Chinese Currency Manipulation: “Not A Small Issue”

This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture as part of the Making It In America project. I am a Fellow with CAF.
The Chinese currency manipulation issue continues to make news.
Economist Paul Krugman lays out the stakes,

China is in effect imposing an anti-stimulus of that magnitude — which plausibly means 1.5 percent of GDP. This is not a small issue.

Senators Schumer, Graham and Brown revive legislation to push China: Schumer, Graham Push Bill to Pressure China on Yuan

Senators Charles Schumer, Lindsey Graham and Sherrod Brown revived U.S. legislation that would increase pressure on China to raise the value of its currency.
. . . “President Obama has outlined a plan to double exports but you simply can’t do that if you don’t address the currency issue,” Brown, an Ohio Democrat, said at a news conference in Washington today. “China’s current policy is out-and-out protectionism.”

130 Members of Congress call on the President to act,

Today a bipartisan group of 130 members of Congress, ranging from Dennis Kucinich on the left to Joe Wilson on the right, wrote to President Obama asking him to stop Chinese currency manipulation.
. . . The crisis has gotten so severe that economists who have long fought for conservative ideology and against tariffs are saying we need them to correct the imbalance.

NY Times editorial shows that establishment opinion is moving against China, Will China Listen?,

China’s decision to base its economic growth on exporting deliberately undervalued goods is threatening economies around the world. It is fueling huge trade deficits in the United States and Europe. Even worse, it is crowding out exports from other developing countries, threatening their hopes of recovery.
[. . . ] The world’s battered economy is certainly in no shape to keep absorbing China’s exports, subsidized through a cheap currency policy. The more countries that say this, the more likely Beijing will consider changing course — and the less likely this disagreement will escalate into a fight that no one can win.

China says this is all just “scapegoating”: Senior Chinese diplomat rejects currency move,

“I don’t think the call by over 100 congressmen from the U.S. is well founded on facts. They should not blame the problems they have by finding a scapegoat in China,” He Yafei, China’s new ambassador to the United Nations in Geneva, told a briefing.

Wall Street takes China’s side: Congress Is Playing ‘Football’ on China Currency, O’Neill Says,

U.S. lawmakers are playing political football by pressing China to boost the value of its currency, which isn’t particularly undervalued, Goldman Sachs Group Inc. Chief Economist Jim O’Neill said.
. . . The concern in Congress “is sort of understandable but it misses the point,” O’Neill said today at a press conference in London. It’s “the equivalent of a football” and is part of “the usual hobby of bashing China,” he said.

CAF’s Bob Borosage discusses the Showdown With “Chermany”,

… The Chinese continue unprecedented measures to manipulate their currency, now starkly undervalued against the dollar. This is a centerpiece of a comprehensive mercantilist policy to grow by dominating export markets.
. . . China’s Premier Wen Jiabao scorned US pressure on the Chinese to revalue its currency, summoning up the wondrous gall to accuse the US and other countries of “protectionism” for seeking to depreciate their currencies.
. . . The Chinese, meanwhile, are openly recruiting US companies with subsidiaries in China to lobby against any US action. The China lobby – think tanks, multinational companies and banks – will unleash a howl about US protectionism, warn of trade wars, discount the importance of Chinese mercantilism, and remind us of the benefits of a cheap yuan. Chinese threats to dump dollars from their $2.4 trillion cache will rattle financial markets (even though a declining dollar will cost the Chinese bigtime).
This could easily get out of hand, but the showdown with Chermany can’t be avoided. We can’t go back to a world in which the US is the consumer of last resort, borrowing $2 billion a day to buy goods from abroad. … Rebalancing is best done cooperatively but it must be done. And it can no longer be delayed.

The Alliance for American Manufacturing issued the following statement:

“The Alliance for American Manufacturing (AAM) strongly supports efforts designed to end China’s ongoing currency manipulation, which is harming American manufacturing and its workers. In the last week, a bipartisan group of Senators have introduced legislation, and more than 130 Members of Congress have signed a letter urging the Obama Administration to take action, strong indications that the mood in Congress is growing more proactive.
“The United States has lost 5.5 million manufacturing jobs in the past decade. Tackling the currency issue is imperative in saving America’s industrial sector. Economists of all backgrounds agree that an undervalued Yuan continues to make Chinese imports cheaper and American exports more expensive.
“The next step is for the U.S. Treasury Department to list China as a currency manipulator in its semi-annual report on currency exchange, due by April 15. Naming China as a currency manipulator, and taking further steps to hold them accountable, would be an important first step toward stopping the systematic dismantling of our industrial base.”