The China Currency Bill is Not the Answer

John Boehner is correct about the nature of this, which is about to clear the Senate:

Defying Chinese anger and White House warnings, the US Senate was set Tuesday to approve legislation to punish China for alleged currency manipulation widely blamed here for costing American jobs…

The Democratic-held Senate was due to approve the measure after 5:30 pm (2130 GMT), shifting the spotlight to the Republican-led House of Representatives, where Speaker John Boehner has condemned the “dangerous” bill.

“You could start a trade war. And a trade war, given the economic uncertainty here and all around the world — it’s just very dangerous, and we should not be engaged in this,” Boehner said recently.

Students of the last Depression know that legislation such as the Smoot-Hawley tariff only made matters worse.  Irrespective of the way in which the Chinese have kept the value of the yuan down, starting a trade war is only a spectacular example of cutting off our nose to spite our face.

It’s interesting to note that both Smoot and Hawley were Republicans, the tariff was passed under Republican President Herbert Hoover.  Evidently some in our party have learned something from history, including Tennessee Senator Bob Corker:

U.S. Senator Bob Corker, R-Tenn., today continued to voice his strong opposition to S.1619, the Currency Exchange Rate Oversight Reform Act, sponsored by Senator Sherrod Brown (D-Ohio). Earlier today, the Senate voted 62-38 to position the “China currency bill” for a final vote. Corker opposed the measure.

“There’s no question that China manipulates its currency, but I don’t believe this bill would bring any production to the U.S. or create one job here in America. This approach is a typical Washington, cut-your-nose-off-to-spite-your-face response that would prove counterproductive,” said Corker. “We’ve seen this play out before. In 1930, in a moment of populism, Congress reached for simple answers to complex problems and passed the Smoot-Hawley Tariff Act. The result was a deeper depression and a decade of increased joblessness.

“If we want to do something productive regarding China, we should focus on pushing the Chinese to end preferential procurement policies, addressing China’s disregard for intellectual property rights, encouraging the Chinese to make investments in manufacturing plants in the U.S., and ensuring that America maintains access to the 1.3 billion Chinese consumers. These are the right policy responses toward Beijing. Unfortunately the bill currently on the Senate floor does none of this, but instead would be the opening salvo in a new dynamic of hostile relations.

“To me, one of the most shocking aspects of this debate has been the Home Alone syndrome at the White House – a total lack of leadership from this administration on an issue of great international importance.”

The core of the current economic malaise is inappropriate credit allocation, both in quantity and in quality.  We need to address the issue that got us here rather than creating diversions to create more problems than we already have.

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