WASHINGTON, DC – In an effort to create American jobs and crack down on China’s currency manipulation, a bipartisan group of U.S. Senators, including Jack Reed (D-RI), is seeking to strengthen U.S. trade laws to counter China’s artificially weak currency, which harms manufacturers in Rhode Island and throughout the nation.

For years the Chinese government has maintained its currency at an artificially low value to keep China's exports cheap and make American imports to China more expensive.

Last night, the U.S. Senate voted 79-19 to advance the Currency Exchange Rate Oversight Reform Act of 2011, which would make it easier for the U.S. Department of Commerce to vigorously investigate allegations of currency manipulation by foreign governments.  The bill would also make it harder for the U.S. Treasury Department to avoid labeling countries who violate the rules as a “currency manipulator.”  U.S. companies and workers hurt by illegal subsidies, like Chinese currency manipulation, could ask for countervailing duties to be placed on Chinese products to help level the playing field.

Passage and enforcement of the bill could help lead to the creation of 1.6 million American jobs.

“Chinese economic and trade policy is hurting the U.S. economy and costing Rhode Island jobs.  It has got to stop.  This bill sends a clear bipartisan message that the U.S. will hold China accountable for its currency and market manipulation.  The Chinese currency needs to fully reflect market forces.  We can’t afford to sit back and allow China's currency manipulation to continue distorting global markets and putting American workers and companies at a competitive disadvantage,” said Reed, an original cosponsor of the bill.

A recent report from the Economic Policy Institute (EPI) estimated that if the renminbi  and satellite currencies were revalued to their equilibrium level, up to 2.25 million jobs could be created through an increase in U.S. Gross Domestic Product (GDP).  EPI found the trade deficit with China grew from $84 billion in 2001, when China entered the World Trade Organization, to $278 billion in 2010.  It eliminated or displaced 2,790,100 American jobs, or about 2% of total U.S. employment over that period.

Rhode Island was one of ten states nationwide where the jobs lost or displaced exceeded 2.2% of total employment.  The other states were: New Hampshire, California, Massachusetts, Oregon, North Carolina, Minnesota, Idaho, Vermont and Colorado.

According to the EPI study, 11,890 jobs across Rhode Island have been erased over the last decade due to the surging trade deficit with China, which continues growing at over 14% annually.

A separate economic study by researchers at the Massachusetts Institute of Technology (MIT) found that from 1990-2007 the Providence metropolitan area was one of the most vulnerable communities to cheap Chinese imports.

The Currency Exchange Rate Oversight Reform Act of 2011 is intended to reform and enhance oversight of currency exchange rates by triggering tough consequences for countries that fail to adopt appropriate policies to eliminate currency misalignment and ensuring tools, such as the U.S. trade laws, may be used to counter the economic harm to U.S. manufacturers caused by currency manipulation. 

Specifically, the bill will:

Improve Oversight of Currency Exchange Rates:  Under current law, Treasury is required to identify countries that manipulate their currency for purposes of gaining an unfair competitive trade advantage.  In recent years, Treasury has found that certain countries’ currencies were undervalued.  However, based on its interpretation of the law’s legal standard for a finding of “manipulation,” Treasury has refused to cite such countries as currency manipulators.  The bill repeals the currency provisions in current law and replaces them with a new framework, based on objective criteria, which will require Treasury to identify misaligned currencies and require action by the administration if countries fail to correct the misalignment.

Clarify Countervailing Duty Law Can Address Currency Undervaluation: Under existing trade laws, if the Commerce Department and the International Trade Commission find that subsidized imports are causing economic harm to American manufacturers and workers, the administration must impose duties on those imports to offset (“countervail”) the benefit conferred on foreign producers and exporters by the government subsidies.  Commerce already has authority under U.S. law to investigate whether currency undervaluation by a government provides a countervailable subsidy, although it has failed to do so despite repeated requests to investigate from a wide range of U.S. industries.  The bill specifies the applicable investigation initiation standard, which will require Commerce to investigate whether currency undervaluation by a government provides a countervailable subsidy if a U.S. industry requests investigation and provides proper documentation.

Include WTO-Consistent, Key Provision from Previously-Passed Currency Legislation:  In previous countervailing duty investigations, Commerce has refused to find an export subsidy if the subsidy is not limited exclusively to circumstances of export (i.e., when non-exporters also may benefit).  The bill precludes Commerce from imposing this bright-line rule, and clarifies that Commerce may not refuse to investigate a subsidy allegation based on the single fact that a subsidy is available in circumstances in addition to export. 

Establish New Objective Criteria to Identify Misaligned Currencies: The legislation requires Treasury to develop a biannual report to Congress that identifies two categories of currencies: (1) a general category of “fundamentally misaligned currencies” based on observed objective criteria and (2) a select category of “fundamentally misaligned currencies for priority action” that reflects misaligned currencies caused by clear policy actions by the relevant government.

Require New Consultations:  The legislation requires Treasury to engage in immediate consultations with all countries cited in the report.  For “priority” currencies, Treasury would seek advice from the International Monetary Fund (IMF) as well as key trading partners.

The Senate is expected to vote on final passage of the bill later this week.  The bill must then be passed by the U.S. House of Representatives before it can be sent to the President.