Why the China currency bill deserves a second look

posted at 5:26 pm on October 11, 2011 by Tina Korbe

In case you didn’t know, I really admire Sen. Jeff Sessions, Republican of Alabama. Maybe it’s because I have ties to Birmingham and Mobile. Maybe it’s because he has such a reassuring Southern accent. Maybe (and I think this is the most likely reason) it’s because, as ranking member of the Senate Budget Committee, he consistently points out the need for meaningful action on debt and deficit reduction. During the debt ceiling debate, he made it popular to count the number of days since the Senate last produced a budget. In return, I counted the list of reasons I love Jeff Sessions.

So, when I learned Sessions supports the China currency bill currently up for a vote in the Senate, it gave me pause. Sen. Sessions, standing in support of a bill many liberals demand and conservatives oppose? Here’s Scott Wong with the story:

Alabama’s partisan pit bull has turned his sharp tongue on fellow Republicans in recent days, pressuring them to back a China currency bill and taking on critics on the right who say the legislation doesn’t represent core conservative values.

Sessions has branded the head of the Club for Growth a hypocrite for sponsoring a similar China bill when he served in the House. He said he was “offended” by Republican colleagues who have dismissed the bill as protectionist given that two GOP presidential candidates — Mitt Romney and Jon Huntsman — have voiced support for slapping sanctions on countries found to be undervaluing their currency.

And he helped deal an embarrassing blow to Senate Minority Leader Mitch McConnell (R-Ky.), whipping just enough GOP support for the bill to defeat a McConnell-led filibuster and guarantee final passage in the Senate on Tuesday.

Sure, it doesn’t bolster Sessions’ conservative credibility to cite support for the bill from Romney and Huntsman — but, then again, Romney knows a thing or two about business and Huntsman knows a thing or two about China. And (just in case you forgot) this is Jeff Sessions we’re talking about. He’s a free trade advocate, such a conservative supporter of pro-growth economic policies that the Club for Growth gave him a 100 percent rating in 2008 and a 94 percent rating in 2010. Wong makes it sound as though the economic downturn and the high unemployment rate have suddenly turned Sessions soft, awakened in him some parochial protectionist tendency that’s been dormant for a bit. So, is Sessions touting this as a bring-jobs-back-to-America bill even if that means higher prices for consumers and more restrictions on trade, as Harry Reid is? Not really. According to the article, Sessions frequently cites a study that shows Alabama lost 2.2 percent of its jobs to China from 2001 to 2010. No doubt that’s some motivation to make it harder for China to export at deceptively cheap prices. But Sessions’ quotes don’t sound like he’s seeking to protect Alabaman jobs at the expense of free trade or what’s best for consumers. They sound like he just flat-out thinks it’s a violation of free trade principles for one of the trade partners to devalue its currency. And that makes sense.

But the bill, which the Senate is about to pass right now and which purports to right the trade imbalance between China and the United States and create jobs in the U.S., still doesn’t.

Let’s tackle those two one at a time. What’s the real source of China’s leverage in our trading relationship? China is the largest foreign holder of American debt, owning more than $1 trillion in U.S. treasuries. This currency bill won’t suddenly inspire China to respect us: If anything, because the Federal Reserve is also intentionally devaluing the U.S. dollar to support Obama’s failed economic policies (i.e. we’re not playing by the rules, either), the bill might spark a trade war.

And regarding American jobs? Is it true that China’s currency devaluation costs American jobs? Nope, writes The Heritage Foundation’s Derek Scissors:

[O]ver the past 20 years, U.S. unemployment has been low when the yuan is weak and high when the yuan is strong. It has been so because American, not Chinese, policies determine unemployment levels. The yuan is incidental. Congressional action to punish China for its exchange rate policy, such as that now being considered, will do nothing to create jobs in the U.S.

In other words, would it be nice if China would stop devaluing its currency? Yes. But is this currency bill an answer to the nation’s jobs crisis? Of course not. What will restore the U.S. to a position of economic prosperity are the solutions Sessions effectively touts day in and day out: meaningful action on debt and deficit reduction.


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Let’s tackle those two one at a time. What’s the real source of China’s leverage in our trading relationship? China is the largest foreign holder of American debt, owning more than $1 trillion in U.S. treasuries.

When you owe the bank $10,000, you’re in trouble.

When you owe the bank $1T, the bank is in trouble.

BobMbx on October 11, 2011 at 5:35 PM

How is China’s devaluing its currency more unfair than “quantitative easing?”

We’ve been screwing China for a while now with our monetary policy, if you can call it that.

hillbillyjim on October 11, 2011 at 5:41 PM

Contrary to popular belief, I think we have China by the short hairs. We have to ask ourselves “Do we want to continue to send money to China? This is money they use to steal our IP, finance our enemies and cheat like hell on currency exchanges” We shouldn’t be running trade deficits with our enemy….and China is our enemy.

If we cut off the negative flow of funds to China their economy will go into a tailspin and they will stop buying our debt ……. wow, when I may say it like that I am all-in.

The downside will be more expensive domestically made electronics and less lead in the toys our children play with.

I really don’t like or trust the chicoms. At the end of the day a Trade War will have a winner, a loser and a lot of collateral damage. I am not quite ready for this but I do have an open mind.

David in ATL on October 11, 2011 at 5:46 PM

Funny this post should come up, Tina. I just was listening to a Maoist and his rainbow bright friend. Hilarious. Maybe one of the best ever videos to come out of OWS.

http://themorningspew.com/2011/10/11/absolutely-hilarious-halloween-comes-early-to-occupy-wall-street-mao-man-rainbow-bright/

bloggless on October 11, 2011 at 5:52 PM

What’s the real source of China’s leverage in our trading relationship?

It isn’t that they hold US debt. That is their risk. Congress is the last place where any trade disputes should be worked out. There are plenty of other avenues (WTO etc) where these issues are best worked out. If the US has a genuine case against China for manipulation or other trade infringements they should be worked out that way. Congress will only screw things up and land the US and US businesses in trouble. I too have time for Sessions but I’m wary of populist legislation concerning what is an increasingly important market and trade partner American businesses need access to.

lexhamfox on October 11, 2011 at 5:55 PM

David, what does it even mean to “cheat on currency exchanges”?

Count to 10 on October 11, 2011 at 5:57 PM

According to Cato, Sessions doesn’t have the free trade record his reputation indicates:

The Politico story says that Sessions is “traditionally a proponent of free trade,” but his actual voting record indicates otherwise. According to the trade vote data base we maintain on the home page of the Herbert A. Stiefel Center for Trade Policy Studies at Cato, Sen. Sessions has voted in favor of lower trade barriers on a bare majority (26 out of 49) of the significant trade votes we’ve recorded.

Since 1997, Sen. Sessions has voted in favor of protectionist farm bills (2002, 2007, 2008), banning safety-certified Mexican trucks from U.S. roads (2007), country-of-origin labeling (2003), the WTO-illegal Byrd amendment (2003, 2005), the original Schumer-Graham bill to impose a 27.5 percent tariff against imports from China (2005), sugar import quotas (1999, 2000, 2001), and steel import quotas (1999)

Meanwhile, he’s voted against the Morocco free-trade agreement (2004), trade promotion authority (1998, 2002), and normal trade relations with Vietnam (2001) and China (1997, 1999).

And to top it all off, it was Sen. Sessions who single-handedly scuttled renewal last year of the Generalized System of Preferences, the long-standing program that had allowed certain imports from poor countries to enter the United States duty free. As my Cato colleague Sallie James has chronicled (here and here), the good senator refused to allow the program to be renewed because of a dispute affecting a small number of his constituents who are employed making sleeping bags.

Like too many of his fellow senators, Sen. Sessions supports our freedom to trade only as long as it does not affect any noisy special interests in his own state.

Common Sense on October 11, 2011 at 6:02 PM

Funny this post should come up, Tina. I just was listening to a Maoist and his rainbow bright friend. Hilarious. Maybe one of the best ever videos to come out of OWS.

http://themorningspew.com/2011/10/11/absolutely-hilarious-halloween-comes-early-to-occupy-wall-street-mao-man-rainbow-bright/

bloggless on October 11, 2011 at 5:52 PM

Lordy. How did we lose the 2008 election to these people?

Wait….I remember….it was some dude named John or something…..

BobMbx on October 11, 2011 at 6:02 PM

When will a pic of Obama be on all our currency?

Out: In God We Trust

In: We Love You Obama!

faraway on October 11, 2011 at 6:03 PM

When will a pic of Obama be on all our currency?

Instead of the paper representing a value, and good for paying all debts, the Obama Bills will carry a negative value, meaning the holder of the bill owes the Treasury.

“That’ll be $15.00, please”

“Oh, I only have $5.00″

“Thats ok. I’ll give you a -$10.00 Obama bill….Thanks for shopping at Obama-Mart!”

BobMbx on October 11, 2011 at 6:13 PM

The whole point of quantitative easing is the monetary war with China. The “slop” in what they value their currency at, vs what ours is valued at, lets them build their military et al…..so a little yanking of the chain is in order. They keep shooting off their mouths (if you remember a month ago, China was offering to lend England money in exchange for a direct transfer of whatever technology the Chinese wanted – which is pretty funny because they are just lending England the money they stole from England through currency manipulation) so there should be an artificial “tariff” of some sort that gives them enough capital to keep their population from rioting, yet not enough to build their military…
This doesn’t have a damn thing to do with “free” markets or “free trade”….quite the opposite………….but if it goes through, I’d be selling my Walmart stock. As far as a “trade war”….bring it….our prices may go up but so will the number of our jobs..As their unemployment goes up, they will have to spend more suppressing those people, less to spend on their military……
Sen Sessions is alright in my book….

colonelkurtz on October 11, 2011 at 6:16 PM

Heckuva idea BobMbx…
You’ll make a killing selling those thing!!! Print up a bunch of fake money with Obama’s Picture on the front and the denominations are all negative…a $-20, $-50, on the back, instead of saying “In God we Trust” it can say “We are who we were waiting for….but can you lend me a fiver?”

Dead serious about this…call them “Obama Buck – They keep going”…cause we know the buck doesn’t stop with Obama

colonelkurtz on October 11, 2011 at 6:28 PM

This bill is an otherwise meaningless opportunity for politicians to posture as “tough guys” with a tiny upside and a potentially catastrophic downside. Easy choice.

Hucklebuck on October 11, 2011 at 6:43 PM

How is China’s devaluing its currency more unfair than “quantitative easing?”

We’ve been screwing China for a while now with our monetary policy, if you can call it that.

hillbillyjim on October 11, 2011 at 5:41 PM

Exactly. We are inflating our currency and screwing China and every other holder of our debt.

slickwillie2001 on October 11, 2011 at 7:09 PM

When you have “free trade” which does not include also equalizing labor laws and environmental laws then of course there will be an imbalance or outflow of jobs and money from one country to the other. Complicated analysis and complaints about how much of one currency is traded for another is really meaningless. To fix it you lower the barriers to industry domestically or else revert to tariffs against whoever you morally judge to be producing goods not according to humane or environmental standards.

Resolute on October 11, 2011 at 7:09 PM

When will a pic of Obama be on all our currency?

Out: In God We Trust

In: We Love You Obama!

faraway on October 11, 2011 at 6:03 PM

It’ll have to be AA currency, its value depends on the race and sex of who is holding it.

But really, his picture should be on food stamps, since he considers growth in food stamp use a great accomplishment.

slickwillie2001 on October 11, 2011 at 7:11 PM

The US doesn’t need China. They need the US. We are their customer. Why we continue to prop up a militant communist dictatorship with US trade is beyond reason. The little bit of savings we enjoy from buying cheaper Chinese junk, is more than wiped out by all the wealth we lose by transferring jobs that could be here instead. Free trade is fine if it works both ways, but it doesn’t. They ship their products to us, and we ship them our wealth in return. Not much of a symbiotic relationship. More like a junkie and his dealer.

keep the change on October 11, 2011 at 7:18 PM

I haven’t been following this bill so can’t speak to the particulars but I do respect Sessions and share some of his concerns about China so am inclined to trust his judgment.

FloatingRock on October 11, 2011 at 7:35 PM

I would like to see a national sales tax implemented. Then we could use that revenue to reduce corporate taxes, so that our companies can compete with China. That way all the chinese products will be taxed, and reduce the incentive for companies to move out.

Salukidog on October 11, 2011 at 8:04 PM

Waste of effort.

If you want to hurt China this bill will do it, but at a cost to us.

If you want to help America, this bill will not do it.

China is creating as many problems for itself as advantages with the deliberate devaluation of the yuan.

Best tactic is to ignore China and focus on our strengths and bettering ourselves.

Cut regulations, cut spending, intimidate the Federal Reserve into supporting a stable money supply instead of an inflationary one. Get out of debt.

Those are the goals that Republicans should fight for. Don’t try and defend China for is currency games, just point out that it’s better to ignore the cheater and win, then it is to confront the cheater and lose.

Sackett on October 11, 2011 at 8:47 PM

Sackett,
when you, your son or daughter has to fight china or one of its proxies or an enemy of the US emboldened or supported by the chinese, then you will understand that the things you ignore come back to bite you in the ass. This ain’t no western, this is reality and it matters not a whit about the US economy today, it’s about arming an enemy because you wanted to ignore cheaters……and you’re right, it isn’t good for them either but until they realize they have to create their own middle class consumers and support the small businesses in china (which makes their communism pointless) they are someone to be controlled and watched, not ignored….

colonelkurtz on October 11, 2011 at 10:42 PM

I don’t like trading with Red China but this is bloody dangerous, especially now.

AshleyTKing on October 11, 2011 at 11:25 PM

and you’re right, it isn’t good for them either but until they realize they have to create their own middle class consumers and support the small businesses in china (which makes their communism pointless) they are someone to be controlled and watched, not ignored….

colonelkurtz on October 11, 2011 at 10:42 PM

The middle class is growing rapidly in China and small private businesses are everywhere. Come take a look.

DarkCurrent on October 12, 2011 at 2:40 AM