The attempt of two U.S. lawmakers to reintroduce legislation that would let the U.S. impose emergency tariffs against China if its currency is found to be undervalued, isn’t likely to get any farther than it has on previous occasions, even though its language is toned down from before. There aren’t sufficient Republican votes for such a measure and the Republican leadership’s priorities are more domestic issues. Even if the bill did somehow manage to pass the House of Representatives, as it did last time, it would likely again die in the Senate.
Last week, the U.S. Treasury, in a biannual report to Congress politely delayed until after President Hu Jintao’s state visit to Washington, declined to label China a currency manipulator, but said progress toward allowing the yuan to appreciate was “insufficient”. The yuan has risen only 3.64% against the dollar since it was unpegged from the greenback in June 2010. The currency hit a new high against the dollar on Thursday, at 6.585, displaying its usual upward mobility ahead of a G-20 finance ministers’ meeting.
The ministers convene with central bankers in Paris next week to follow up on pledges made at the G-20 summit in Seoul to move towards market-determined exchange rates and to shun competitive devaluations. The U.S. has been trying to make common cause with Brazil to put pressure on Beijing to accelerate the yuan’s appreciation, and the International Monetary Fund has been dangling the carrot of inclusion in the basket of currencies on which its Special Drawing Rights are based but for which the yuan would have to be freely tradeable. Yet China is likely to hold its line that its currency needs to appreciate gradually to avoid social dislocation, and switch attention to what it sees as the damaging effects of the U.S. Federal Reserve’s quantitative easing and capital flows into emerging economies causing imported inflation.