USA CHINA EXCHANGE RATE SPAT – House Passes HR 2378, Currency Reform Bill. EXPLANATION of the BILL & its BG. Enables Duties on Currency Manipulators – w/ Latest Links

UPDATES, Main Write Up after Links 

Sept 29, 2010:- House of Representatives Passes the Currency Reform Bill Overwhelmingly: 348 Ayes to 79 Noes, Democrats – 249-5 Republicans – 99-74  http://clerk.house.gov/evs/2010/roll554.xml Next Stop Senate

China Talks Tough, Attacks the Bill

http://www.dailyfinance.com/story/taxes/china-attacks-house-currency-bill/19655097/

http://www.ndtv.com/article/world/china-talks-tough-on-us-anti-subsidy-bill-56049

http://www.reuters.com/article/idUSTRE68S0NJ20100930 

China sees Yuan issue as political scapegoat

http://www.marketwatch.com/story/china-sees-yuan-issue-as-political-scapegoat-2010-09-30

Statement of The American Chamber of Commerce in the People’s Republic of China (AmCham-China) 

http://www.prnewswire.com/news-releases/amcham-china-statement-regarding-hr-2378-104041778.html

How China Might Strike Back on Currency (Bill)

http://blogs.wsj.com/chinarealtime/2010/09/30/how-china-might-strike-back-on-currency/

Washington Gets Tough on China But Plays Patsy with OPEC” 

http://www.huffingtonpost.com/raymond-j-learsy/washington-gets-tough-on_b_744848.html

October 04 – World’s leading countries should agree to a New Currency Pact to help Rebalance the Global Economy Fairly http://bit.ly/bcWd9n

Oct 09 – China & her Economic Policies Targeted in Mid Term Campaign by Both Sides

http://nyti.ms/bJ4gBF  

Oct 19 – China Halts Exports of Some Key Minerals to U.S.

“The Chinese action, involving rare earth minerals that are crucial to manufacturing many advanced products, seems certain to further ratchet up already rising trade and currency tensions with the West. Until recently, China typically sought quick and quiet accommodations on trade issues. But the interruption in rare earth supplies is the latest sign from Beijing that Chinese officials are willing to use their growing economic muscle.”

http://www.nytimes.com/2010/10/20/business/global/20rare.html?_r=1&ref=global-home 

Oct 25 – IMF says global currency war averted after G20 agreement (Not True, just a few steps taken towards that goal)  

http://www.channelnewsasia.com/stories/economicnews/view/1089266/1/.html

Oct 25 – Taking Harder Stance Toward China, Obama Lines Up Allies 

 http://www.nytimes.com/2010/10/26/world/asia/26china.html?partner=rss&emc=rss

Nov 07 – World Bank Chief calls for new Gold Standard 

The president of the World Bank said in a newspaper editorial Monday that the Group of 20 leading economies should consider adopting a global reserve currency based on gold as part of structural reforms to the world’s foreign-exchange regime.

http://www.marketwatch.com/story/world-bank-chief-calls-for-new-gold-standard-2010-11-07

Nov 10 – US trade deficit eases but China tensions remain  

By Andrew Beatty, AFP  http://bit.ly/cFa7g1

“The US trade deficit edged off record levels in September but a huge gap with China spelled continued tensions between the two superpowers on the eve of a G20 summit.

The US trade deficit edged down to 44 billion dollars in September, aided in part by a weaker dollar, but the gap with China makes up more than half of the total.

The 2.5 billion dollar fall from August was far greater than that expected by most economists.

Although the trade shortfall with China fell 2.2 billion dollars in the month, it still stood at a whopping 27.8 billion dollars, near record highs.”

Nov 11 – Are currency wars the new hot, sexy thing for global finance chiefs? 

By Thomas Molloy    http://bit.ly/9zex3s

“…The China expert said the ill feeling between Asia and the West over the value of the Chinese currency was a sign that “the rise of China is coming to a head” and leaders must now develop a system where “you do not have hot money chasing yields around the world”. 

Nov 10 – Jump in Interest Rates And US Dollar: How To Play These Moves By Jim Farrish, www.dailymarkets.com  http://bit.ly/bmr9n7

Nov 10 – Will the U.S. dollar make a comeback?

 By David Berman, Globe and Mail 

http://bit.ly/b0AsKd 

Nov 11 – Why Fed bond-buying plan is raising trade tensions

By AP http://bit.ly/9tNDlq

“It turns out many foreigners are pretty angry, too. They say the Fed’s $600 billion program (described by many as printing money) is a scheme to give U.S. exporters an unfair edge – one that endangers the global economy.

Is it? Or is the Fed’s plan a credible way to help end a desperate jobs crisis and revitalize a still-tepid economy?

In either case, few dispute that Fed Chairman Ben Bernanke is taking a gamble. Whether or not his plan succeeds in aiding the U.S. economy, it risks triggering a trade war and encouraging dangerous speculation in financial markets.

Already, the finger-pointing threatens to wreck this week’s summit of world leaders in Seoul, where the Fed’s plan has set off vociferous debate.

Many economists say the Fed didn’t have much choice – not with U.S. unemployment stalled at 9.6 percent, short-term interest rates already near zero and Congress refusing to spend more to jolt the economy.

“They’ve run out of bullets,” says Uri Dadush, director of the international economics program at the Carnegie Endowment for International Peace.”

Nov 11 – Currency tensions simmer as G20 heads gather  http://bit.ly/ciQvWD 

Nov 12 – G20 fails to reach solid agreement on currencies, but Harper (PM of Canada and a proponent for Currency & Trade Reform) not panicking 

by Heather Scoffield, The Canadian Press  http://bit.ly/czQqxo   

“In the week before the summit, Harper had written to his G20 colleagues, warning that failure to take bold steps and concrete action at the summit would risk tipping the world back into financial crisis.

He said China needed to move more quickly to allow its currency to appreciate. And he said the large trade and investment imbalances that were partly the cause of the recent global financial crisis need to be constrained so that the crisis does not come back.

But now, he says he sees evidence that global leaders are all on the same page, despite the lack of quick action on imbalances or currency.

“We have got a process for continued engagement. We’ve got a timeline around that,” Harper said. “These are not going to be easy issues to resolve. But I think we’ve got everyone talking the same language.”

Factbox: Outcome of the Seoul G20 summit

http://www.reuters.com/article/idUSTRE6AB1G920101112 

WRAPUP 5-G20 vows to tackle economic “vulnerabilities” 

http://reut.rs/932Hx3

Nov 18 – Bernanke Faults China for ‘Persistent Imbalances’ 

By Sewell Chan, NY Times

http://nyti.ms/aK19hF

“WASHINGTON — Ben S. Bernanke, the Federal Reserve chairman, plans to argue Friday that currency undervaluation by China and other emerging markets is at the root of “persistent imbalances” in trade that “represent a growing financial and economic risk.”

Mr. Bernanke is expected to warn that a “two-speed global recovery,” with the richest countries lagging behind fast-growing emerging markets like China and India, is hampering the cooperation the worldwide recovery needs, echoing a main point the Obama administration made — with limited success — when leaders of the Group of 20 economic powers gathered last week in South Korea.”

Nov 19 – AISI calls senate leadership to pass currency reform   www.steelguru.com

http://bit.ly/bcZMTb

“The American Iron and Steel Institute commended Congressmen Tim Ryan and Tim Murphy co sponsors of HR. 2378, the Currency Reform for Fair Trade Act, for urging the Senate Leadership to bring the currency reform bill to a vote on the Senate floor before the 111th Congress adjourns. Affirming the urgency for immediate action, AISI sent a letter today to the entire US Senate asking for their full support and quick passage of the bill.

Nov 18 – Donald Trump, the possible next Republican Presidential Candidate on China

http://robotceleb.com/news/26607-11182010-president-donald-trump-china-fired-the-apprentice.html 

http://www.indianexpress.com/news/china-is-ripping-us-donald-trump/693336/0

Dec 3 – China Declares Shift to ‘Prudent’ Monetary Policy

http://abcnews.go.com/Business/wireStory?id=12301526

Dec 6 – Exports are a Smaller Part of China’s Growth than is Apparent

http://web.hbr.org/email/archive/dailystat.php?date=120610

Jan 24, 2011 – China could act on currency this year: Kissinger

China could act on revaluing its currency over the course of the year, without admitting defeat in their battle with the international community over its value, former US secretary of state Henry Kissinger said Sunday.

In an interview with CNN, Kissinger, who worked to open US relations with China 40 years ago, said he would be “disappointed” if China did not make such a move on the yuan or renminbi (RMB).

http://bit.ly/gC1IC2

April 14, 11  – BRICS take aim at dollar with call for global monetary revamp

http://www.reuters.com/article/2011/04/14/us-brics-idUSTRE73D18H20110414

Aug 10, 11 – Yuan Climbs to 17-Year High on Fed Rate Pledge, Inflation Data
(Bloomberg) — The Yuan rose to a 17-year high after the Federal Reserve pledged to keep interest rates at a record low and on speculation China’s central bank will allow appreciation to temper inflation.

The currency strengthened the most in almost two months after the Fed said yesterday it will hold the target rate near zero for at least two years and use other policy tools “as appropriate.” Yuan forward contracts posted the largest gain since October after China reported its trade surplus surged to the highest level in more than two years due to record exports. Consumer prices climbed 6.5 percent last month, the fastest pace in three years, the statistics bureau said yesterday.

http://bit.ly/r99VUl

 

dollar yuan history chart

Chinese Yuan Renminbi (CNY) to 1 US Dollar (USD)

CNY to 1USD  April, 1994 – 8.73 (Highest Ever Rate) 2010 June 1 – 6.86038, Sept. 1 – 6.81798, Oct. 1 – 6.69275 

The Rate US says is realistic and fair – 4.1, and at the very least – 5.1 

 

dollar yuan history chart

Images: FXIS Market Insights 

Sept 27 – HR 2378, the Currency Reform Bill that would give U.S. Government the power to impose Economic Sanctions on countries who manipulate their currencies for unfair trade advantages won approval from the key House Ways & Means Committee on Sept 24, Friday. The Bill is seen as primarily aimed at China, who US officials maintain manipulates its Currency, keeping it artificially weak, thus unfairly rendering its goods more competitive on world markets, including the US and making US exports to China pricier by upto 40%.

The Bill would amend and clarify current law (title VII of the Tariff Act of 1930), so as to empower the Commerce Department to impose countervailing duties on imported goods to offset the effect of any country’s unfair Currency policies. 

The Committee headed by Chairman Sander Levin’s (D, MI) approved the legislation and Democratic leaders have stated the measure would be taken up by the full House on 27th, Wednesday. Congressmen Tim Murphy, Republican and Tim Ryan Democrat are the joint sponsors of the Bill. Apart from near complete support of the Democrats, it has substantial support of the GOP, several Republican Lawmakers criticized China’s Currency policy in strong terms at Congressional hearings on the matter last week. 

Backers of the Bill believe that at a time of high unemployment the Bill would protect US against Job Losses against unfair trade competition, and even regenerate many thus lost Jobs to cheaper imports. But conservative critics point out thatthe Bill in its diluted form is not as effective, as now it doesn’t legislatively deem that fundamental Currency undervaluation finding satisfies the requirement of export contingency, as the original Bill did. The authors of the HR 2378 have answered that criticism by stating that this requirement was removed, along with other amendments to avoid breaking any WTO rules, and getting the law stuck down as unlawful by them.   

The sponsors say that their aim is to ensure that China “play by the same rules as everyone else”, that a more fairly valued Chinese Currency would “level the playing field” between American and Chinese Companies. Murphy and Ryan said they have support of 120 co-sponsors for their legislation in the House (from a total of 435) and are very confident that it’ll be passed by a comfortable margin.

A companion Bill is in the Senate co-sponsored by Senators Chuck Schumer, Democrat and Lindsey Graham, Republican. Levin said he does not expect the Senate to take up the Bill before it leaves Washington at weekend in the run-up to the Nov. 2 Mid Term Elections. But he expressed hope that it’s one of the issues that the Senate takes up in a Lame Duck session in November, and there’s every chance that White House would ensure that does indeed happen. “There’s a lot of interest,” in Currency legislation in the Senate, and the Bill has the full backing of the White House. 

“The Chinese have called everyone’s bluff so far,” Bergsten said; when asked about their likely reaction, he said “Remember that they are the aggressors. If they think we’re serious they could change their behavior and prevent it.” “It is time for Congress to pass legislation that will give the administration leverage in its bilateral and multilateral negotiations with the Chinese government,” House Speaker Nancy Pelosi statement on the subject stated: “If China allowed its Currency to respond to market forces, it could create a million U.S. manufacturing Jobs and cut our trade deficit with China by $100 Billion a year, with no cost to the U.S. Treasury.” 

“Countervailing duties would be available to any U.S. industry that could demonstrate it has been ‘materially injured’ by imports from the country with the undervalued Currency. By doing so, the Bill will help to provide meaningful relief to those who are harmed by China’s exchange rate policy,” Levin said, adding that (the amended Bill) “is fully consistent” with World Trade Organization rules.

He noted that the WTO rules allow for the application of countervailing duties to offset/neutralize export subsidies and that so far the Commerce Department has refused to find Currency manipulation a countervailable export subsidy solely because non-exporters, such as American tourists in China were also benefiting from the undervalued Chinese Yuan. 

Levin said the Bill preserves the Commerce Department’s authority to consider each case on merits and to make a judgment to find out if the necessary legal elements of an export subsidy have been met. He added that the legislation has become necessary because China failed to follow through with its announced plans to implement Currency Reform in June.

Since then, he noted, China has ‘enabled’ the RMB, Renminbi Currency/Yuan to appreciate less than 2% against the Dollar, and that most of this increase has taken place in the last two weeks, since China realized the seriousness with which US Lawmakers are taking up this issue.

 60 Day Chart

 60 Day Chart

From http://www.exchangerates.org.uk

“This Bill is being advanced in the absence of effective action on a multilateral basis, and the kind of multilateral structure needed to address, comprehensively, major Currency imbalances,” asserted Levin. 

Rep. Dave Camp, the top Republican on the Ways and Means Committee, said the present Bill is a vast improvement compared to earlier Currency Bills and seems to be consistent with the U.S.’s WTO obligations. “It does send a clear signal to China that Congress’s patience is running out, without giving China an excuse to take it out on U.S. Companies and their workers,”. Bit Camp added that he is concerned that Congress isn’t considering the much needed broader Legislation that should include U.S.’s other critical concerns with China, (which is costing US Companies Jobs and lost Revenues) such as regular, massive violations of Intellectual Property Rights. 

It’s China that’s accused as the nation causing the most harm to Trade of US and EU by artificially devaluing its currency through exchange rate manipulating, but others like Japan, Taiwan, Brazil and India could also be targeted with the same Bill for any intervention seen as unfair. That said, if China is compelled to be more reasonable in the context, the chances of these other nations manipulating the rates unfairly would automatically reduce, as the chances of then their own recovering exports growth continuing to fall victim to China’s currency rate advantage would be proportionately reduced.   

But this is America, where complete bipartisanism remains a Dream, thus another Republican lawmaker, Rep. Kevin Brady, accused Levin of “playing politics” with the Currency issue by introducing it in the final days of the ongoing period’s deliberations, just before the campaigning for the Mid Term Elections is set to start in earnest. Levin in turn brushed aside Brady’s charge in sharp terms: “This issue has been building and building,” he said, attributing the Bill’s timing to the fact that China had been given reasonable time to make good on the Currency Reforms assurances in June. 

The Currency Bill makes it mandatory for Treasury to report to Congress biannually on all those nations who have “fundamentally misaligned currencies” with the U.S. If the issue isn’t addressed by these ‘guilty’ countries within 90 days of this report, the administration would be required to take action at IMF, International Monetary Fund and end Federal procurement of selected goods & services from these nations.

After 360 days of inaction by the said country, the U.S. Trade Representative would be required to then arrange dispute settlement proceedings at WTO, World Trade Organization. If the Commerce Department ruled that this Currency imbalance amounted to an impermissible subsidy, it could lead to the imposition of product specific countervailing duties on imports on the ‘guilty’ country, as also other anti-dumping measures.   

Many Lawmakers have been pressing this issue for years with little real success, but it has gained momentum now, after China’s repeated failure to address the issue, six weeks before Congressional Elections in which the high unemployment rate is The critical issue. Democrats are facing an uphill task in these Elections against losing control of the House and Senate, which Polls indicate they would due to the sluggishness of the Economic Recovery and continuing High Joblessness. 

The Lawmakers have claimed that the Bill would send a clear message to China – that it risks serious U.S. trade sanctions unless it moves faster on enabling its Currency to rise in value fairly against the Dollar. The House action is a result of the Obama Administration’s stepped up pressure on China, through most this year to make more progress on genuine Currency Reform and other contentious trade issues, inc IPR. The White House said that President Barack Obama pushed Chinese Premier Wen Jiabao to move faster on Currency revaluation during their 2 hour meeting 23rdSept, Thursday in NYC. 

Even if this Bill was to get delayed in the Senate the Obama Administration is all set to apply tariffs to selected Chinese products, as the recently imposed 35% tariffs on Chinese tires just before the President attended AFL-CIO (Convention of Federation of US Labor Organizations) September, 2009.  China in turn, is expected to retaliate with its own increased tariffs on American products, as they did by placing tariffs of up to 105% on American chicken products in February, 10 and by raising tariffs on some U.S. nylon products from 36.2% to 96.5% in April, 10. 

Here are key provisions of the Bill and a description of how it differs from an earlier proposal: 

WHAT THE BILL DOES  

From http://www.reuters.com/article/idUSTRE68M00N20100924  

“The legislation essentially clears the way for the Commerce Department to apply countervailing duties against imports from countries with “fundamentally undervalued” currencies. 

The Bill’s key element instructs the Commerce Department that it may no longer dismiss a request for countervailing (or anti-subsidy) duties based on the single fact that exporters are not the sole beneficiaries of a particular subsidy.

In other words, just because Chinese domestic manufacturers may also benefit from Currency undervaluation, the Commerce Department could still consider it an export subsidy. 

This reverses a long-standing Commerce Department practice, most recently seen in two cases involving coated paper and aluminum products. The department declined to investigate whether undervaluation was a subsidy because it said China’s exchange rate practices did not provide a “specific” benefit to Chinese exporters.

Ways and Means Committee aides say that is more restrictive than required under U.S. law and World Trade Organization rules. They note the Bill does not guarantee the Commerce Department will apply countervailing duties against undervalued currencies, but removes an important hurdle. 

HOW FUNDAMENTALLY UNDERVALUED CURRENCIES ARE DEFINED

A Currency is said to be fundamentally undervalued if the following criteria are met:

1. The country’s government has engaged in protracted, large-scale Currency intervention in at least one foreign exchange market during an 18-month period.

2. The country’s “real effective exchange rate” is undervalued by at least 5 percent over the 18-month period.

3. The country has had significant and persistent global current account surpluses during the 18 months.

4. The amount of foreign reserve assets held by the government during the 18 months exceeds the amount necessary to repay its debt obligations within the next 12 months, exceeds 20 percent of the country’s money supply and exceeds the value of the country’s imports during the previous four months. 

HOW THE AMOUNT OF UNDERVALUATION IS CALCULATED

The Bill instructs the Commerce Department to rely upon approaches described in guidelines of the International Monetary Fund’s Consultative Group on Exchange Rate Issues to calculate the amount a Currency is undervalued.”

CHINESE REACTION TO THE CURRENCY BILL

People’s Daily   – Sharp Yuan Rise Would Create Problems for China’s Economy   

The U.S. House Bill targeting China’s Currency policy is “neither just nor fair,” and any sharp Yuan appreciation would not only hurt China, but also  the rest of the world, and its economic recovery, the state-run People’s Daily said in an opinion piece. The paper is seen as Chinese Communist Party’s mouthpiece. “If the Yuan rises sharply by 20% or even 40%, that would not only cause problems to China’s economy, but would also hinder China and the U.S. from tackling the trade imbalances rationally, and would have severe global consequences,”  

The paper reiterated the Chinese Government’s stance that Yuan appreciation is far from a cure-all solution for solving China-U.S. trade imbalances, which the paper claimed have been largely created by the U.S.’ export controls.

NOTE US’ unemployment rate stands at a huge 9.6% with very many Metropolitan Areas reporting upto 15% unemployed. China on the other hand has an unemployment rate of around 4.3%, but that figure is urban centric, which doesn’t take into account the large scale under & underpaid employment  in the Rural Areas-Hinterland. The Chinese Govt. is committed to not let this rate rise above 4.6% through 2010. 

 

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REFS: 

NEWS – US House Panel OKs Currency Bill; Full House To Vote Sept 29 

http://imarketnews.com/node/19765 

US House Currency Bill Authors Say They Will Push Ahead 

http://imarketnews.com/node/15436 

Factbox: Key provisions of House Currency Bill

http://www.reuters.com/article/idUSTRE68M00N20100924?pageNumber=2  

US Economist Bergsten Calls of US Treasury to Call China’s FX Bluff

http://imarketnews.com/?q=node/19229 

CHINA – Sharp Yuan Rise Would Create Problems For China’s Economy People’s Daily, Beijing 

http://news.morningstar.com/newsnet/ViewNews.aspx?article=/DJ/201009262245DOWJONESDJONLINE000234_univ.xml   

RMB exchange rate to continue two-way fluctuation, experts 

http://www.tradingmarkets.com/news/stock-alert/ms_rmb-exchange-rate-to-continue-two-way-fluctuation-expert-1191047.html   

THE FINAL, AMENDED HR 2378, THE CURRENCY REFORM BILL  

waysandmeans.house.gov/media/pdf/111/HR2378_one-pager.pdf   

The Conservative Alternative

ttp://www.americanthinker.com/2010/08/us_growth_slows_due_to_trade_d.html 

 Jan, 2009 Article 

http://www.washingtonpost.com/wp-dyn/content/article/2009/01/22/AR2009012203796.html 

MARCH & JUNE, 2010 ARTICLES 

RPT-FACTBOX-U.S. proposed legislation on exchange rates

http://www.reuters.com/article/idUSN169951520100316 

US House Currency Bill Authors Say They Will Push Ahead 

http://imarketnews.com/node/15436 

HISTORICAL EXCHANGE RATE SUMMARY: CNY/USD
Average (Last 12 Months)        6.82
Average (Last 10 Years)          7.80
High (Last 12 Months)             6.83   (February, 2010)
Low (Last 12 Months)              6.69   (Oct 02, 2010)
High (Since January, 1981)       8.73   (April, 1994)
Low (Since January, 1981)       1.55   (January, 1981)

From http://www.forecast-chart.com 

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