The House is scheduled to consider legislation this week that could strengthen the U.S. response to China's unfair trade practices, including maintenance of an undervalued currency designed to gain a competitive advantage for Chinese products in international trade.
HR 3283, Trade Rights Enforcement Act, authorizes the application of U.S. counterveiling duty (CVD) law to non-market economies, including China. Currently, U.S. counterveiling duty laws do not apply to non-market economies. Other provisions would authorize establishment of a comprehensive monitoring of China's compliance with obligations related to intellectual property rights. The legislation also would require Treasury to define "currency manipulation" and clarify legal protections against China.
Currency values are outside the scope of the WTO and the U.S. government has rejected industry petitions that would have defined the maintenance of an undervalued currency to gain an unfair advantage in international trade as actionable.
The bill, sponsored by Rep. English (R-PA), is a modification of earlier legislation (HR 1216) that would have imposed a duty on Chinese products if China's currency was not revalued by a certain date. A vote on the Senate version of that legislation was scheduled for July, but postponed at the request of the co-sponsors after they received assurances from Treasury Secretary Snow and Federal Reserve Chairman Greenspan that China had signaled its intention to begin the process of revaluing her currency in August.
On July 21, the Yuan was revalued higher against the U.S. dollar when China announced it would no longer have its currency tied to a fixed rate against the U.S. dollar and instead will be using a managed floating exchange rate regime based on market supply and demand with reference to a basket of currencies.
The exchange rate of the U.S. dollar against the Yuan was adjusted to 8.11 Yuan per U.S. dollar on July 21, a 2% drop from the previous rate of 8.28. While Thursday's revaluation was small (it's estimated that China's currency is about 40% undervalued), it could help reduce competition from lower-priced Chinese imports because a dollar would buy fewer Yuans. A stronger Yuan also could increase U.S. exports to China by making U.S. goods cheaper in China.