An American bill imposing punitive tarifs on countries that undervalue their currencies is set to unleash a new trade war between the US and China. But in fact the whole global currency system is in a state of jeopardy. As confidence in the dollar drops, private investors are putting their faith in gold.
At first glance, the new bill sounds perfectly innocuous. “H. R. 2378 — Currency Reform for Fair Trade Act” was on the agenda of the US House of Representatives late last Wednesday afternoon. Fair trade — who could object to that?
But as the representatives started debating, it didn’t sound harmless anymore. In fact, it sounded like war.
“International trade is a high-stakes, cutthroat business. And every time we simply talk, the other side acts. And every time they act, an American loses a job,” said Xavier Becerra, a Democratic congressman from California.
Timothy Murphy, a Republican from Pennsylvania, went one step further: “We are about to lose our position as a global leader when next year China overtakes us as the biggest manufacturer in the world. The trouble is that China has never really accepted the basic rules of fair trade.”
Democrat Linda Sanchez from California argued: “Opponents say that this bill will start a trade war. I say, we are already in a trade war. And China is using cannons and we’re standing here shooting (air gun) pellets.”
There was one verbal attack right after the other, for roughly an hour. Speaker after speaker condemned the alleged “currency manipulators” from China who supposedly subsidize their products by keeping their currency artificially low. They all want to see H. R. 2378 passed into law.
A closer look at the fine print also reveals that the draft legislation is far from harmless. The bill calls for the US Department of Commerce to start imposing — even without approval by US President Barack Obama — punitive tariffs on certain countries. The initiative specifically targets countries that have “a fundamentally undervalued currency,” “persistent global current account surpluses” and very large currency reserves — in other words, China.
The bill passed the House by a vote of 348 to 79. “This is a stronger message than any previous one,” says Nicholas Lardy from the Peterson Institute for International Economics.