The U.S. Senate China Currency Bill: Tired Political Theater

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I’ve been putting off a post on the topic of the current U.S. Senate bill that would punish China for the value of the RMB. I’ve been writing about this topic for at least eight years, so I’m reluctant to drag out all the old econ, trade and politics issues. That would make for a very long post.

I’ll probably have more comments later, but for now, let me just throw out a general opinion/prediction: this whole thing is political theater. The Senate bill might be successful, but the House will probably not reciprocate. Moreover, Obama desperately wants this to go away. He doesn’t need the additional tension with China, particularly on a populist issue that will no doubt resonate with the public during the upcoming election cycle.

Even if something passed Congress, and if Obama signed it, would the government then actually do anything of consequence? I doubt it, although some of that depends on the specific language of final legislation. I suspect that neither Obama nor the House wouldn’t get anywhere near it unless it contained significant loopholes, allowing for easy non-enforcement.

As you read all these breathless news stories about a “trade war” and peruse reports of the emphatic denunciations by PRC government officials, take it all with a grain of salt. Call me cynical, but I doubt that more than 2% of the politicos in D.C. actually want a strong law to come out of this process.

You know what they really care about? Looking “tough” against China when they go back to their constituents at home and ask for support in the next election. The best outcome for the supporters of this bill is the passage of a tough sounding, yet toothless, law. Public is happy (votes) and so is the Chamber of Commerce and industry (money).

You really think that the supporters of folks like Chuck Schumer (Senator from New York) will be happy about trade friction with China? Schumer has been talking up this issue for many years now, so if anyone is a true believer, you could argue that he’s a good candidate for that label. But he also gets plenty of campaign cash from the financial services guys, who wouldn’t be too thrilled by a downturn in US-China relations.

Stay tuned.

Update: Talk about staying tuned. This didn’t take long:

Speaker of the House John Boehner called the Senate bill to force the Yuan to rise against the dollar “beyond” what Congress should be doing.

This isn’t definitive, but it certainly does suggest that the House is not going to follow the Senate on this one.

4 responses on “The U.S. Senate China Currency Bill: Tired Political Theater

  1. Kevin

    This whole charade has made us look so ridiculous and makes me (somehow even further) question the ability of the US govt to function in a globally responsible capacity. The bill (unbelievably backed by over 200 House members) reeks of unsophisticated, uneducated, under-informed nitwits. They sound like a middle school detention session full of ADD kids starved for medication. Unreal. Appreciate your comments.

  2. Andeli

    I think the lesson to be learned here is not that US senate or Congress puts on a political theater (I guess they do that everyday), but that China and trade has become domestic US political issues.

    The image of China as a unfair player on the world economical stage grows stronger and this latest show by Congress is just another proof of that. I don´t think a law will pass the first time around, but step by step trade restrictions will start to show.
    I think many of China’s trade partners are just waiting and looking for that smoking gun, which can set off a full scale trade war.

    I think this more then anything else should tell the Chinese government to speed up its reforms and try to balance its economy faster. These are desperate times as they say.

  3. Justin Liu

    “Call me cynical, but I doubt that more than 2% of the politicos in D.C. actually want a strong law to come out of this process.”

    Could be true but the funny thing is though no one seriously wants it nobody wants to stand in front of this thing to stop it.

    Senate vote today or tomorrow and Schumer or someone said “a strong vote” will prompt the house to take up the debate. I’m kind of confused on this part, because from I remember of middleschool civics class, it was the house that introduces legislation and the senate that gets it after it passes the house.

    1. Stan Post author

      I have a vague recollection about legislation that involves revenue having to start in the House. But it’s been 25 years since I studied that, so . . .