U.S. lawmakers are holding two days of hearings on China's valuation of its currency, the yuan, and whether Washington is doing enough to address its impact on the American economy and jobs. Lawmakers are considering legislation that could penalize Beijing with stiff import tariffs and other measures to push China to let the yuan rise.
During the first day of hearings on the Chinese currency, lawmakers, business leaders and economists debated what actions should be taken to address concerns about the yuan.
While most agreed that China currency practices are unfair and contributing to job losses in the United States, not all agreed on how lawmakers should respond to address the persistent problem.
In his testimony to the House Ways and Means Committee, Tim Ryan, a Democrat from the state of Ohio, stressed it is the time to act. Ryan is the sponsor of The Currency Reform for Fair Trade Act.
"Enacting legislation is the only viable option we have at this point to bring strong pressure on China and other countries with persistently undervalued currencies," said Ryan.
Ryan's bill would allow the U.S. government to treat currency under-valuation as an export subsidy and give the administration the power to use countervailing duties and anti-dumping measures in response. He said 143 members of Congress, from both parties, have cosponsored the bill.
Many lawmakers believe China undervalues its currency by as much as 40 percent to give Chinese companies an unfair price advantage in world trade.
With elections coming up in November for some lawmakers and the U.S. unemployment rate at 9.6 percent, house Democratic leaders have come under growing pressure to address the concern of the Chinese currency.
Congressman Sandy Levin is a Democrat from Michigan and chairman of the House Ways and Means Committee. He said he believes a multi-lateral approach focused on dialogue and negotiations would be the most likely to yield the broadest results.
"In any event, and I emphasize this, the status quo with currency imbalances is unacceptable and unsustainable," said Levin.
Levin argued the U.S. government could use retaliatory duties against China under World Trade Organization (WTO) rules. He said he also believes the use of 'countervailing duties' - as proposed by representative Ryan - would be a WTO-consistent response.
Kansas Republican Lynn Jenkins urged caution as lawmakers search for an approach to deal with the Chinese currency.
"Dealing with this issue should not cause more harm than good," noted Jenkins. "Any action that the United States might take to prompt China to revalue its currency must be considered in the broader context of how it will affect our entire economy."
She notes that while some industries are struggling, agricultural exports to China are especially important in her home state of Kansas.
"The Chinese market for Kansas goods not only helps farmers, it also keeps the grocery stores, pharmacies, insurance agencies and service stations in business," explained Jenkins. "This helps the school districts meet their budgets, keep and hire new teachers and fund student activities."
Chinese officials have said they will not yield to external pressures to let the yuan rise too quickly too fast.
Petersen Institute for International Economics Director Fred Bergsten said the U.S. government should encourage China to increase the value of the yuan by 20-25 percent during the next two to three years.
"Elimination of the Chinese misalignment would create about half a million U.S. jobs, in this condition of high unemployment in the U.S., mainly in manufacturing, mainly above-average wages, over the next couple of years," said Bergsten. "And, of course, this particular stimulus action would have budget cost of virtually zero and therefore would be quite cost effective."
Bergsten also urged the administration to work together with other countries such as India, Brazil, Russia and the European Union to forge a multi-lateral coalition to press China on the issue.
"I do not believe that our administration has really made a serious effort to mobilize a coalition. We have shown we can do it on other issues where we really want one," added Bergsten. "We should try it here."
Bergsten said that one way the administration could take the lead on this is by naming China a currency manipulator.
Hearings on the Chinese currency continue Thursday with testimony from U.S. Treasury Secretary Timothy Geithner.
