There is an effort underway in Congress to introduce a bill, in the 111th Congress, that would classify foreign currency misalignment as a trade subsidy actionable under U.S. trade laws.  The Coalition for a Prosperous America supports this effort.  Free and fair trade cannot co-exist with currency manipulation.  

There were two bills introduced in the House and Senate last year... H.R. 2942 and S. 796 respectively.

Unfortunately, some defend currency misalignment or create arguments to prevent addressing the problem.  Here are some myths that you may have heard.

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Myth:  Countervailing currency misalignment is a protectionist act.

Fact:  Currency misalignment itself is a protectionist practice.  It must be neutralized to enable free and fair trade.  The countervailing duties go away whenever the offending nation quits misaligning its currency.  Addressing the problem is a return to an orderly and lawful trading system.

 

Myth:  This bill punishes Asian countries.

Fact:  The application of countervailing duties merely neutralizes the unfair subsidy effect of persistent currency misalignment.  It is not targeted at any country.

Myth:  The currency misalignment bill unfairly singles out China.

Fact:  To the contrary, the bill address the practice of currency misalignment regardless of the country involved.  At least half a dozen countries currently engage in this practice.  Without a legislative remedy, all countries are free to adopt this practice without fear of the consequences.  

Myth:  We cannot poke our finger in the eye of our banker.

Fact:  The dollar continues to be the world’s reserve currency.  Recent events have shown its durability and attractiveness to all governments.  But the most fundamental reason is that the holders of large amounts of U.S. dollars have no incentive to devalue them by selling a substantial portion of their holdings.  A foreign government sell-off would poke a finger in its own eye. Nevertheless, it is not in our best interest to have any country, and particularly a non-democratic country, as our banker.

Myth:  We should let the diplomatic process work.

Fact:  The diplomatic process has been tried for several years and failed for lack of leverage.  This situation has not changed. The American economy cannot wait any longer for diplomatic processes including citing any country for currency misalignment. Such diplomatic solutions are feeble attempts to put off dealing constructively with the problem and have virtually no chance for success.

Myth:  This legislation would be illegal under the WTO.

Fact:  The bill has been carefully crafted to meet the requirements of the WTO agreements on subsidies and antidumping.  

Myth:  Passing this bill will start a trade war.

Fact:  Standing up for one’s rights under international agreements while respecting one’s obligations provides no basis for any trading partner to engage in trade retaliation.  Respect for the rule of law is the best guarantee of an orderly trading system.