A Storm is Brewing: China at the Cross-Hairs of U.S. Trade Sanctions for Keeping Yuan Undervalued

China may soon be forced to pay the high price of its cheap currency. On September 24, 2010, the Ways and Means Committee of the U.S. House of Representatives approved H.R. 2378, the Currency Reform for Fair Trade Act of 2010. This Act amends Title VII of the Tariff Act of 1930 “to clarify that fundamental exchange-rate misalignment by any foreign nation is actionable under United States countervailing and antidumping duty laws.” Although the House of Representatives overwhelmingly passed the bipartisan measure, its prospect in the Senate is less certain.

This bill reflects U.S. legislators’ growing frustration with China’s protectionist attitude towards its currency. American trade groups contend that the Yuan is undervalued by as much as 40 percent against the U.S. dollar, increasing the relative cost of American exports in China and making the price of Chinese imports artificially low in the United States. Many see this disparity as a major component of the U.S.’s large trade deficit with China. Notably, Nobel Prize winning economist Paul Krugman estimates that China’s currency policy reduces the U.S. GDP by an annual rate of 1.4 percent. Other studies show that allowing the Yuan to appreciate to its actual market value would not only enable U.S. manufacturers to be more competitive overseas, but would also create upwards of 500,000 manufacturing jobs in the United States.

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Michael Diaz Jr. - Diaz Reus International Law Firm on:

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