House Passes Bill Aimed At Chinese Currency
MELISSA BLOCK, host:
This is ALL THINGS CONSIDERED from NPR News. Im Melissa Block.
ROBERT SIEGEL, host:
And Im Robert Siegel.
Today, U.S. lawmakers are turning their attention to China's currency. The House of Representatives voted to approve a bill that would allow the Commerce Department to put duties on goods from countries with undervalued currencies; its main target is China.
The U.S. has long complained that China undervalues the yuan, giving Chinese exports an unfair advantage.
And to talk more about this bill, we're joined now by Nicholas Lardy. He's a senior fellow at the Peterson Institute for International Economics. Welcome to the program.
Dr. NICHOLAS LARDY (Senior Fellow, Peterson Institute for International Economics): Thank you.
SIEGEL: And why is Congress weighing in on China's currency now?
Dr. LARDY: Well, it's been on the agenda with varying degrees of intensity for three or four years, at least. And I think its on the agenda now because of the weak U.S. recovery, the persistently high levels of unemployment that we've had, and the prospects that going forward we're going to have a weaker than usual recovery - not just for several more quarters but potentially for several more years.
SIEGEL: What sorts of goods are the focus of this legislation, and how might the duties affect American consumers?
Dr. LARDY: Well, this is one of the dilemmas. The main things that the United States imports from China and consumers buy, of course, are consumer electronic products - information technology hardware. I think the best example familiar to most people is the product sold by Apple; they're all assembled in China -whether you're talking about the iPhone, the iPod or any of the range of products.
So there are very popular consumer electronic products that are made in China in huge quantities and sold to the U.S. consumer. If an industry could prove that these are being subsidized, there could be tariffs put on against these goods and they become more expensive to U.S. consumers. And then the demand would go down and we'd import less, and we'd have a smaller trade deficit with China.
SIEGEL: And, of course, it's a feature of the global economy that in doing so we might disadvantage an American company or, for that matter, American retailers who are selling those Chinese manufactured goods to American consumers.
Dr. LARDY: That's certainly true. And possibly in this case, for very little gain, since these products have never been made in the United States and it's unlikely that they ever will be made here. So putting tariffs on these goods from China would probably push their production to some other relatively low cost production site elsewhere on the globe.
So in that particular example, it would be very difficult to see that there'd be any job creation as a result of the tariffs.
SIEGEL: The Senate is not expected to take up this bill until after the midterm elections. But when it does go before the Senate, is it likely to pass? And is President Obama considered likely to sign such a bill, if it passed both Houses?
Dr. LARDY: Well, I think if it got to a vote in the full Senate it probably would pass. I think it's somewhat unlikely that the president would sign it. But I think the main stumbling block is a jurisdictional dispute that has existed for years in the Senate about which committee should have jurisdiction over this legislation. And in the past, that dispute has been so intense it has prevented the legislation from coming to a vote on the Senate floor.
If you talk to the sponsors of this legislation, many of them will admit that they actually dont hope that their bill will become law. They're hoping that it will serve as a wakeup call for the Chinese and the Chinese will change their policy.
And the president's aides have said he's neither for this nor against it. So he has tried to duck the question so far, of whether or not he would sign it if it came to him.
SIEGEL: How would you describe the advantage the Chinese get from an undervalued currency, as opposed to the advantage they have from lower wages that they pay their workers than, say, in our economy?
Dr. LARDY: Well, I...
SIEGEL: Which one is the greater factor working on their behalf?
Dr. LARDY: Yeah, I think thats a very good question. China is a low cost producer of many goods, in part because their wages are low; in part because the cost of capital in China is low, banks make loans for relatively low interest rates. Some natural resource products and utilities, for example, tend to be under-priced in China. And so that makes a fairly broad range of goods cheaper than they otherwise would be.
And, of course, that points out that the administration in its discussions with China has focused not just on the exchange rate, but theyve also tried to talk about some of these other reforms that would help to rebalance China's international trade. So, all these factors run in the same direction of making Chinese goods more competitive on global markets.
SIEGEL: Nicholas Lardy, thank you very much for talking with us.
Dr. LARDY: Thank you.
SIEGEL: Nicholas Lardy is senior fellow at the Peterson Institute for International Economics. And he is co-author of the book "The Future of China's Exchange Rate Policy."