Monday, October 3, 2011

Senate contemplates taking first step to start a trade war with China

By Adam Bitely
Some Republicans and Democrats in the Senate have found something they can agree on. And that is rattling sabers to start a trade war with China.

S. 1619, the Currency Exchange Rate Oversight Reform Act, is aimed to hit the Senate floor today. The legislation would seek to punish China and other economies that manipulate their currency by placing tariffs on their goods.

While the intended effect will be to punish foreign governments that implement inflationary policies that are designed to reduce the cost of their exports — strange thing to object to since the U.S. government is guilty of doing this as well — the outcome of punishing foreign economies for following the lead of the U.S. will only result in harm for the U.S. economy and U.S. consumers.

The Club for Growth has “key voted” this legislation, urging politicians to vote “no” stating that, “This proposal would make it easier for the government to slap punitive tariffs on ‘nonmarket’ economies - in particular China - if an exporting country's currency is considered misaligned against the U.S. dollar. This is a disastrous proposal that would increase taxes on American consumers, stall the economic recovery, and spark an ugly trade war that would benefit no one.”

When the tariff is imposed against a foreign economy, the result will be that prices on goods will rise in the nation imposing the tariff. Simply put, if Congress approves this legislation, and the President signs it, the U.S. would be legislating that they will harm their own consumers because China harmed Chinese consumers by devaluing their own currency.
Sounds absurd, right?

Get full story here.

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