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Oppose S. 1619, Avoid Trade Wars that Will Hurt Americans
An Open Letter to the United States Senate:
October 3, 2011
On behalf of the 362,000 members of the National Taxpayers Union, I encourage you to oppose S. 1619, the “Currency Exchange Rate Oversight Reform Act of 2011.” Sponsored by Sen. Sherrod Brown (D-OH), this bill would classify undervalued currencies as an illegal subsidy under existing law, thus enabling the Department of Commerce to enact protectionist measures such as countervailing duties to discourage imports from those countries. This approach would backfire on the U.S. economy and distract policymakers’ from other critical problems underlying our economic woes.
The history of the United States is littered with examples of overzealous attempts to blame foreign government for unfair trade practices during periods of high unemployment. By mistaking trade deficits (and by extension an undervalued renminbi) as a primary cause of America’s gallingly slow recovery, S. 1619 would continue, rather than break from, this tradition.
As tempting and convenient as this approach may be, its problems are numerous. As argued by Dr. Derek Scissors of the Heritage Foundation, the immediate predicament is the inability to determine an exact amount of currency undervaluation, which is typically given in broad ranges.
Even if this challenge were to be overcome, thereby allowing the federal government to put upward pressure on China’s currency, there is scant evidence that it would have an ameliorative effect on the trade deficit or our economy. For instance, from July 2005 to July 2008, the renminbi rose 20 percent against the dollar, but the trade deficit rose to $268 billion. On the other hand, from July 2008 to April 2010 the renminbi did not move against the dollar, and yet the trade deficit fell to $227 billion. This, as well as Americans’ consumption patterns, especially in regard to Chinese goods, suggests that attempts to force currency appreciation could lead to higher prices for our own buyers.
Not only does this bill misidentify the problems, but it overlooks the enormous benefits America enjoys from trade. The lower-priced imports allow American taxpayers to stretch their paychecks further and enable them to spend more on other, potentially U.S.-made goods. Furthermore, because a significant percentage of the value of exports comes from components and raw materials produced in the United States, imposing any form of sanctions would penalize American workers.
Rather than pressuring the Chinese, or other nations, to inflate the value of their currency, Washington should be focused on addressing the numerous regulations, restrictions on energy development, taxes, and tariffs that are inhibiting job creation and economic growth. Doing so will strike the proper balance between economic competitiveness abroad and economic sovereignty at home. In the process, by avoiding artificial, statist measures, America will serve as a shining example of how a global free-market economy can deliver prosperity for all. For these reasons, NTU recommends a “NO” vote on the Currency Exchange Rate Oversight Reform Act of 2011.
Sincerely,Brandon GreifeFederal Government Affairs Manager