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New bill aims to weaken US dollar and 'fight back' against currency manipulation

President Donald Trump is not the only one who wants a weaker U.S. dollar in order to help American exporters compete with China. A pair of senators will introduce a bipartisan bill on Wednesday to lower the value of the U.S dollar through a tax on foreign investments.

“The past several decades have shown that large foreign capital inflows from central banks and hedge funds are weaponizing the U.S. dollar against American goods, services, and labor,” said Coalition for a Prosperous America (CPA) Chairman Dan DiMicco.

Senators Tammy Baldwin (D-Wis.) and Josh Hawley (R-Mo.) argue China and other countries manipulate their currencies to boost exports and make American products more expensive abroad. Supporters make the case that the overvalued dollar is putting American businesses at a disadvantage.

On Wednesday, the senators plan to introduce the Competitive Dollar for Jobs and Prosperity Act. Under the plan, the Federal Reserve could put a “market asset charge” on foreign purchases of U.S. stocks, bonds and other assets in order to realign the American dollar.

U.S. Senator Tammy Baldwin (D-WI) speaks at a campaign event in Beloit, Wisconsin, U.S., November 5, 2018. REUTERS/Nick Oxford

“Today, foreign investors have driven up the American dollar, helping Wall Street profit but holding back stronger economic growth,” said Baldwin in a statement. “We need reforms that create a competitive American dollar and an even playing field for manufacturers, farmers and workers. This bipartisan fix will increase American exports and boost our manufacturing and farming economy.”

The bill would give the Federal Reserve a third mandate, in addition to price stability and maximum employment. The Federal Reserve would have to balance the nation’s current account —a measure of the trade balance — within five years.

The Federal Reserve would then be charged with keeping the dollar at its trade balancing price. According to the CPA, bringing the U.S. dollar into alignment could add about $1 trillion to the GDP.

“For decades, China and other currency manipulators have waged financial war on U.S. agriculture and manufacturing to devastating effect. This legislation creates a powerful new tool to fight back against foreign currency manipulators, encourage investment in American jobs, and make our exports more competitive around the world. Our farmers deserve a chance to earn a fair profit on their crops. Our factories deserve a level playing field. With this bill, they will get one,” said Hawley in a statement.

Move to weaken the US dollar

In recent months, there has been bipartisan interest in weakening the U.S. dollar — from 2020 candidate Senator Elizabeth Warren (D-Mass.) to Trump.

Trump has repeatedly accused China of currency manipulation while pressuring Federal Reserve Chairman Jerome Powell to lower rates.

“We’re taking in billions and billions of dollars from China in the form of tariffs. Our people are not paying for it. China reduced their currency. They devalued their currency and they’re pumping money into the system to pay for it,” said Trump to reporters on Tuesday.

Last week, Trump reportedly rejected a proposal to weaken the U.S. dollar, but later told reporters he hadn’t ruled anything out.

Critics say devaluing the dollar would make it harder to convince China to stop manipulating its currency. Opponents also argue devaluing the U.S. dollar won’t necessarily close the trade deficit.

Jessica Smith is a reporter for Yahoo Finance based in Washington, D.C. Follow her on Twitter at @JessicaASmith8.