For years Washington has softly pressured China to strengthen the value of its currency, the Yuan. And for years the talk rang on deaf — or defiant — ears.
Finally the Senate on Tuesday backed a bill that would enact tariffs on countries with undervalued currencies. After a 79-19 bipartisan vote, the bill, which did not name China specifically, now moves from committee to the Senate floor for an official vote of up or down approval.
Reaction from China on this news was piercing. Chinese Foreign Ministry spokesman Ma Zhaoxu said the country "adamantly opposes" the decision and urged the country to "forsake protectionism" and to not politicize trade issues.
But supporters of currency legislation, like New York Senator Chuck Schumer, say such laws are necessary in order to protect U.S. jobs. "[China's] predatory currency practices [were] "undermining the economic health of American manufacturers and their ability to compete at home and around the globe," he says.
What's surprising is that the Yuan has actually appreciated nearly 30% against the dollar since 2005 when the currency was revalued. China has vowed to allow the currency to continue to appreciate, but at a much slower pace than many in this country would like.
If the bill does eventually pass the Senate it is unclear how the House of Representatives will proceed. In September 2010, the House did pass a much weaker currency bill that did not go anywhere. Today House Speaker John Boehner and Majority Leader Cantor do not seem keen on the Senate measure, reports the Washington Post.
Then there is always the question of where the Obama administration stands on the matter. Much like administrations before it, the White House would not likely support unilateral trade protections that could spark a trade war.
As The Daily Ticker's Aaron Task and Henry Blodget discuss in the accompanying video, it is hard to blame either the U.S. or China for its actions -- both countries are only acting in their own self-interest.
Tells us what you think! Do you agree with the Senate move to punish countries that manipulate their currency?