Greg Sargent has an interesting by-product of the electoral debate over China, and particularly Chinese currency manipulation. Romney has used this as part of his five-point plan to improve the US economy. Sen. Sherrod Brown (D-OH) casually points out that there’s a bill on the table awaiting a vote in the House that would deal with the issue:
Senator Sherrod Brown, the lead sponsor, is organizing to increase the pressure on his fellow Ohioan, John Boehner, to hold a vote on the bill. He is circulating a letter today among fellow Senators, addressed to Boehner, demanding a vote, and noting that a similar version passed in 2010 with the support of 80 House Republicans still in office.
The bill would give the U.S. government trade tools to more easily combat currency manipulation, which could lead to higher tariffs against China. Steven Dennis has a good piece on the backstory and the politics here; the short version is that the White House has not supported it because it believes this course of action would start a trade war with China. But many groups on the left want it to pass as part of their push to revitalize manufacturing.
In an interview with me, however, Senator Brown told me that he’s convinced Obama would sign the bill if it passed — a declaration that will catch the attention of the major unions who want it.
“I’m confident Obama will sign this bill,” Brown said, adding that his conversations with the White House had persuaded him of this. “This will pass if Boehner schedules it.”
That’s definitely new information about the White House’s perspective.
The constituency that really doesn’t want to see a currency manipulation bill pass Congress would be multinational corporations, who see value in siting their factories overseas and taking advantage of the low currency to deliver cheap imports. And they are sure to pick up on a datapoint about China and their currency that does disqualify some of Romney’s shtick, but does not in any way diminish the importance of the bill.
Over the last year, you see, China has largely stopped manipulating its currency, according to Joseph Gagnon of the Peterson Institute for International Economics. However, other countries have filled the gap, including Malaysia, Thailand, the Philippines, Singapore and Switzerland. This adds up, according to Gagnon’s policy brief, to $1.5 trillion annually (that measures the total government purchases around the world in other countries’ assets, the typical method for keeping their currency value low). That’s up from a $1 trillion estimate at the beginning of the year. Even as China’s share of this $1.5 trillion has fallen, the total currency manipulation annually has not, suggesting that this remains a serious problem. And this directly impedes the US recovery, Gagnon says.
Right now, given that our macro policies, monetary and fiscal policies, have not been adequate to keep the economy on track, have not been able to fully recover from the recession and forecasters aren’t predicting that we will recover… then in that circumstance, this kind of behavior represents a huge loss of demand, a loss of sales that we could have had… I estimate that this is probably worth about 4% of US GDP in terms of lost exports that we could have been having. If these countries who sell us their products would have used that money to buy our products instead of buying our Treasury bonds or lending us the money, if they had instead bought our exports, we would have 4% more GDP, which would be anywhere, at least four million jobs and maybe more.
Gagnon lays it out further in this chart of currency manipulators, which actually still shows China at the top of the list, but all the other countries as well. The point here is that currency manipulation remains a huge problem even without China, especially because we’re in recession right now, and not capturing that shortfall in demand with other policies.
Here’s the good news. The “China currency manipulation bill” that Brown talks about here is not a China bill. It empowers the Treasury Department to brand ANYONE a currency manipulator who is engaged in the practice, and allows for higher tariffs in that event. So the bill in question would help solve the ENTIRE currency manipulation problem, not just a narrow one with China, which appears to be off the board at the moment. There’s also no reason that China, which isn’t manipulating currency at the moment, won’t take it up in the future. In fact, Gagnon expects it, saying there’s a “serious risk that they will start up again.” He says that the “best way to discourage currency manipulation is to tax it heavily,” precisely the channel undertaken by this bill.
I don’t know whether the White House will actually sign this bill. And the timing is off – the House of Representatives leaves Washington TOMORROW, leaving no time for any vote scheduling here. Maybe that’s the point. But when the spin begins on how China stopped manipulating its currency so problem solved, keep in mind that the problem goes well beyond China, it does hinder US jobs, and there is active legislation that could do something about it.