dialogue.
The AAM, representing manufacturers, isn’t completely unsympathetic to the NRF’s position. The two groups are inextricably connected. “You can’t shop at Walmart if you don’t have a job,” Paul said.