Pressure is building on China to revalue its currency before President Hu Jintao’s U.S. visit.
As tensions rise over the U.S.-China trade imbalance, which soared last year to $202 billion, U.S. lawmakers have delayed a vote on tariffs against imports from China but have vowed to keep pushing.
U.S. manufacturers have argued since 2002 that China has deliberately undervalued its currency, the yuan, by as much as 40 percent so that its products can compete unfairly abroad.
In response, U.S. Senators Lindsey Graham, Republican from South Carolina, and Charles Schumer, Democrat from New York, have called for legislation that could lead to tariffs of as much as 27.5 percent on Chinese goods.
About 30 percent of [Chinese] exports go to the U.S. They could then try to redirect some of those exports elsewhere, where they weren’t facing a tariff. But there would probably be some slowdown in their export earnings,
Experts are divided, though, on the likely impact of the move.
Morris Goldstein, a former International Monetary Fund official and now a senior fellow at the Washington-based Institute for International Economics, said that if tariffs are applied, “China’s export earnings would be less.”
“About 30 percent of their exports go to the U.S.,” Goldstein said. “They could then try to redirect some of those exports elsewhere, where they weren’t facing a tariff. But there would probably be some slowdown in their export earnings.”
Though Chinese officials have claimed the country’s economy and banking system cannot support a sudden shift in the rate of the yuan, Goldstein said that a revaluation of 10 percent could be managed.
“The 27.5 percent tariff would be worse,” he said.
U.S.-China Business Council president John Frisbie said his organization wants to see China move toward a freely traded currency but opposes a tariff threat.
Frisbie noted that a tariff would likely backfire on U.S. consumers, who buy billions of dollars of low-priced Chinese goods. The first effect of a tariff, Frisbie said, would be to raise those prices.
“We are sure that it would immediately, in effect, tax American consumers upwards of close to 27.5 percent.”
“To the extent that we continue to buy the same products from China,” Frisbie added, “that would be the end result.”
Frank Vargo, vice president for international affairs at the National Association of Manufacturers, said that his organization fears the proposed legislation could pass and provoke a trade war with China.
Congress has been getting “more and more frustrated,” he said. “There’s a feeling of helplessness that China is just abjectly violating the rules and nobody can seem to do anything about it.”
“This is a threat which really has to be taken seriously,” Vargo added.
Original reporting by Michael Lelyveld. Edited for the Web by Richard Finney.