This evening, Congress is scheduled to vote on a bill that would penalize countries (primarily China), for what they perceive as a manipulated de-valuation of currency which helps to continue the massive trade imbalance between the US, and global economies.
- Currency “manipulator” label: The bill establishes objective criteria that the Treasury must use to identify “misaligned” currencies, rather than the more subjective “manipulation” designation that the Treasury currently uses in its semi-annual report to Congress on foreign exchange. All instances of currency misalignment would require some type of action if not corrected; cases of intentional misalignment caused by foreign countries' policy actions—labeled under the legislation as “priority misalignment”—would require the administration to take more aggressive steps, as detailed below.
- Anti-dumping and countervailing duties: Countervailing duties are currently applied under US law against specific goods from certain countries that are found to be subsidizing their exports. The Senate bill would require the Department of Commerce (DOC) to investigate currency undervaluation as a countervailable subsidy (under current law, the DOC has this option but is not required to do so). In addition, if “priority misalignment” hasn’t been corrected within 90 days, the full extent of currency undervaluation as calculated by the DOC or International Trade Commission (ITC) would also be explicitly reflected in anti-dumping duties. This means that domestic companies facing competition from imports would still need to file product-specific complaints with the DOC and ITC, but could add currency undervaluation to their complaint, and thus increase the remedial tariffs put in place if they are successful. This is similar to the currency bills proposed over the last few years, but unlike the original legislation offered by Senators Schumer (D-NY) and Graham (R-SC) in 2005, which would have imposed an across the board tariff on all imports from countries with undervalued currencies.
- WTO complaint: If misalignment continues for more than 360 days, the US Trade Representative would be required to request dispute settlement proceedings in the World Trade Organization (WTO). The Treasury would also be required “to consult with” the Federal Reserve Board on remedial intervention in currency markets, though the Federal Reserve would not be required to take any action. - Goldman Sachs